Hedge Funds Reject Blame For Chrysler Saga

Washington Post: Firms Say They Were Right to Hold Out, Dispute President Obama's Charges That They're The Villains

(Washingtonpost.com)  This story was written by Steven Mufson and Tomoeh Murakami .

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President Obama's harsh attack on hedge funds he blamed for forcing Chrysler into bankruptcy yesterday sparked cries of protest from the secretive financial firms that hold about $1 billion of the automaker's debt.

Hedge funds and investment managers were irate at Obama's description of them as "speculators" who were "refusing to sacrifice like everyone else" and who wanted "to hold out for the prospect of an unjustified taxpayer-funded bailout."

"Some of the characterizations that were used today to refer to us as speculators or to say we're looking for a bailout is really unfair," said one executive who spoke on condition of anonymity because of the sensitivity of the matter. "What we're looking for is a reasonable payout on the value of the debt . . . more in line with what unions and Fiat were getting."

George Schultze, the managing member of the hedge fund Schultze Asset Management, a Chrysler bondholder, said, "We are simply seeking to enforce our bargained-for rights under well-settled law."

"Hopefully, the bankruptcy process will help refocus on this issue rather than on pointing fingers at lenders," he said.

Political veterans said, however, that it would be tough for hedge funds to overcome their image as villains. Most politicians have a favorite punching bag. Many Republican politicians like to bash trial lawyers. Many Democrats like to take aim at big oil companies. Hedge funds can serve as a safe diamond-studded scapegoat in tough economic times.

"It's hard to go wrong right now being tough on those guys," said Jeff Shesol, a former speechwriter for President Clinton who noted that Obama had been criticized earlier for not showing enough outrage about AIG bonus payments. He said that Obama's "frustration, while it may be calibrated, is real. And it's certainly where the public is."

A senior administration official said the tough words on hedge funds were born of frustration, not politics. "The president has been pretty hard-nosed about the whole matter," said the official, who spoke on condition of anonymity. "There was no calculation involved," he added. Obama "was very willing to praise those who went the extra mile to help make this work, and that included financial institutions."

"In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout," Obama said. "They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them."

The president's harsh criticism may play well on Main Street, but it flopped on Wall Street yesterday. There hedge funds -- privately run funds that invest in an unlimited variety of securities and which theoretically balance different kinds of risks -- are part of the landscape.

"It sounds like people are being bullied right now," said Ron Geffner, a partner at the law firm Sadis and Goldberg, which represents hedge funds. "To play the 'I stand with Chrysler, I stand with families, I stand with the dealers, I stand with the consumers' -- that's great conceptually, but . . . I stand with the fact that we live in a capitalist society where companies who don't modify their business plans and stay current die and go by the wayside."

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Read a Q&A with CBS Evening News business producer Guy Campanile on the bankruptcy.

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Geffner added that Obama's remarks made it difficult for the lenders that rejected the offer to speak publicly for fear of appearing "anti-American."

Indeed, a group of lenders issued a statement yesterday -- but did not identify its members. The group said it included approximately "20 relatively small organizations" that represented "the country's teachers unions, major pension and retirement plans and school endowments who have invested through us in senior secured loans to Chrysler."

The funds hold about $1 billion in Chrysler bonds and have turned down the government's terms. The government would have paid just under a third of the value of those bonds. However, many funds bought the bonds at deep discounts from other investors who feared the bonds might ultimately be worthless.

A few firms stepped forward to defend themselves openly. "OppenheimerFunds sought fair treatment for the shareholders of our funds and we were willing to make very significant sacrifices to reach an agreement," the firm said in a statement. But it said the government "unfairly asked our fund shareholders to make financial sacrifices greater than those being made by" other creditors. The firm said its bonds "are entitled to priority in long-established U.S. bankruptcy law."

But other observers said that the hedge funds were oblivious to Americans' worries about jobs.

"They're not getting it in their heads that this is the worst crisis since the 1930s. People are going to have to take a hit," said Sarah Anderson, director of the Global Economy Project at the Institute for Policy Studies. "It seems rather short-sighted to risk having the auto sector collapse so that they can get a few more cents on the dollar for their investors."

[jbar116]

GREEDY CROOKS ONE AND ALL!

[ibsteve2u]

lolll...sure, the hedge funds are "angels" who always place the interests of the nation and our people first.

Just like the U.S. Chamber of Commerce represents the small to medium business man and woman, and not just the top 50 or so of their largest and wealthiest members...

I do love a good fairy tale on a Monday morning.

[antoniof123]

It is funny but some people are really trying to protect these scum they come up with the same old tired story. Folks they are not going to do what is right unless they have a reason. If anyone who is defending these sucm read over what the other share holders were given up they would see the problem in defending them.

But of course those that are siding with the robber barons are mostly taking there stance from reactionaries and fools. I am siding with the American people no longer with robber barons.

[noloyalisti]

Corporations are never wrong. They never do anything that is against the people and whatever they do is good.

Keep thinking that and we will keep having wars for oil paid for by the taxpayers. We will continue to provide corporate welfare for the already rich. We will keep having our jobs outsourced and keep losing our manufacturing base. Yes corporations are all good.

[whitemale08]

Chavez is not keeping the oil for his "people", but to use the cash to pay for programs that keep him in power. It also helps that he jails or kills opponents, and has taken many many people's private property for "redistribution" to his henchmen. Before you favorbaly compare Obama to Chavez, mahybe you should take a look at what Chavez is actually doing to his country instead of believing what he says he id doing FOR his country.
Posted by hdc77494 at 9:18 AM : May 3, 2009 --

Before you make comments about South America, maybe you should go down there first and see how these big corporations have raided and looted these countries for the last 30 years.

And give me one link to a source where Chavez 'killed' somebody.

And anybody that was 'jailed' under Chavez was probably linked to the spies and traitors that WE FUNDED under Bush to try and topple a President who was elect twice in back-to-back historical landslide elections.

Quit makin'-out with Rush Limbaugh and stop listening to the mainstream media because neither one has any credibility left....NONE WHATSOEVER!

[hdc77494]

Chavez is not keeping the oil for his "people", but to use the cash to pay for programs that keep him in power. It also helps that he jails or kills opponents, and has taken many many people's private property for "redistribution" to his henchmen. Before you favorbaly compare Obama to Chavez, mahybe you should take a look at what Chavez is actually doing to his country instead of believing what he says he id doing FOR his country.

[hdc77494]

The hedge fund investors are groups like the California Teacher's Union Pension Fund and the Chrysler Employee 401K plan. Real sharks. The hedge funds are the ONLY group that has secured debt, entitled to be paid before anyone else. Obama wants to ignore their legal rights because he "hates" hedge funds and "loves" unions.

In Obama's Chrysler deal, the bankers with secured liens for 6.9 billion get 2 billion and zero equity. The UAW , for 3.6 billion and a 4.6 billion dollar note, are getting 55% equity.

Fiat is putting up NO cash. Just a commitment to build a 40mpg car in a US plant and another commitment to build engines in another. They get 35% for the president to carve up ownership based strickly on who his favorites are and not on existing law, or even fairness is the most partisan, and yes, socialist thing I have ever seen in the US.

[mars7578]

I am glad these hedge funds showed their true character.This will make regulation that much easier and tougher.Their insistance on their interest overruling the need of this company as well as the country in general show their narrow position.I hope this judge let them get what they deserve.I've yet to see a law that is not subject to judicial preference.This is the same industry that created this heart attack and want to cash in on the insurance and property of the patient who went to their doctor,took the prescription as prescribed and became disabled.These clowns defense is that you should have read the enclose instructions , which lists interactions, side effects, disclamers and the company liabilities.This should be a awake up call for this administation.,This industry is only going along when forced and uses every opportunity to keep robbing this country.The longer this administation keeps believing that this economy is dependent on highly capitalize financial instutions, the longer these people will show up at the emergency room ,needing help.The action by these creditors is the type of management that will destroy any thing or anybody for short term profits.Some want to blame unions, but nearly every company and individual lost money due to wallstreet.Some firms and individuals we lucky and a few were prepared.If this company as well as others had good management models and not tried to survive off wallstreet gains and made good wage and product decisions ,these companies would have been able to operate on lower profits.Chrysler now has a opportunity to lead the way and put its core operations first and reward is workers and customers as part of it commitment to itself and this country.

[didserve]

What idiot pays laid off workers 90 percent of their wages?

[valentin73]

So, if Chrysler filed for bankruptcy, will there still be Dealers open for business, selling those wonderful Dodge Avengers , Ram Trucks, Chrysler Caravans???? The police departments across America could use the Dodge Chargers as squat cars, as you can already see for yourself. Go cops go!!! Go get 'em........................................................sorry to see these cars go.

[whitemale08]

These are the same laws that have been on the books for decades, but 0bama doesn't care. Please explain to me the difference between the 0bama corporate takeovers and what goes on in third world banana republics?? Now we know why 0bama and Hugo hit it off so well in April.
Posted by jurado at 6:41 PM : May 2, 2009 --

Your problem is that in your anger you forget that it's more like a corporate fascist take-over of the sovereign government of the United States.

I thought it was too late to bail-out the auto-industry but more importantly is the fact that we are still bailing out Goldman Sucks when they are absolutely insolvent because they have trilliions of exposure to worthless derivatives and credit-default swaps.

Now you tell me: "Why are we still bailing out Goldman Sucks".

Hugo Chavez is at least trying to protect his people from the corporate fascists on Wall Street and IMF/World Parasites, the oil in Venezuela belongs to the Venezuelan people not some drug addict like Rush Limbaugh and Exxon Mobile.

[jurado]

Hedge funds, banks, investment houses, it doesn't matter. They own the debt, and they have a duty to their investors to ensure they get paid. And the law is that if Chrysler can't pay it, then Chrysler is in default.

These are the same laws that have been on the books for decades, but 0bama doesn't care. Please explain to me the difference between the 0bama corporate takeovers and what goes on in third world banana republics?? Now we know why 0bama and Hugo hit it off so well in April.

[gold_standard]

"It seems rather short-sighted to risk having the auto sector collapse so that they can get a few more cents on the dollar for their investors."

I thought that was their fiduciary responsibility. Would you pay an investment advisor to lose your money for you?

[beachbug1vw]

Obama is just pissed that he could not order the Investors to go along with his spread the wealth so he could meet his promises to the unions! He is an idiot!

[jab232]

To me, a hedge fund manager who screams because of Chrysler is like a Black Jack player who screams when he goes bust. They're both gamblers and sometimes they lose.

That Chrysler is going into bankruptcy is the fault of the hedge funds, and President Obama was right to fire a shot across their bow.

[tincup356]

He may have gone into the White House totally unqualified to be president...but he's getting a crash course in business..which every congressman should have before even thinking about running for office. Actually he'll more qualified to be president the second time around...if he can still draw the votes. Running around throwing blame willy nilly without having a clue just who the attacks are landing on...not so cool.
Posted by itsjustathought at 12:02 PM : May 1, 2009 ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
Obama and congress are working against a running clock.....that is...as the numbers grow,,,,,,they run out of time .......the numbers that work against them?.....People that lose ,,,,jobs, homes , retirements, EVERYTHING,,,,,,,,,when that number gets large enough,,,,,,people will revolt,,,,,,so my advice to the president and congress,,,,,,you better forget the lobby dollar buddies whom you are handing away monies that came from the people,,,,,,,,and start doing things that will bring jobs back to those people,,,things that will immediately help them, NOT trickle down ,,,,it has been proven that will never work,,,,,,,,Obama needs to understand the PEOPLE are the lifeblood of this country and when they hurt ,,,so does the rest of the country.

[tincup356]

All Hedge Funds are Ponzi Schemes.

I'd run like he11 from them.

They need to be regulated.
Posted by not_fooled_by_Righties at 3:07 PM : May 1, 2009 ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
You already are sucked into one,,,,,,,YOU have a SOCIAL SECURITY ACCOUNT....Social security is the WORLDS BIGGEST ponzi scheme.

[tincup356]

It is hard for the government to criticize anyone in corporate America,,,,,,,,they have already been bought and paid for by them via the lobby dollar,,,,,,,ANYONE who thinks they are represented in Washington,,,,,,is following false hope....In fact to call ANYONE in Washington a representative of the people,,,,Is a huge LIE.

[not_fooled_by_Righties]

EditorHearst= gizz hole

[not_fooled_by_Righties]

Obama the african marxist, government and labor union take-over of the American economy paid for with tax payer dollars.

LMAO
Posted by EditorHearst at 11:00 AM : May 1, 2009

I'll bet you can't even tell us how Obama is a marxist.

Maybe he watches too much Groucho? LOL