Chrysler– Bankruptcy by Fiat
Through coercion and fiat His Royal Highness (HRH) Obama has forced the senior-secured lenders to take a secondary position to unsecured lenders in the “pre-packaged” Chrysler-FIAT bankruptcy plan. President Obama characterized the 20 or so lenders who were opposed to the plan as “a small group of speculators”. His left wing “nut job” ally Representative Dingell characterized them as “vultures” and warned that they “will be dealt with in court”. Their crime one can only assume is being moneylenders, but they are not the ones on trial.
Until this week senior secured lenders, those that held a contract that gave them first lien on a companies assets, had a preferential position in any bankruptcy proceeding unless of course they “voluntarily” give up that right. HRH Obama has by simple royal fiat eliminated this centuries old legal right. He has also managed to payoff his political supports, the UAW, by royal decree with a majority, 55%, stake in the new Chrysler-FIAT consortium.
In bankruptcy court it requires two-thirds of the creditors to agree to accept Obama’s offer of $.32 on the $1.00 to permit the court to bind the dissenting creditors. HRH Obama put the gun to the head of the four major creditors - JP Morgan Chase, Morgan Stanley, Citibank and Goldman Sacks, who together hold about 70% of Chrysler debt to set the stage for a hoped for rubber stamp from the bankruptcy court in New York.
The Obama coronation may be a bit premature as courts have an uncanny way of upholding the rights of minorities. The problem HRH Obama faces is that the Bankruptcy Code requires that the votes of the creditors be given in “good faith”. The “vultures” as Mr. Dingell calls them may well point out that these large banks that have accepted huge infusions of government money are in no position to refuse a demand from their overseers and vote against the kings wishes. The king and his court have made it clear that refusal to follow their directives could lead to the dismissal of recalcitrant senior bank executives. And just to show he means business, HRH Obama reminded those bank executives of his track record of disposing of Mr. Wagoner, the former head of GM, for similar offenses.
The “vultures” may also point out to the Court that they have a fiduciary responsibility to protect the teachers, pensioners and retirees whose money they are managing. Courts are often more sympathetic to the rights of “widows and orphans” than kings.
This will not be a fast and easy bankruptcy. Its resolution may well determine if we remain a nation of laws or become a nation of kingly men.
Don’t be so hard on HRH Obama. The only alternative to the 32 cent solution may have been liquidating the company, which would have put about 80,000 workers out of a job and threatened the suppliers in the supply chain serving Chrysler as well as Ford and GM.
Imagine a chain reaction throwing 150,000 out of work. And it’s all avoidable — demand will revive sooner or later.
Obama is like the little dutch boy with his finger in the dike. He just wants to stop the flood of cross-defaults and bankruptcies that would result from kicking Chrysler off the cliff. But he can’t take his finger out now, he’s stuck.
JPM, C, GS, and MS all made out like bandits on the credit default swap payouts from AIG. They got 100% — paid for by you and me. So they can afford to take a hit on the Chrysler debt.
May 1st, 2009 at 10:21 am
@ Robert,
I agree AIG was only a conduit to funnel money into JPM, C, GS, and MS on what may have been unenforceable wager contracts (CDS). But that is only another example of government playing the role of king and deciding who will live and who will die.
That does not justify putting the senior debt of hedge funds (who manage other peoples pensions) behind unsecured lenders including the Treasury and UAW. If the treasury and UAW took the greater legitimate hit no one would have lost their job.
May 1st, 2009 at 12:05 pm
Brilliant plan by HRH. Pair up floundering Chrysler with the weak sister of the European auto industry that has no dealerships or infrastructure of any kind in the U.S. Even French car maker Peugeot has more international popularity. The ironic part is that the evil hedge funds HRH took to task handle a lot of teacher’s union retirement fund money. Good going “O’!
May 1st, 2009 at 1:34 pm
Robert: This is about contracts and the Rule of Law. While I understand that the Left believes government to be Supreme, it is not. Government coercion in order to pay back a supporter is unacceptable. My understanding in both the GM and Chrysler cases is the Government is picking up the tab for legacy costs. Why was it necessary to turn the companies over to the UAW before doing that? Or was it to ensure the company would stay in the hands of the UAW? Sounds to me like, “Workers of the World, Unite!”
Last, would you be OK with Bush summarily canceling contracts?
May 2nd, 2009 at 4:56 am
I was of the opinion to let all those who lived by the gun die by the gun so to speack, all corporations have the face the consequences of bad business decisions, especially when theses bad decisions are an accumulation of years of bad decisions. A simple bankrupcy is in order in theses cases, just the application of the laws of business.
To artificially save an entity by taking from one (all of us the public) to give to another, (the individual corporation and its workers and managers) is, in this context, a shame.
Why on hearth should jo blow down the street who cannot even make a minimum wage pay the fat cats workers, managers and shareholders who have made this bad compagny?
The public will be better served to keep it’s money or what it’s left of it, for itself. And such avoid putting itself in bankrupcy for the evident and continuing mistakes and inqualifiable actes of those who have made a great life at the now expenses of jo blow, the public.
And do not tell me that it is saving so many thousands of jobs because in fact others, better oganised or less greedy will be making cars and will employ those who may lose their job , temporairely in case of bankrupcy.
If we had done this in the past we would still be using sail boats and not motor boats…
To resume the whole, let them crash, they will get better out of it and we will not spend years and more to continue the destruction, in fact we will be building and rebuilding.
This is especialy bad because we do not even have the money to spend we have to barrow it from others and we will pay doubly fist by continuing the bad decisions and paying the interest for years and maybe decenies to come, suchlike agravating and compounding the mistakes.
They call it cut your losses, this is what we should do,and certainley not agravating them by writing checks to thoses who have created this situation to start with.
To their defense we have to say: how can they compete with a competitor who is paying employes 1/10 of them and is able to sell to your client base, created by many years , or century of culture, education and sacrifices; while you they restricted with not help from their own goverment to sell or at least try to sell to their market….?
This may also explain why this bail out should not be done since because of it, the others will continue acting as they have done and the disadvantages of the us compagnies will be perpetuated and agravated.
Too bad they do not do what is obvious, but who am i to tell, i am just the one who work and pay, work and pay, work and pay …until i will not be able to work and pay, but before that i should try to find a job at the goverment… then i will not need to work and pay everybody know how much the goverment people work and pay…
Good luck america …
June 4th, 2009 at 8:44 pm
Mr Robert,
you are missing one simple concept that seems to have been missed here. If the govt can and does dismiss what protections exist, agreed to in contract to be provided to the investors. Why would I or any other investor buy into the us market but rather invest my money in “safer” markets overseas where such protections which are agreed on as a part of the contract still exist and can be relied on.
Where will us companies go to for investment capital once this sinks in and the predictable response occurs?
June 15th, 2009 at 4:43 am
Describing President Obama as HRH is disrespectful to all of the Nobility in the world. He is more akin to being a tyrant or dictator. I would go with the later. I think that he is modeling himself after Hugo Chavez, especially with his molding during his formative years in college. His self professed mentors that were socialists is self evident, and seems to be coming to fruition in his policies.
I will not invest in any companies that have the slightest possibility of being seized by the new illegal government. The rule of law seems to have been subverted.
We were a nation of laws.
June 19th, 2009 at 10:04 am