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UPDATED: The GM/UAW VEBA: 80 years or 80 days?

UPDATE: GM CEO AND CFO SUGGEST VEBA MAY BE KILLED OFF.

GM and the UAW secured a controversial contract victory earlier this yearb based in large part on a promise to rank and file auto workers and retirees that their health care benefits would be secure for 80 years under a new entity called a Voluntary Employee Beneficiary Association, or a VEBA.
In a VEBA the employer agrees to put in sufficient assets, in cash and securities, to finance health care benefits for retirees. The liabilities associated with health care obligations are no longer on the books of the employer but stand in a separate trust managed by independent trustees who owe retirees a fiduciary duty. In the case of the GM/UAW VEBA, the trust is to be established by the UAW itself which will appoint its board of trustees.
But GM’s financial woes, including the announcement recently of a loss of more than $15 billion in the second quarter, will no doubt cause many UAW members and retirees to wonder if the VEBA will last 80 days much less 80 years.
Now Bloomberg is reporting that both the GM CFO and CEO have told Wall Street that the financial condition of GM is so dire that the VEBA itself may have to be reconsidered. So much for the assurances of the UAW leadership during the recent contract talks.
Technically the VEBA comes into existence after a federal court certifies that the new entity is in the interests of retired UAW members who are not able to influence or vote on actual contract terms as are working UAW members.  That court process is in its final stages. The court process has in and of itself been controversial because it is believed by many that the retiree plaintiffs are hand picked by the UAW itself and thus may not argue for retiree rights aggressively.
The GM and the UAW agreed that the company could stage its payments owed to the VEBA over several years. And now to bolster GM’s financial picture, the UAW agreed to a delay in the payment of $1.7 billion owed the VEBA, in essence loaning that amount back to GM. The UAW will, in theory, accrue interest payments on that loan.
But GM owes another $4.0 billion payment in 2010 and a third payment of $4.4 billion in 2012. No assurance has been given that those payments will in fact be made on time or at all. No doubt, the thousands of GM workers who were lured into early retirement after hearing the 80 year promise by UAW President Gettelfinger will be nervous that Gettelfinger was singing them a song.

GM Swings to $15.5 Billion Loss Amid Write-Downs, Sales Slump – WSJ.com

UPDATED – China Fakes Ethnic Children! China’s abuse of Olympics Rules shows true colors

See link below to update on fake ethnic children.


While most of the abuse and manipulation of children in China occurs in the sweatshops that some in the west celebrate for their impact on poverty reduction, the Chinese communist regime’s abuse of Chinese gymnasts is shining an important light on the lack of respect for basic international rules by the Chinese government.

It turns out that China’s own press had reported that one of the gold medal winning gymnasts was under age. But the website has now been changed to eliminate any trace of that reporting. It is, of course, worth noting that this report comes to us via Yahoo! which itself has been complicit in providing confidential information about dissidents to the Chinese regime.

Put that together with the growing list of other abuses by the regime and a true picture of the ghastly disrespect of this state for the rule of law becomes clear: manhandling of a British television journalist covering a Students for Free Tibet protest, the suppression of several such pro-Tibetan autonomy protests, the use of a lip synching replacement for the singer of the key song at the opening ceremonies, fake ethnic children (!), the digital manipulation of fireworks at the opening ceremonies, the refusal to allow ordinary Chinese workers to attend the games for free when thousands of seats at many events remain empty…the list goes on and on.

No wonder some are calling these the Olympic Shame Games.

State-media story fuels questions on gymnast’s age – Olympics – Yahoo! Sports

Nobel Voice of the Gulag Solzhenitsyn dies aged 89

Certainly one of the most moving portraits of the plight of workers in the former Soviet Union is found in Solzhenitsyn’s One Day in the Life of Ivan Denisovich.  
I do not think it miminizes that work to suggest that one reason it is so moving is that it has its echoes in the plight of millions of workers in today’s labor camps and sweatshops around the world, whether in the Los Angeles garment industry or the textile mills of China. 
As in once-stalinist Russia, these workers toil without enforceable legal rights or trade unions to protect them. The world economy benefits from the cheap labor, but at what cost?

Nobel prize winner Alexander Solzhenitsyn dies aged 89|
guardian.co.uk

The $20 billion dollar game

While the labor situation in Hollywood has focused everyone’s attention on the future new media environment, when it comes to cold hard cash, packaged media still rules the roost.
Here is a summary of some recent numbers:

“U.S. [c]onsumer spending on DVDs and Blu-ray in the first six months of the year for purchases and rentals was up 1.6 per cent from spending in the first half of 2007, according to Home Media Magazine’s market research department. The first half of 2008 tally: $10.77 billion U.S., compared with $10.6 billion U.S. a year ago.


“Spending on disc purchases rose 1.1 per cent, to $6.87 billion U.S. from $6.8 billion U.S.. Rental spending rose 2.6 per cent to $3.9 billion U.S. from $3.8 billion U.S., according to the trade publication.”
While it has become customary to assume that digital downloading will easily replace packaged media many analysts point out that most consumers have more time than technological savvy and so continue to choose packaged media, especially as the experience becomes stronger with Blu-Ray and HD.
Here is how one analyst put it:
“Most [Wall Street] analysts are techno-geeks with plenty of money and not much time, while most Americans are not technically savvy, and they have plenty of time but not much money,” said Adams, president of Adams Media Research.
“The fact is, despite what many on Wall Street seem to think, there is very little digital downloading going on. We’re talking about $118 million (U.S.) in 2007 spending, and about $254 million (U.S.) this year – so against a $24 billion (U.S.) packaged media market it’s really not making much of a dent at this point.”
So packaged media continues to outpace digital downloading by a factor of 100!
Concern about unionizing the new media environment is certainly understandable but the decision of the Guilds to drop the demand for a restructuring of DVD revenue sharing meant that the lion’s share of the digital world was off the table in this year’s bargaining.

Man Bites Dog: UAW Finances GM Rescue Package


Last fall when the Big Three auto companies were in the middle of tough contract negotiations I published several research notes on the joint GM/UAW proposed solution to their health care problems.

The proposal agreed to led to a new off balance sheet vehicle controlled by the UAW itself to pay future retiree benefits.  GM agreed to transfer billions in assets to the new Voluntary Employee Beneficiary Association, or VEBA, and the UAW would appoint a board of trustees to manage the entity.
At the time I flagged two related concerns:
1) the UAW’s contract ratification process failed to inform union members of the risks associated with the new entity, thus potentially violating both federal labor law and securities law; and
2) the shaky financial structure that GM put in place to fund the VEBA was, I argued, a house of cards.
This week those cards began to tumble.
The UAW leadership sold the new collective bargaining agreement with GM, over fierce rank and file opposition, on the basis of an assertion that the VEBA would secure health care for retirees for 80 years.  
And now, only a few months later, it appears GM is not even good for its promised initial cash transfers to the VEBA!
Yesterday, GM announced a massive multi-billion dollar cost cutting restructuring effort that includes a commitment by the UAW to allow GM to delay a $1.7 billion cash payment GM now owes the VEBA. That is a loan to GM and, assuming GM has the money, it carries a 9% interest rate.
In essence, that means the UAW is now helping to finance deeply troubled GM.  There has been no explanation how the decision was made since it is not even clear that an independent board of trustees to run the VEBA has yet been appointed.
Legally the VEBA owes its beneficiaries a fiduciary duty to defend their long term interests. That means that any decision about how to invest fund assets should be made at arms length. 
Hence, the operative question is: if the VEBA wants to invest in the debt of another entity to the tune of $1.7 billion they must consider all the possible alternatives. 
It is not clear to me that it makes sense at all for the VEBA to be lending anyone $1.7 billion, much less General Motors.

GM/UAW VEBA: A House of Cards

The illusion of "constructive engagement"


As I found out while participating in a recent panel on labor rights in China, there are many seemingly well-intentioned liberals out there who still think that China will progress smoothly towards a democratic future. Thus, they argue for example, that it is time for American unions to “engage” with what they argue are also unions in China but what are, in fact, arms of the Chinese state.

Most such liberals are not Chinese.  
This new book by former Washington Post China correspondent Philip Pan argues, as I have, that a new form of “authoritarian capitalism” is taking hold there and that absent tremendous pressure from the general population it will not change.  
Today’s review in the New York Times noted:
By embracing market economics while preserving the party’s monopoly on power and restricting political freedom, Mr. Pan writes, China’s Communist leaders have concocted an “authoritarian capitalism” that “could be as exploitative as anything Marx — or Mao — ever envisioned.” Free markets and private enterprise, he says, “generated wealth and prosperity, but unrestrained by democratic institutions, they also produced grim work conditions”: without trade unions, a free press, independent courts or elections, workers have little leverage with their employers and no way to remove corrupt officials, who often collude with business interests.


Dispatches From Capitalist China in ‘Out of Mao’s Shadow’ by Philip P. Pan – NYTimes.com

Socialization of Risk – US steps in to help Fannie and Freddie

Thirty years of neo-liberal attack on the statist reforms of the New Deal took a serious detour today as the Federal government stepped in to bolster the troubled government sponsored enterprises, Fannie Mae and Freddie Mac.  
These giant financial institutions had always benefitted in the financial markets from an implicit government guarantee that they were “too big to fail.”  While efforts to cut the umbilical cord between them and the U.S. government had been attempted today the pendulum swung firmly in the opposite direction (yes, a mixed metaphor).  
The Federal Reserve opened up its doors to allow the two institutions to borrow from it and the U.S. Treasury said it reserved the option to invest cash for an equity stake.
Some republican and conservative defenders of the neo-liberal counter revolution may try to excuse the behavior as analogous to the police powers that the government must exercise in cases of genuine public danger.  But that case may be hard to sustain depending on how deeply involved the government now becomes.
The problem is that the massive multi-trillion dollar explosion in finance capital over the last several decades depends fundamentally on the returns generated in a now global and rapidly changing economy. No one can safely predict if or when any money invested by the government will be returned. In the meantime, in essence, the American taxpayer is being asked to go ever deeper into debt to rescue an anarchic global capitalist system. Of course, as someone who is trying to sell a house, maybe this is the bottom!

Treasury Takes Steps to Bolster Fannie Mae, Freddie Mac – washingtonpost.com

Buying a house on fire…..

This interview of Jamie Dimon, head of JPMorganChase, on tonight’s Charlie Rose Show is well worth listening to. It took place last week at the Aspen Institute’s Ideas Festival. I always like listening in on these events as I spent almost every summer in Aspen growing up including a stint at the Institute as a teenaged participant in a seminar there led by Bill and Judith Moyers.
Dimon comes across as straightforward and honest and, of course, hard nosed about the rumored short pressure on Bear Stearns on Wall Street. He describes the massive effort it took to get the takeover of the flailing Bear in some detail. As he said, buying a house and buying a house on fire are two very different exercises.
He does struggle with the question of regulation.  Clearly there is something very wrong at the heart of the global financial system. Dimon seems to argue that it is just another downturn that is typical in the volatile system of finance capital.  
If true, then a light touch would be called for.  But arguably there is something deeper at work – a disconnect between the pace of globalization and technological change, on the one hand, and the managerial control of those processes by the institutions of finance capital.  
If I am right, and Dimon is wrong, then the house is still on fire.

A conversation with Jamie Dimon – Charlie Rose