Guest Post: The case of the dissident Chrysler bondholders

Submitted by Edward Harrison of the site Credit Writedowns

Yesterday, I posted a video in which two auto experts argued that the dissident creditors were getting a raw deal (See “A discussion about Chrysler’s bankruptcy plan on Charlie Rose“). The crux of the problem is their belief that they were being railroaded into a deal in which they, as secured creditors, would receive less than unsecured creditors, that they would also receive less than in a liquidation, and that the government was using extortionate strong-arm tactics to make this happen. Tyler Durden has written a few posts about this (See “Guest Post: The White House Threatened To Destroy Perella Weinberg’s Reputation“)

I don’t believe that these bondholders are going to get their way and there is good precedence for this in section 363 of the bankruptcy code from the case of Adelphia Communications.

Witness this article from the Am Law Daily:

Thomas Lauria, head of the restructuring practice at White & Case, is in a tough spot: the lead lawyer for the group of holdout lenders that the Obama administration is blaming for pushing Chrysler into Chapter 11.

The group, as you know by now, refused to take 33 cents on the dollar for the approximately $1 billion in Chrysler debt they hold. The four biggest bank lenders to Chrysler–all recipients of federal bailout money–took that deal, drawing praise from Obama for their decision.

Now Lauria is vowing to fight. Specifically, he says the holdout lenders will challenge the planned sale of Chrysler’s prime assets to a new company controlled by the auto workers union and Fiat, according to Reuters. The lenders say the sale is an “end run” around established bankruptcy law that gives secured lenders priority over junior lenders (including the union) when it comes to getting repaid.

Lauria has been here before. In the contentious Adelphia Communications bankruptcy, Lauria led a group of creditors that filed late motions calling for a special trustee to investigate whether each group of note holders was getting what they deserved, according to this 2006 story from the New York Law Journal. A judge dismissed his motion, calling it a “nuclear war button” that threatened to disrupt the planned sale of Adelphia’s prime assets to Time Warner and Comcast for nearly $18 billion.

This is the exact strategy University of Chicago law professor Douglas Baird predicted the holdout lenders would use when we interviewed him yesterday. As Baird noted, creditors have the right to challenge any bankruptcy reorganization plan that ends with them receiving less than they would have had the company been liquidated. The holdout lenders believe that to be the case here, Baird told us. But section 363 of the U.S. bankruptcy code allows for Chapter 11 debtors to sell assets before creditors can challenge the general reorganization plan.

That means Lauria’s only option is to object to the sale, Baird told us.

Lauria did not respond to a message seeking comment; he’s likely tied up at a massive hearing in federal bankruptcy court in Manhattan today.

On the other end of the lender spectrum is Simpson, Thacher & Bartlett, which is advising JPMorgan Chase, the lead lender to Chrysler. Peter Pantaleo, head of Simpson’s bankruptcy practice, is representing JPMorgan. He declined to comment.

So will Lauria’s plan work, or will only serve to delay Chrysler’s emergence from bankruptcy? Steven Gross, co-chair of the restructuring practice at Debevoise & Plimpton, told our colleague Brian Baxter he’s anxious to see the group’s motion objecting to the sale. But Gross says the press release the lenders put out Thursday was “not very compelling,” and that the chips may be stacked against their objection to the Fiat sale.

“People are saying this is just the government bullying people,” Gross says. “But there is still a statute, and if there are grounds to derail [the sale], you can be sure [the non-TARP lenders] will use it, although in bankruptcy if you get some many constituents to support something, that can be very hard.”

As always, stay tuned.

In essence, section 363 gives the bankrupt entity, in this case, Chrysler, the right to sell assets to another organization, in this case Fiat, BEFORE creditors can challenge the Chapter 11 reorganization plan. This significantly reduces the collateral against which secured creditors can make claims in bankruptcy.

The long and short is this:

  • Secured creditors might have gotten more in liquidation than they were being offered before Chrysler filed for bankruptcy.
  • However, because of section 363 of the bankruptcy code, Chrysler can sell substantially all of its assets to Fiat without creditor approval and before it has a definitive reorganization plan
  • This leaves the secured lenders out of luck. They could end up with less money than had they accepted the deal offered them earlier.
Print Friendly
Tweet about this on TwitterDigg thisShare on Reddit0Share on StumbleUpon0Share on Facebook0Share on LinkedIn0Share on Google+0Buffer this pageEmail this to someone
This entry was posted in Hedge funds on by .

About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward http://www.creditwritedowns.com

30 comments

  1. bobo bobo

    Edward,

    Starting in the late 1990’s, managements of debtors started using 363 sales to try to end run creditor’s protections to confirm a plan. The goal is to get a friendly bidder to make a low ball offer and reduce the pay out to creditors. 363 sales evolved because of conflicts of interest among advisors, competition by courts for big cases, and self-dealing by insiders. Studies have shown that 363 sales result in half the payout to creditors that they get if they company is restructured and given to them.

    Hopefully, either Congress or the courts will shut down 363 sales, and carve them back to being a way to monetize a portion of assets to facilitate a restructuring, but not an end run around a restructuring. That is corrupt.

  2. Aiden

    I would think that the secured creditor objection to the 363 sale would be pretty strong. I am not a lawyer, but I beleive that “defacto reorganizations” done through the 363 process are not legal. This avoids the things that bobo bobo above is talking about.

    This chrysler deal looks like a defacto reorganization to me, with the old co and the new co being pretty much the same entity (but with some financing) and no outside bidder.

    From what I can recall, the Adelphia deal was more like a straight off asset sale, because private bidders were involved. It was also different, because the BK was caused largely by accounting fraud, which destroyed value for everyone involved.

  3. DownSouth

    So let me get this straight, bobo bobo. If the law favors the masters of the universe, then we get a law book waved in our face and are lectured that the law is “sacrosanct” and inviolate (along with a pretty stout dose of pompous, self-righteous piety). But if the law favors other parties, then it’s “corrupt” and should be “shut down” by Congress or the courts.

    That gives a crystal clear picture of what Wall Street’s idea of justice looks like.

  4. SunnyD

    There are two issues at stake;

    The first issue is whether the secured creditors would get more in a re-org vs a liquidation. OK, section 363 provides a loophole for this.

    The second issue is the absolute priority rule, that creditors senior in class must be paid off in full before junior creditors get a single penny.

  5. bobo bobo

    downsouth: So let me get this straight, bobo bobo. If the law favors the masters of the universe, then we get a law book waved in our face and are lectured that the law is “sacrosanct” and inviolate (along with a pretty stout dose of pompous, self-righteous piety). But if the law favors other parties, then it’s “corrupt” and should be “shut down” by Congress or the courts.

    —–

    The hedgies aren’t the lenders. Their clients — non-auto pension funds, colleges, charities, and some rich people (but mainly not) — are the owners of the funds. Obama is proposing to screw police and firefighter retirees to help auto worker retirees.

    And I don’t support the banks. The FDIC should treat any that can’t borrow and raise capital without government support as insolvent, and recapitalize them by converting bondholders, preferred, and if necessary, counterparties, into common equity. And DOJ should break the big banks into ones small enough to fail using antitrust law.

    There is law on the books to deal with the big banks. The regulators just refuse to use it, partly because Congress doesn’t want them to.

    Regarding the 363 loophole, there are strong arguments that it is illegal, if the buyer takes the debtor’s business, rather than just a peice to reorganize the rest.

  6. DownSouth

    bobo bobo,

    I have no doubt that some pension funds, colleges or charities may have been lured into investing with hedge funds. But other than hedge funds’ abilities to “capture” regulators and have undue influence over politicians, I don’t see what value they bring to the table. The fact that they were rebuffed in this negotiation is a hopeful sign that perhaps some of their inordinate political power will now be brought under control.

    Hedge funds appear to be no different than the class that developed in Russia that depended for its power not upon economic stength but upon its ability to manipulate the processes of the state. The most common rationale such a class uses to justify its inordinate privileges is to assume that its privileges are the just payments with which society rewards specially useful or meritorious functions. As long as society regards special rewards for important services as ethically just and socially necessary, it is always possible for social privilege to justify itself, at least in its own eyes, in terms of the social function which it renders.

    I think this entire incident pulls back the curtain on hedge funds. Hopefully the days of them playing in a game rigged in their favor are numbered. The attitude of those pensions, colleges and charities towards them should be: “If you can’t control regulators and politicians, what good are you?” The attitude of the general public should be: “Good riddance!”

  7. Edward

    Only problem I see, They are not selling anything to Fiat?

    No money is changing hands

    Ed

  8. tanq_tonic

    DownSouth said:
    “Hedge funds appear to be no different than the class that developed in Russia that depended for its power not upon economic stength but upon its ability to manipulate the processes of the state.”

    I don’t think I have ever heard of financial priority rules being equated to a social class oppression mechanism….

    If the UAW had backing to lay claim in a superior position to the bondholders, then the monetary flows should be to the UAW pension.

    If Donald Duck had backing to lay claim in a superior position to the bondholders, then the monetary flows should be to the Donanld Duck.

    The flows of which claims get precedence should be blind to the social class of the flowee.

    You apparently think that the hedgies claims should be overcome by the UAW and the pension; the only basis for your feeeling is the “social class” of those involved…..

    I can see that you really don’t seem to really care about the “blind” administration of justice, but seemingly only wish for “ends-based” results. Do you really think that such “subjective” ideals will really help gain back that trust that the holders of capital need to place that capital back into the markets?

    First of all, from first hand experience I know of a honkload of capital that exited the market due to worries about financial instability. These entities are just beginning to even think about re-entrance into the market.

    Introducing an ideal that essentially states that “(insert your favorite group name)’s capital is subject to being deprioritized in favor of (insert another group name) simply because we think that it is just” is going to help that capital come back into the market?]

    I know it makes you feel warm and tingly since it screws the baddies in your book and helps out another social class that you have affinity for, but those subjective determinations (like we see the Obama Administration trying to jam through now) are doing nothing more than shredding the fabric of our objective “rule of law” for a subjective “these people good, these people bad” basis of law; and such a subjective basis is worth less than no basis at all.

    A legal system is sound when it garners the respect of fair evaluation of risk; it is worhty of respect when it is objective in nature. Your (and Obama’s) subjective view of the legal system deserves *no* respect whatsoever, since it cannot in any way have a firm, objective basis.

  9. Hugh

    I think what is not captured here is the idea that a consequence of systemic failure is that the old rules do not apply and could bring further disaster if applied.

    It is rather like a game of football. It’s third down and a passing play. You send in your best end, except someone points out that he has just broken his leg. No matter you say the “rules” of the game say I should pass and I’m going to use my best pass catcher.

    The system is broken, folks. It can’t set or keep standards until it is fixed. It seems very odd to me that there can be an acknowledgement that the system has failed and then an immediate turn around and invocation of rules as if nothing has happened.

    A final note: WTF were pension funds doing investing with hedge funds in the first place?
    (That’s a rhetorical question.)

  10. Greg Hall

    Sec. 363 does not preclude the creditors from collecting on their claim as a result of cash paid to the trustee from the asset sale. It simply stops delays that would
    ensue as a consequence of a challenge to the reorg, of which in this case the sale to Fiat involves.

  11. bobo bobo

    Hugh: “I think what is not captured here is the idea that a consequence of systemic failure is that the old rules do not apply and could bring further disaster if applied.”

    ——-

    Reorganization in bankruptcy does not cause systematic failure. They are routine events. No one is proposing to liquidate viable businesses. The fight is over who gets how much ownership of the business: pension funds, schools, charities, and insurance companies (who need money to pay claims on annuities, health insurance, life insurance, fire insurance, etc) who own the mutual funds and hedge funds that lent money to Chrysler, or UAW and UAW retirees.

    And Larry Summmers and Tim Geithner better think very carefully before they act in ways that violate the law. If Obama tries to make investors lend at below market rates, then investors will lend outside the US instead.

    Obama/Summers/Geithner already started down the dangerous path of relying on suspect legal authority to help cronies. There are strong arguments that Geithner’s PPIP for Fed loans and FDIC guarantees are illegal gifts of undersecured non-recourse loans or options. In contrast, Geithner/Summers/Obama worry about “respecting the law” in order to pay out bonuses to their friends at AIG, and to prevent retroactive taxes on their friends at GS and other TARP recipients. Likewise, they misrepresent the law in saying they lack authority to resolve bank holding companies and insurance companies. All these companies can reorganize in bankruptcy with loans to keep operating provided by the US government or private lenders. The truth is, Obama/Geithner/Summers are protecting their friends who hold bonds in the big banks, and don’t want to resolve them. Once again, corrupt cronyism. The only “change” Obama has brought is swapping the “special relationship” Cheney had with energy for those that Rahm, Geithner, and Summers have with the big banks.

  12. bobo bobo

    Greg Hall: “Sec. 363 does not preclude the creditors from collecting on their claim as a result of cash paid to the trustee from the asset sale. It simply stops delays that would
    ensue as a consequence of a challenge to the reorg, of which in this case the sale to Fiat involves.”

    True, but irrelevant. Forcing Chrysler to sell its assets in a fire sale to Fiat reduces the payout available to creditors if Chrysler were reorganized. Studies have shown that fire sales of companies under 363 cut creditor recoveries in half, due to usually having a single bidder, conflicts of interest by advisors, self-dealing by insiders, etc. Check this article.

    http://www.michiganlawreview.org/archive/106/1/lopuckidoherty.pdf

  13. DownSouth

    tanq_tonic,

    Come on now, this discussion isn’t about me. It’s about whether hedge funds perform any socially redeeming function other than corrupting government and, beyond that, as a group or class whether they can even survive if deprived of their steady diet of sweetheart deals.

    Juxtoposed next to all your high-minded rhetoric about the “blind administration of justice,” the “rule of law,” a legal system that “is sound when it garners the respect of fair evaluation of risk” and “is worhty of respect when it is objective in nature” are incidents such as this one:

    Lawrence H. Summers plays down his stint in the hedge fund business as a mere part-time job — but the financial and intellectual rewards that he gained there would make even most full-time workers envious.

    Mr. Summers, the former Treasury secretary and Harvard president who is now the chief economic adviser to President Obama, earned nearly $5.2 million in just the last of his two years at one of the world’s largest funds, according to financial records released Friday by the White House.

    Impressive as that might sound, it is all the more considering that Mr. Summers worked there just one day a week.~
    http://www.nytimes.com/2009/04/06/business/06summers.html?scp=1&sq=larry%20summers%20paid%20millions%20hedge%20fund&st=cse

    What never ceases to amaze is how the apologists for corporate thuggery can be so blind to the layer upon layer of irony that inheres in their polemics. Perhaps they've become so accustomed to pleading their cases before government officials who are bought off that they've forgotten how to make an argument before someone who is not biased in their favor.

  14. Doc Holiday

    Thought I’d toss this in here:

    So how would Smith fix our financial crisis? Sorry, but it’s fixed already. The answer to a decline in the value of speculative assets is to pay less for them.

    We could pump the banks full of our national treasure. But Smith said: “To attempt to increase the wealth of any country, either by introducing or by detaining in it an unnecessary quantity of gold and silver, is as absurd as it would be to attempt to increase the good cheer of private families, by obliging them to keep an unnecessary number of kitchen utensils.”

    We could send in the experts to manage our bailout. But Smith said: “I have never known much good done by those who affect to trade for the public good.”

    And we could nationalise our economies. But Smith said: “The state cannot be very great of which the sovereign has leisure to carry on the trade of a wine merchant or apothecary.” Not to mention chairman of General Motors.

    Ronald Reagan summed up our problem in one sentence: “The nine most frightening words in the English language are, ‘I’m from the government and I’m here to help.”‘

    Our greatest fear should not be the recession. Our greatest fear should be that our national leaders are engaged in “recession preservation”. That their policies will make this crisis probably worse and definitely more prolonged.

    From:
    Cure to the global economic crisis is worse than the disease

  15. mndean

    Good lord, is there nothing more pathetic than quote mining? Present an argument, don’t daisy-chain unconnected quotes and call it an argument. I see this too often in economic blog comments, appeal to authority instead of thought.

  16. DownSouth

    bobo bobo,

    Your argument that the insider dealing of the Obama administration is just with “big banks” and not also with hedge funds is, I must say, completely beyond the pale.

    If the hedgies are already squealing like stuck pigs because of some minor perceived injustice, I wonder what they would do if Obama were to really get serious about justice and go after them and their financial brethren with something like this:

    Intermittently throughout the year 1933 the Senate Committee on Banking and Currency, with the aid of its inexorable counsel, Ferdinand Pecora, had been putting on one of the most extraordinary shows ever produced in a Washington committee room: a sort of protracted coroner’s inquest upon American finance. One by one, a long line of railroad and public-utility holding-company promoters, stockbrokers, and big speculators—had filed up to the witness table; and from these unwilling gentlemen, and from their office files, had been extracted a sorry story of pubic irresponsibility and private greed. Day by day this story had been spread upon the front pages of the newspapers.

    The investigation showed how pool operators in Wall Street had manipulated the prices of stocks on the Exchange, with the assistance of men inside the companies with whose securities they toyed. It showed how they had made huge profits (which represented the exercise of no socially useful function) at the expense of the little speculators and of investors generally, and had fostered a speculative mania which had racked the whole economic system of the country–and this not only in 1928 and 1929, but as recently as the spring of 1933, when Roosevelt was in the White House and Wall street had supposedly been wearing the sackcloth and ashes of repentance. The investigation showed, too, how powerful bankers had unloaded stocks and bonds upon the unwary through high-pressure salesmanship and had made millions trading in the securities of their own banks, at the expense of stockholders whose interest they claimed to be serving. It showed how the issuing of new securities had been so organized as to yield rich fruits to those on the inside, and how opportunities to taste these fruits had been offered to gentlemen of political influence. It showed how that modern engine of financial power, the holding company, had been misused by promoters: how some of these promoters had piled company upon company till their structures of corporate influence were seven or eight stories high; how these structures had become so complex that they were readily looted by unscrupulous men, and so unstable that many of them came crashing down during the Depression. It showed how grave could be the results when the holding-company technic was applied to banking. It showed how men of wealth had used devices like the personal holding company and tricks like the sale of stock (at a loss) to members of their families to dodge the tax collector—at the very moment when men of humbler station had been paying the taxes which supported the government. Again and again it showed how men occupying fiduciary positions in the financial world had been false to their trust.

    Naturally the composite picture blocked out by these revelations was not fair to the financiers generally. The worst scandals got the biggest headlines. Yet the amount of black in the picture was shocking even to the most judicial observer, and the way in which the severity of the Depression had been intensified by greedy and shortsighted financial practices seemed blindingly plain. So high did the public anger mount that the New deal was sure of strong support as it drove on to new measures of reform.~

    –Frederick Lewis Allen, Since Yesterday

  17. tanq_tonic

    Downsouth:

    “It’s about whether hedge funds perform any socially redeeming function other than corrupting
    hedge funds perform any socially redeeming function other than corrupting government”

    Strawman alert. You are asserting a priori and without any basis whatsoever that the *only* thing that hedgies do is “corrupt government”. Care to talk about the function without the unsubstantiated rhetoric that you put forth?

    As a counterpoint: function1): serve as conduit to provide the collected capital to provide operating funds to entities. In other words, they provide a means to put capital to use, a means that uses as its guiding behavior the seeking of return (i.e. an “Adam Smith” entrance of capital into the amrkets as opposed to a “Leon Trotsky” method of capital introduction. There is your one purpose that you asked for, now do you care to retract your statement?

    “as a group or class whether they can even survive if deprived of their steady diet of sweetheart deals.”

    Hmmmm…. I have known of a *lot* of hedgies that lost a *lot* of money employing the collected capital across privately-held corporations seeking pre-IPO capital. If a hedgie can’t place capital where the returns don’t make up its losses, they die. They deserve to in those situations. Your term “steady stream pf sweetheart deals” is somewhat removed from the reality of the real world.

    “Lawrence H. Summers plays down his stint in the hedge fund business as a mere part-time job — but the financial and intellectual rewards that he gained there would make even most full-time workers envious…. blah, blah,blah….”

    My hat is off to Mr. Summers for his achievements. I have no problems with people making money of this sort just for the reason of hating people who make money of this sort.

    “What never ceases to amaze is how the apologists for corporate thuggery”

    Yes, all capitalism is “corporate thuggery”…. (rolleyes)

    “can be so blind to the layer upon layer of irony that inheres in their polemics.”

    Now asking for objective application of law is “polemics”…. lol.

    “Perhaps they’ve become so accustomed to pleading their cases before government officials who are bought off that they’ve forgotten how to make an argument before someone who is not biased in their favor.”

    I suggest that you actually go out and work in an industry that creates wealth; I have and do. I haven’t made nearly as much as some, and potentially more than others. I don’t begrudge thoase that make more, since typically those that I have seen make that type of money put substantial risk and hard work to reap those benefits.

    My apologies for that chip you seem to have on your shoulder about those who either manage capital or make it.

  18. Brick

    I think the key is the differences between this sale and the sale of Lehman brothers. Lehman North America was sold off to Barclays and later some reamining parts were sold of to Nomura. In this case money exchanged hands and what was sold did not constitute the majority of the company.
    What they are propsing with Chrysler is nothing of the sort, but a reorganistion. The problem with Chysler is that it does not really work once you start splitting it up. At the end of the day this will be forced through to protect jobs. It will however open the doors to similar abuses of the system such that the cost for debt will go through the ceiling.
    They have a choice of saving Chyrsler or doing some long term damage to the economy. Now where do they find a buyer for GM ?

  19. Robert

    “That means Lauria’s only option is to object to the sale,”

    So is this a legal strategy that can be put into effect before the sale- i.e. does the judge have to consider- or is it only that the secured creditors can object but there is nothing they can do about the sale?

    just wondering about weight that would be given to the objection- to tell you the truth I am on the smaller secured creditors side- Fiat can buy what it needs in liquidation- what ever factories and brands it may want- the Chrysler name has zero value- let it fade away already

  20. bobo bobo

    Robert: So is this a legal strategy that can be put into effect before the sale- i.e. does the judge have to consider- or is it only that the secured creditors can object but there is nothing they can do about the sale?

    ——–

    Yes, the court needs to approve a 363 sale. And there is precedent for rejecting them as abusive of creditors.

  21. DownSouth

    tanq_tonic,

    Unfortunately we may never know whether hedge funds and other powerful economic players could survive on a level playing field or not.

    Uneven playing fields are created and perpetuated by the exercise of inordinate political power by those wishing to tilt the field in their direction. All efforts to rein in that inordinate political power and return it to the public–campaign finance reform, greater transparency in both government and business, controls on media ownership, controls on lobbyists and lobbying, putting an end to the revolving door between industry and government, etc.–provoke stiff opposition by those who currently wield inordinate political power, including hedge funds.

    Thus the problem is a political one as well as a social one. I think it’s an open question as to whether democracy will ever be restored in the United States or not.

  22. Edward Harrison

    Without commenting on the Administrations tactics, I would say this: given the fact that Fiat is the only bidder here, the asset sale is likely to garner less than in a competitive bid situation like we are seeing at Opel in Germany. Whether this ‘one bidder’ problem is the result of self-dealing or the weakness of the assets is something we can debate.

    So, I think bobo bobo is right that secured lenders will get the short end of the stick here.

    Also, the reason that assets are sold and not operating entities is to ensure protection from future legal claims by the acquiring entity. For example, you’ll notice that JPMorgan bout the seized assets of WaMu, not the actual legal entities. WaMu is suing, but JPMorgan looks protected against any suits aimed against WaMu operating subsidies that held the assets. The WaMu suit is not.

    Back to the Chrysler deal, the question regarding asset sales in 363 is whether the sale is justifiable (i.e. in order to allow the company to have a chance of success in an eventual re-org, is it justifiable that these assets be sold in this way and at this time to this bidder for this price). A judge is going to have final say here, but my understanding is there is enough precedence here that the dissident bondholders are going to have a very hard time convincing the judge to disallow the asset sale.

    Obviously, they should have remembered that their BATNA (best alternative to a negotiated agreement) was poor from the start and cut a deal. Regardless of whether the deal was ‘fair.’ It was obvious they were going to get the stick.

    As for the Obama administrations tactics, until more information is available, I withhold judgment. What should be clear, however, they will do anything up to the limit of the law to make sure any bankruptcy at Chrysler or at GM is orderly.

    No more Lehmans.

  23. kackermann

    @bobo bobo, when the hedgies decided to freeze payouts, were they screwing firefighters too, like Obama is?

  24. kackermann

    @tanq_tonic – Google “Citi Fined”, and then tell me some of these institutions are not cesspools of habitual crime.

  25. Robert

    thanks for the feedback bobo-

    maybe the sale will be rejected- and Fiat can secure what brands and assets it needs in liquidation- let Chrysler die already

  26. Hugh

    bobo,

    “Reorganization in bankruptcy does not cause systematic failure.”

    I agree with regard to your point about crony capitalism as practiced by both Summers-Geithner and Paulson.

    Perhaps I was unclear. The bubbles and financial meltdown are the systemic failure. They have happened. Our whole financial apparatus needs restructuring. It doesn’t make sense to me to say, yes, the whole thing has collapsed but now let’s apply our bankruptcy laws on the casualties of the disaster as if there had been no disaster.

    We need a restructuring of all aspects of the financial system and that includes bankruptcy. To do otherwise is to keep the current failed system lurching along in some vampiric state of half-life, unable to function normally and continuing to exist only by feeding on the rest of the economy.

  27. Matt

    This marks a huge turning point for capitalism in the US as Obama has made both GM and Chrysler permanent wards of the state – and created huge problems for all highly unionized companies going forwards. I agree, this argument is usually complete BS, but who on earth is going to buy a bond from New Chrysler or New GM even after both are reorged? This either dooms them both to failure or makes the domestic auto manufacturers our newest branch government,

  28. chegewara

    from WSJ a bit on the Obama approved plan:

    Among the cost-cutting measures that the UAW leaders have accepted are a suspension of cost-of-living-adjustments and new limits on overtime pay. Workers will only be paid for overtime after they have worked at least 40 hours in a week. Chrysler workers will also lose their Easter Monday holiday in 2010 and 2011, according to the union summary.

    —————————
    !!!no easter monday and now overtime for less than 40hr workweek!!! – you know what, before blaming HFs you should realize that UAW is not a bunch of angels and ultimately US auto bankruptcy is the fault that they share with management and govt.

  29. Jim T

    Does anyone know the make up of the deal? If we knew that, then we would know how “unfair” the deal was to the parties that held out.

    Like the floated deal over at GM had the Government trading $27B for 50% share / UAW getting $10B in cash and 39% share for their $20B / Bond Holders getting NO CASH and only a 10% share for their $27B

    I can tell you if I was a GM Bond Holder I would be holding out of that deal too! Somehow I get the feeling the deal at Chysler would have been just as insanely slanted favoring the UAW.

    What did the UAW give up to get a 55% Share in the New Company? How much is the tax payer paying for the 8% share? What were the Pennies on the Dollar were the bond holders offered?

    If the CHYSLER DEAL was as IDIOTICLY UNFAIR as the DEAL AT GM then it is NO WONDER the bond holders balked.

    I think it’s absolutely HORRIFIC that Presiden Obama and his Administration THREATENED the bond holders for standing up for themselves! I think someone is getting a little to full of himself!

  30. Joel

    This is like a degenerate gambler complaining that the odds at the blackjack tables were rigged against him.

Comments are closed.