Chrysler Chapter 11 Filing Expected

The New York Times reports that the Chrysler brinkmanship continues, with some small hedge funds acting as pigs in the hope of extracting yet more concessions from the government, as the bankruptcy deadline looms.

The reason the funds can play such hardball is that the Administration does not want to BK Chrysler. Despite all the cheery assertions of a speedy bankruptcy, there is no assurance that would indeed come to pass. Even in prepaks, where the creditors have a an arrangement they want a judge to bless. the process can become protracted. And a Chapter 11 filing with no creditor deal runs the risk of loss of customers as uncertainty hangs over the manufacturer, and a Chapter 11 could morph into a liquidation, with not only big job losses, but damage to significant suppliers who in turn may fail, causing problems for other US automakers and transplants..

The latest update on the negotiations from the New York Times:

Last-minute efforts by the Treasury Department to win over recalcitrant Chrysler debtholders failed Wednesday night, setting up a near-certain bankruptcy filing by the American automaker, according to people briefed on the talks.

Barring an agreement, which looked increasingly difficult, Chrysler was expected to seek Chapter 11 protection on Thursday, most likely in New York, these people said.

The automaker, which is in talks with the Italian automaker Fiat, would file for bankruptcy first. It subsequently would present an agreement with Fiat to the court for approval, possibly on Monday, these people said. They requested anonymity because they were not authorized to speak for the government.

A bankruptcy filing by Chrysler would be the first by one of Detroit’s three auto companies amid a devastating slump, and could serve as a preview of what a filing by General Motors might look like. G.M., which like Chrysler received federal assistance last year, faces a June 1 deadline for its own restructuring.

To win over several hedge funds, which have been holding out for better terms, the Treasury increased its cash offer to holders of Chrysler’s secured debt by $250 million, to $2.25 billion, these people said. If all of the secured holders would agree to the new deal, which would give them the cash in exchange for retiring about $6.9 billion of debt, Chrysler would still have a chance of restructuring out of bankruptcy court.

Several investment funds, however, continued to reject the Treasury’s sweetened offer at a vote of the lenders on Wednesday evening, people familiar with the talks said….

The Obama administration is adamant that every lender participate in the debt swap, according to people close to the talks. One reason is that the deal would face legal challenges.

The Wall Street Journal also sees a Chapter 11 filing as “imminent

Talks between the Treasury Department and lenders aimed at keeping Chrysler LLC out of bankruptcy broke down Wednesday, making it all but certain the car maker will file for Chapter 11 protection Thursday, according to people familiar with the discussions.

Administration officials, who have been braced for a Chrysler bankruptcy filing for weeks, say all the pieces are in place to get the company through the court quickly, perhaps in a matter of weeks.

The talks with Chrysler’s lenders broke down after the Obama administration’s automotive task force worked into the evening to persuade several hedge funds and other lenders to accept a deal to reduce Chrysler’s debt, said people involved in the talks.

The Treasury boosted its most recent offer to lenders on Wednesday by $250 million to $2.25 billion in cash for the banks and hedge funds to forgive $6.9 billion in Chrysler debt, people familiar with the matter said.

J.P. Morgan Chase & Co., which leads the creditor group as Chrysler’s largest lender, gave the other 45 banks and hedge funds 90 minutes Wednesday to vote on the deal. A large number of the funds voted no and refused to budge, paving the way for an all but unavoidable trip to bankruptcy court, said people close to the talks.

How can the Administration spew such rubbish? Bankruptcies go quickly in the courthouse ONLY if there is a pre-negotiated deal with creditors. With no agreement, the fight with the lenders will continue in court.

James Kwak parsed the Administration’s dilemma:

I’ve been writing a lot about the game of chicken recently, most often in connection with the GM and Chrysler bailouts. On the Chrysler front, the game is in its last hours. Even after a consortium of large banks agreed to the proposed debt-for-equity swap, some smaller hedge funds are holding out for more money, and even the extra $250 million that Treasury agreed to kick in seems unlikely to keep Chrysler out of bankruptcy.

The problem is that bankruptcy is the only weapon Chrysler and Treasury have in this fight, and it’s a strategic nuclear weapon. Bankruptcy is the only threat that can get the bondholders to agree to a swap; but because a bankruptcy carries some risk of destroying Chrysler (because control will lie in the hands of a bankruptcy judge – not Chrysler, Treasury, the UAW, or Fiat), and taking hundreds of thousands of jobs with it, everyone knows that Treasury would prefer not to use it. The bondholders are betting that they can use Treasury’s fear of a bankruptcy to extract better terms at the last minute. (And it’s even possible that the large banks agreed to the swap knowing they could count on the smaller, less politically exposed hedge funds to veto it.) But Treasury may still press the button, because it needs to make a statement in advance of the bigger GM confrontation scheduled for a month from now.

So Treasury cannot win, If it calls the banks’ bluff, it risks a slow motion Lehman. The Times says “people briefed at the negotiation” believe Chrysler would emerge from Chapter 11. But bankruptcy, like war, has uncertain outcomes, and no automaker has emerged from bankruptcy (they have either been liquidated or sold in pieces or entirety).

Note Lehman was not rescued for essentially political reasons, that it was time to draw the line and show that there were indeed consequences for mismanagement. Here, again, some scalps ned to be harvested, since the banks are now completely out of hand in the utter shamelessness of their extortion. Kwak details their intransigence on other fronts in his post.

Revenge for behavior is often served cold. Recall Bear Stearns’ refusal to participate in the LTCM bailout created Ill will that caught up with it a decade later. But that’s no remedy in real time, when this rent seeking is taking place.

In the bad old days, you might have seen extra-legal measures. J, Edgar Hoover, then head of the FBI, was known to have dirt on pretty much anyone of consequence. People who take noisy political stands seem more subject than the average Joe to highly intrusive and costly IRS audits; uncooperative hedgies would seem ideal targets for that sort of harassment, and double goes for any entities that are subject to US regulations.

But I am concerned this behavior is setting the stage for another sort of extra-legal measure: violence. I have been amazed at the vitriol directed at the banking classes. Suggestions for punishment have included the guillotine (frequent), hanging, pitchforks, even burning at the stake. Tar and feathering appears inadequate, and stoning hasn’t yet surfaced as an idea. And mind you, my readership is educated, older, typically well off (even if less so than three years ago). The fuse has to be shorter where the suffering is more acute

But the banksters are eagerly, shamelessly, and openly harvesting their pound of flesh from financially stressed average taxpayers, and setting off a chain reaction in the auto industry which has the very real risk of creating even larger scale unemployment than the economy already faces. It’s reckless, utterly irresponsible, over-the-top greed.

And there is a tipping point, which I sense is closer than most imagine. Nassim Nicholas Taleb points out that thirteen centuries of peaceful ethnic coexistence in Lebanon exploded overnight into brutal, completely unexpected civil war. Everyone assumes America is too complacent for class warfare in the literal sense to erupt. The way the banksters are demanding to be disciplined, that assumption may prove naive.

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  1. Sukh Hayre

    The cities of Europe have burned before, and they may yet burn again, And if they do I hope you understand, that washington will burn with them, Omaha will burn with them, Los alamos will burn with them

    Help Save The Youth of America – Billy Bragg

    Help save the youth of america
    Help save them from themselves
    Help save the sun-tanned surfer boys
    And the californian girls

    When the lights go out in the rest of the world
    What do our cousins say
    Theyre playing in the sun and having fun, fun, fun
    Till daddy takes the gun away

    From the big church to the big river
    And out to the shining sea
    This is the land of opportunity
    And theres a monkey trial on tv

    A nation with their freezers full
    Are dancing in their seats
    While outside another nation
    Is sleeping in the streets

    Dont tell me the old, old story
    Tell me the truth this time
    Is the man in the mask or the indian
    An enemy or a friend of mine

    Help save the youth of america
    Help save the youth of the world
    Help save the boys in uniform
    Their mothers and their faithful girls

    Listen to the voice of the soldier
    Down in the killing zone
    Talking about the cost of living
    And the price of bringing him home

    Theyre already shipping the body bags
    Down by the rio grande
    But you can fight for democracy at home
    And not in some foreign land

    And the fate of the great united states
    Is entwined in the fate of us all
    And the incident at chernobyl proves
    The world we live in is very small

    And the cities of europe have burned before
    And they may yet burn again
    And if they do I hope you understand
    That washington will burn with them
    Omaha will burn with them
    Los alamos will burn with them

  2. Anonymous Jones

    It’s great to see you laying bare the fallacy of “that can’t happen again.”

    We just witnessed the hordes shouting, “a collapse akin to the Great Depression? That could never happen again!”

    Now, the greediest, who’ve anchored themselves to an unsustainable upstairs/downstairs paradigm, are shouting, “A revolt akin to the French Revolution? That could never happen again!”

    Don’t be too sure.

  3. Aiden

    It appears, from all recent reports, that they have agreements in principal with a majority of the loan holders. If that is the case, and the majority approve the reorganization plan, than it would be possible to get in and out as quickly as the plan of reorganization is approved. I would expect that this would take at least 60 days. Even pre-packs take quite a long time, but it is good that the Chrysler capital structure is fairly simple and easier to restructure.
    This assumes that the agreement that the TARP recipients made out of BK will apply in BK. I would assume that 2.5 billion in hand is better than 4 billion in the bush.

    The GM situation is a little stickier, Zerohedge has been talking about “equitable subordination” in a BK of the government loans, which seems entirely possible given the way the government has acted as if they were equity holders. It is too bad that the BK has such terrible consumer consequences, because GM needs to restructure all of their liabilities (Pension, Healthcare, Bonds, Government Loans), it’s too bad that the auto task force is not forcing haircuts on all parties and is giving only a light trim to the UAW, while shaving the bondholders, dealers, and suppliers.

  4. Steve From Virginia

    All these assumptions:

    First, that there will be viable auto companies scrounged from the ruins of GM and Chrysler. Neither company has a product that is ‘future proof’. Neither has much chance of avoiding total liquidation. What matters is the appearance that our government is trying to help.

    Nardelli is the likely big winner with a big golden parachute to pack alongside the haul he received from Home Depot.

    The real issue is why the Treasury gave the bigs any money in the first place. Once in for a penny, it was always going to be in for many, many pounds.

  5. attempter

    I’ve wondered a lot about how much gangster abuse (with active government support) America is willing to take. It’s already beyond comprehension by my personal measure.

    When Obama says to the banksters, “only I stand between you and the pitchforks”, I wonder how much that’s just typical rhetoric, as opposed to how much he thinks there’s any actual potential for that.

    (One thing which is beyond doubt by now is that Obama sees his job as to help aggrandize the bankers even at the direct expense of the people, and if it ever actually did come to “pitchforks”, O would see his job as to be a hired goon against the people rather than to lead the people against such an antisocial enemy.)

    As for the legality of extralegality, whether it be government arm-twisting or mobs, I have often argued that the FIRE sector has systematically assaulted reasonable regulation and the rule of law itself.

    Lobbying, corrupting politicians and capturing regulators, seeking rigged markets and heavily tilted playing fields: these are the essence of neo-feudal rent-seeking, not legitimate capitalism, and not social or legal behavior.

    The finance cabal itself has sought and achieved extralegal status. They in truth wanted to be outlaws, in order to conduct an extralegal assault on every basis for a stable, truly productive economy and society, and all in the service of one goal and one goal only: the most gutter sort of pirate greed.

    They are simply gutter thugs, antisocial louts, nothing more.

    So I have long said, they wanted to be outlaws, they have acted as outlaws, they have created an extralegal free-fire zone for their own benefit, they wanted a Hobbesian wasteland – so they should be dealt with as the outlaws they always wanted to be.

    They should be dealt with as the incorrigible antisocial gutter predators they are.

    I hope that helps with any lingering moral doubts anyone may have over any alleged “rule of law”. The law has abdicated.


    It’s Apr 30, somethin American should be fallin’ to keep the good old tradition.

    sent from:

  7. Richard Kline

    Society in the US has an egalitarian bent which is both deep and intrinsic. Wealth is respected, but only so long as all believe that they can aspire to a piece of it. Now, many of our wannabe cakeeaters see that it’s a layer cake of excrement from which their slice was cut. The banksters have the system gamed; they’ve created their own reality for twenty years, and don’t see minor embarassments such as insolvency as anything to change their business practices as ususal.

    . . . That tipping point is far closer than they think. I’m not a fan of violent solutions, because more bystanders are inevitably done in than those with kack-stained hands. But if mobs start going after banksters, I’m going to brew another cup of coffee and turn up the music until the noise dies down outside.

  8. bob

    The difference between the “unions” and the bond holders is very simple.

    The unions should have been paid already. The pension and healthcare obligations have been hanging over their heads for years, they never wanted to deal with them, and always had the political will to put off the day of reckoning.

    The bond holders are seeking to recover money from the future. Bonds are paid out over time, and so it the interest. They want what they are due over the next 5-10 even 20 years.

    To put the bondholders future rights ahead of payments that should have been made already is not the correct order of things.

    The union is just as crooked as the government, but it is their problem. They should be paid what their agreement says they would be paid. This is more american than anything. Pay what you said you were going to pay.

  9. sangellone

    Why do this at all? There is too much capacity in the auto industry so a bailout of Chrysler just hurts
    the longterm chances of Ford and, maybe, GM.

    Fold Jeep into Ford or whomever the same way Jeep was folded into Chrysler when AMC went bust. The rest of Chrysler… forget it. Every Dodge Ram not made is a plus for Ford or GM.

    If Fiat wants the dealership network or even Jeep they can acquire it without US government help.

  10. bob


    I may be wrong on this but the only time that the US government is going to “help” anyone is if chrysler goes bust.

    If/when chrysler goes bust the bond holders get some money out of a liquidation. The employees become unsecured creditors, along with suppliers. Any value that is left will go to the bond holders.

    The pension funds for the unions are underfunded, and guaranteed by penny, the pension benefit guarantee corporation. The government has to pay for the underfunding, and the pensioners also get a lot less than they were promised when they go to penny.

    So, bankruptcy gets rid of those nasty pensioners for the bond holders, and the government gets the bill for them.

    The suppliers for chrysler are also the suppliers for GM and ford. If chrysler goes BK, the suppliers are unsecured creditors. That means that they will not get anything. NOTHING.

    It is not good for ford or GM to have their suppliers go bankrupt because 30% of their accounts receivable would disappear.

    They would have to go back to the same banks(the ones holding the bonds of chrysler) to get funding to continue business.

    Why do this at all? Because the best defense is usually a good offense. If it gets to BK the government knows it is going to have some very real costs. If they can broker a deal now they pay nothing.

  11. X

    Obama, I think may have hinted at the necessity for direct action against the banks in his 100 days press conference. He was asked what he was humbled by and he said the fact that the president doesn't have unlimited power. He said their are multiple centers of power. He then gave 2 examples: Bankers and Congress. Argue for an innocent intrepretation if you are foolish enough. It sure sounded like he said there are 3 branches of gov: Executive, Legislative, Bank. He said he cannot make bankers do as he wishes. It was all right there in the speech and Q&A. If you ask me it was a subtle hint that we had better march on Wall Street if we want to ensure real change. I think we have a government which can be pressured to deliver meaningful change, but only with a real commintment from the public. If we march in large numbers on Wall Street now, we can have real change. Obama just put the ball in our court. He admitted on national tv that he does not have the power alone to curtail the illegitimate 3rd branch of government. Our forebears did not hesitate to hit the streets and demand necessary reforms. If we will not do the same we share equal blame with the government for failure to reform. The door is open. Seize the day or not. Mass demonstrations against Wall Street right now will produce change.

  12. SteveInOhio

    The Government has intervened in the car companies solely to benefit the Union at the expense of taxpayers and … “debt holders”… err, “banksters”… err… wait… didn’t we used to call those people who provide funding for company operations “investors”?

    So, if the investors have a ny leverage at all, I’m glad to see they are using it. The Government could have stayed the hell out of this if they didn’t want to play with the big boys. As a taxpayer, I would have preferred that.

  13. bob


    What don’t you understand about the unions? You clearly have no idea what you are talking about. There is no basis in reality to your statements, and no way to back them up.

    The banks in this case got stuck with the bonds they hoped to flip to other unwitting investors for a profit on the fees they could charge. That would only be if someone bought the bonds. The bonds never got bought, they stayed with the banks.

    That is not an investor. That is someone who got stuck without a chair when the music stopped. They are probably most worried because this is proof that the banks were peddling crap, they couldn’t even sell it. They deserve it, most of the rest of the stuff they “packaged up” and sold off lost other people money. Now the banks get to eat some of their own BS. I have no sympathy.

    As a taxpayer you are going to feel better about paying the pension and healthcare costs of a chrysler employee?

  14. "DoctoRx"

    Yves, is it your opinion that tar and feathers are “inadequate”, or are you as I suspect reporting on comments from your readers?

    Interestingly it is the 30th anniversary year of the initial Chrysler bailout.

    IMHO what has been happening in the US and WW auto market is that esp GM and Ford turned into money lenders with unprofitable mfg subsidiaries. That is why this economic banana is led by housing and auto-related industries along of course with their enablers in Big Finance.

  15. run75441


    Yes, I would feel better about balancing out the pension and healthcare funds of the unions where needed. The same as we are going to get stuck doing on other corporate run healthcare and pension funds and the same as we are going to get stuck with doing on many municipality and state run healthcare and pension funds. Labor or unions did not cause those funds to be underfunded, over forecasting of returns, the removal of funds over the years, or a downturn of the economy. These healthcare and pensions were given to unions in lieu of wage increases decades ago when automotive was booming. And yes, I have no qualms about rescuing someone who has done factory work in an under conditoned building for 25+ years making dinosaurs upon demand to satisfy our need and lust for bigger, faster, and flashy.

    Besides direct labor being the smallest component of the cost of manufacturing, direct labor didn’t cause today’s and previous issues in automotive manufacturing muchless other manufacturing. While automotive was realigning itself with closing down plants and facilities, canceling complete carlines, killing models and platforms, renegotiating wages and benefits for new hourly workers, handing off of healthcare to unions, laying off tens of thousands of union, hourly, and salaried (fallout), and finally got on board with efficient vehicles which still need to be tooled; W$ pushed the envelope on speculative investments while the FED increased the rate and the bottom dropped out of the economy. According to the Summers/Geithner team (who helped create today’s events), we have to rescue banks and W$ and kiss their backsides while doing it. Better get some chapstick so you don’t chaff your lips as their is more coming (I prefer “Burts Bee”).

    The major costs (90%) of manufacturing are in the abundance of capacity that has been idled due to lack of demand, they are in the nonstandardization of parts and platforms, and those costs can be found in a push manufacturing business model as opposed to a pull manufacturing business model. When capacity sits idle, cost goes up. Labor is just along for the ride and is paying the price for the incompetence of corporate America, W$, Greenpsin, and a government that believe a “laissez faire” environment would act to not only its own self preservation/best interests and to most of the US as well. Well guess what, they did the first portion and forgot the rest of us. Greed still rules.


  16. SteveInOhio

    Yes, Bob, I will feel better, because 1) Taxpayers are going to be paying for it anyway. Period. and 2) At least the payments won’t be laundered through Chrysler first and the UAW second. The PBGC will be the cheaper route because there will be fewer hands in the till.

    “No basis in reality?” Let’s see… bond holders… getting screwed. Equity holders… getting screwed. UAW? Getting a nice cushy chair, huge ownership positions, and access to the corporate jet. Which by the way will suddenly come back in vogue, now that we’ve pushed the evil executives out of the cockpits.

  17. garuda-dragon

    It is more than sad to read otherwise intelligent people talk about ‘pitchforks’ and ‘revolution’, it is one of the clearest indicators I know that people have been truly asleep as this societal transformation has been wrought.

    There is a grand total of zero possibility of ‘revolution’ or ‘pitchforks’ in America. Not because we have some history of ‘getting along’ (we don’t) but because the military power of the government is 10’s of orders of magnitude beyond that of the populous. The only people in the world who are truly at the mercy of the american military might is americans. The US government has been running war games on civil unrest for years now. In fact under the Bush administration they even used pandemics as an excuse to begin military control of the populous. ‘The system’ is just waiting for a bunch of asleep, knee jerk fools to ‘suddenly’ discover what is really going, and start making noise in the street. The response will be a a swift, massive, and irreversible takeover of american civic life by the military.

    Stop fooling yourselves, if you want any semblance of the past to persist, have nothing to do with the fantasy of ‘pitchforks’. That way lies ruin.

  18. Dikaios Logos

    I have to agree that the tipping point of political breakdown is closer than imagined. The present state basically relies on widespread ignorance of the issues. This ignorance, as far as I can see, holds among the highly educated, including, inter alia, financiers, lawyers, economists, journalists, and *gasp* regulators and government officials. If the information about the issues and transgression were somewhat more widely known, the direction of public debate would change very quickly.

    One small hope I have for Obama is that he is for political reasons waiting for this backlash start in earnest. The kind of actions he should take would be much more successful as part of wave of popular sentiment rather than presidential diktat. Legitimacy counts for a lot in politics, even if it doesn’t count as much in business.

  19. Ryan

    “The PBGC will be the cheaper route because there will be fewer hands in the till.”

    And either your taxes skyrocket or we suddenly have a bunch of 60-to-70-year olds with no money, which drives down consumption from those people, which drives the recession even further.

    So many people talking about these companies, so few that actually know what the f*ck is going on.

    I work for a Chrysler supplier. Thankfully they’re a smaller stake of what we supply than they used to be as my company is in relatively good shape all things considered. For as “systemic risk” as Lehman Brothers was and all the pain that caused, for Chrysler take Lehman and multiply it by ten.

    -Car dealers were about 10-15% of the tax revenue in small to medium-sized cities. That’s the reason there are so many state and city laws to ban the carmakers from owning dealerships. Where will that shortfall be made up? Car dealers are located EVERYWHERE.

    -A lot of suppliers are not going to survive. I see this with my company’s suppliers currently. Let’s say a supplier gives to Chrysler, Toyota, and BMW in roughly equal shares. Chrysler goes bankrupt and they loose that customer. Even though they still give Toyota and BMW, it’s likely that it won’t make business sense for the supplier to continue in some cases. So Toyota and BMW will have to pay more for another supplier and won’t be able to fully test said product. So people will be paying more for a lower-quality car, regardless of what car they buy. Suppliers are located EVERYWHERE.

    -Then there’s the ancillary effects, a bit similar to the suppliers. Less money in advertising money for media, less money in shipping, less money for service (an almost wholly reactionary industry).

    -When the banks went “down”, well not down, the only one that went down was Lehman, it was generally a rich class effect. This is a middle-class and lower-class tsunami. You’re not going to find a more typical middle-class job than manufacturing. That’s going to drive a general decline in the standard of living. If you think they make too much money and are snobbish about it (a person that works 40 hours a week and makes $40k per year makes too much money…yeah, sure), all I ask is that you have the nerve to post your real name and address for everyone to see, otherwise you’re a coward.

    Yves is right though. I’m connected to the military some, so I have a far different view of the world than most, and I see how people take far too many things they have for granted. If anyone thinks that some banks are going to put a million people out of work and there’s not going to be an aftershock, you’re living in fantasy land. People tend to get along fine until they realize that they can’t have everything they want, that’s why the recession that started in 2007 was really hard for people to accept. Now we’re going from “can’t have everything they want” to “we’re going to be poor the rest of our life and those banks that the government gave money to are what made me lose my job”. Quite the change in mental attitude.

  20. Ryan

    “Stop fooling yourselves, if you want any semblance of the past to persist, have nothing to do with the fantasy of ‘pitchforks’. That way lies ruin.”

    Of course it does. We essentially had a “pitchfork event” with the November 2008 election of Obama and the Democrats in Congress en masse. What will be the next event if things continue to get worse and both the Republicans and Democrats failed? Electoral pitchforks would have no longer worked. So what’s left when the voting box no longer works and life is bad. You ever heard of the Rodney King riots? That was a pitchfork event, it was only 18 years ago.

  21. Zeke

    I’m surprised no one here has mentioned Credit Default Swaps. One assumes that many (most) of the hedge fund debt owners have, er, hedged those bonds with CDS. Isn’t one reason that they prefer the BK route that they get whatever $$ the judge awards them on the debt and then get $$ on the CDS contract, essentially making them whole.

    So perhaps the real losers here are the companies that wrote the CDS contracts. Anyone know who that is? The usual suspects probably. (AIG, a few banks)

    As for pitchforks, etc. I think we have a long, long way to go before anything like that has a chance of even getting started. As for whether it would succeed, the person above who says the military is 100x stronger than the citizens has that right, but no one can be certain which side of a fight the military would end up on.

    Recall that in the last civil war the US miltiary split pretty much down the middle. West Point grads were generals on both sides. No reason not to expect the same again were it ever to come to that. But, again, we’re nowhere near that point.

  22. Waldo

    Great poem. Refreshing. Some real creating.

    “Lobbying, corrupting politicians and capturing regulators, seeking rigged markets and heavily tilted playing fields: these are the essence of neo-feudal rent-seeking, not legitimate capitalism, and not social or legal behavior.”

    I am truly impressed with the quality of Yves’s bloggers. The ladies and gentlemen contributing are of the highest quality. Truly enjoyable reading.

  23. Warm, Dry and Well Fed


    Re: “The New York Times reports that the Chrysler brinkmanship continues, with some small hedge funds acting as pigs…: and “The reason the funds can play such hardball…”:

    Roughly six billion dollars of Chrysler debt is secured by specific property, just like most home loans are secured by a house; fail to pay and the creditor gets the property. Secured loans have a lower interest rate than unsecured loans precisely because they are secured.

    Chrystler has two classes of secured creditors, the government and the bondholders. If the place goes into a bankrupcy or is broken up, both will probably be paid (the Jeep brand is the big prize), but the unsecured creditors and share-holders will go home with very little.

    Chrysler has a lot of unsecured creditors. The biggest is the union, representing the workers, which wants to retain the above-market pay and benefits as well as the unfunded retirement and health benefits.

    What we have here is a classic, almost South American, case of politically powerful “workers” trying to take property from either the owners or lien holders with the aid of an executive branch that wants to reward groups of political supporters, preferably off-budget with someone else’s money.

    This sort of populism does not bode well for property or contract rights in general. Or for secured loans in the future. Can someone please explain how this approach differs from that of Mr.Chavez?

    The bond holders are not “pigs” or “playing hardball”; they are simply, and inconveniently, secured creditors who want either to be paid or to recover the pledged property.

    “Pigs” and “hardball” is the sort of language we used to call “Mau Mauing” back in the civil rights movement. I believe such language should be avoided in serious debate.

  24. Anonymous Jones

    Again, I caution the “0 percenters.” I think the military forces are incredibly well prepared and intelligent, but hubris is probably best avoided after Iraq showed how difficult it can be to corral small forces that spin out of control. I think it’s fairly obvious that those who use the term “pitchforks” are invoking a metaphor. The real threat is IEDs. We’ve already seen that there was at least one McVeigh lying in wait. All you need are about 100 more of them, especially if the public is fairly supportive of the ideals behind the violence, and all hell will break loose. Were the Rodney King riots that long ago? If bigger social forces were behind such riots, couldn’t exponentially more damage be done this time?

    “0 percenters” almost always have too much confidence to be taken seriously.

  25. plschwartz

    “The U.A.W. has derived its leverage in part from the support of a Democratic president and Congress. But it also results from a long-term strategy to build support in Washington that stretches back more than 60 years.

    “We have to fight both in the economic and political fields, because what you win on the picket lines, they take away in Washington if you don’t fight on that front,” Walter P. Reuther, the union’s best known president, said in 1947.

    Mr. Reuther and every succeeding U.A.W. president invested significant amounts of time and money to pursue that goal.

    In the last 20 years, the U.A.W. has donated more than $25.4 million to federal candidates, 99 percent of it to Democrats, according to, a site that tracks campaign contributions.

    The union ranks No. 16 on the group’s list of top 100 political donors, known as “heavy hitters.” The U.A.W. was well ahead of G.M., which gave $10 million in that period, ranking it 73rd. Chrysler and Ford Motor did not make the list.” NYTimes

    The UAW is unique in the clout it has had in Washington, and its ability to take care of itself politically.
    Immediately after the BK filing, UAW filed a request that the contract just negotiated with Chrysler be recognized and be continued under BK.
    I believe that like all those protected by political clout, UAW feels itself above the law. It does expect that its rights will be placed before those of senior creditors. Time will tell.

    Let us suppose that Obama knows as well as we do that to be competitive Detroit needs to shed not only wages and benefits packages,but more importantly shop-floor practices. He could not use direct intervention to do this.Look at how he maneuvered Chrysler into the place that would break UAW – the BK court. Real slick ball-handling.
    Yves what he seems to be doing with the banks makes me see red. But then …. the useless stress-test may turn out to force banks to sell off parts of themselves to raise capital. Which is a first step to getting them smaller then then the “too big to fail” category

  26. Cathryn Mataga

    All this green-car nonsense — ask me, I swear, Chrysler and American car companies are doomed until they can make a decent interior. These cars are designed to look good in the TV commercials but then when you actually sit in them — ugh.

  27. run75441


    For all the political pull you allege to the UAW, it still does not change the direct labor cost that goes into making an automobile. (period) That direct labor cost is 10% or less.

    Those bennies you are whining about consist of legacy debt for retirees created from underfunded and overforecasted returns on the funds. The plan for current workers is nice but no where near as extravagent as what upper management receives. Considering what many of them do in the factories, they are worthy of those benefits. As far as the legacy pension and healthcare funds and costs, they were sold to the union at 60 cents on the dollar.

    Shop Floor Practices? What are you going to recommend they do on the shop floor when Direct Labor Costs are so small and shrinking? Hell, you are chasing a demon of the sixties and seventies.


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