Chrysler Bankruptcy Exposes Dirty Politics
Chrysler's sad tale that led to this week's bankruptcy hearing in New York is not only an important business and political story. It also encompasses morality, the rule of law and strong-arm tactics used by some politicians.
Our story begins with the slow downfall of Chrysler, which succumbed to bankruptcy after experiencing a steep sales decline of 48 percent in one year. During its slide, Chrysler borrowed money from lenders and in return signed a contract promising that as so-called senior creditors, they'd get paid before anyone else if the company went under.
These creditors, by the way, represent something of a cross-section of America: the University of Kentucky, Kraft Foods' retirement fund, the Bill and Melinda Gates Foundation, pension funds, teachers' credit unions, and so on.
A normal bankruptcy filing would be straightforward. Senior creditors get paid 100 cents on the dollar. Everyone else gets in line.
But President Obama and his allies don't want that to happen. So they interfered on behalf of unions (the junior creditors) and publicly upbraided the senior creditors who were asserting their contractual rights and threatening to head to bankruptcy court.
Last week Mr. Obama lambasted them as "a small group of speculators" who "endanger Chrysler's future by refusing to sacrifice like everyone else."
Rep. John Dingell, a Michigan Democrat, sent reporters a statement calling the creditors "vultures" and "rouge hedge funds." Michigan Gov. Jennifer Granholm piled on, taking aim during her radio address at a "few greedy hedge funds that didn't care how much pain the company's failure would have inflicted on families and communities everywhere."
It must be a coincidence that the United Auto Workers has handed $25.4 million to federal politicians over the last two decades, with 99 percent of that cash going to Democrats. And that Mr. Obama's final campaign stop on Election Day was a UAW phone bank.
If those politicians thought about this a bit more, they'd probably realize their mistake. Creditors didn't force Chrysler's management to head to the capital markets and beg for funds: It was poor management, uncompetitive wages, and a union that opposed pay cuts.
Without those greedy "vultures" and "rogues" injecting sorely-needed cash into a business they knew was risky, Chrysler might have been forced to declare bankruptcy much earlier. (And now that lenders know they may be demonized by the president, will they be as likely to help out next time?)
One of the better critiques of this unusual situation comes from Clifford Asness, managing partner at a $20 billion hedge fund named AQR Capital Management. His essay responds to what he called "toxic demagoguery" and says "the president's attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him."
On Wednesday, the list of creditors standing up for their rights shrunk and now includes OppenheimerFunds, Stairway Capital, Schultze Asset Management, Group G Partners, and Foxhill Capital Partners - which hold a combined $295 million of about $6.9 billion in secured Chrysler debt.
A document that the non-TARP creditors filed with the bankruptcy judge about the proposed sale to Fiat says: "The sale is far from an arm's length transaction, but rather, is the result of a tainted sales process dominated by the United States government... It is a sale that was orchestrated entirely by the Treasury and foisted upon (Chrysler)... Well before the filing, (Chrysler) had ceased to function as an independent company and had become an instrumentality of the government."
So if you're keeping score, you have a bankrupt company depending on the government for money negotiating with some TARP-funded creditors depending on the government for money and still more creditors who may hold insurance policies with AIG, which depends on the government for money. And we're already hearing similar allegations about General Motors and political interference.
One disturbing report came from a well-respected attorney representing the dissident Chrysler creditors. Thomas Lauria, the head of White & Case's bankruptcy practice, says that he was threatened by Steven Rattner, the White House's auto task force chief. (A White House spokesman denies making any threats.)
"I represent one less investor today than I represented yesterday," Lauria said on a Detroit radio show. "One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight. That's how hard it is to stand on this side of the fence." Lauria said that his clients were willing to compromise on 50 cents on the dollar, but the government offered them only 29 cents.
In the Federalist Papers in 1788, James Madison wrote that "laws impairing the obligation of contracts are contrary to the first principles of the social compact, and to every principle of sound legislation." Unfortunately, Washington politicians seem to pay little attention to history, morality, or the rule of law.
Copyright 2009 CBS. All rights reserved. Our story begins with the slow downfall of Chrysler, which succumbed to bankruptcy after experiencing a steep sales decline of 48 percent in one year. During its slide, Chrysler borrowed money from lenders and in return signed a contract promising that as so-called senior creditors, they'd get paid before anyone else if the company went under.
These creditors, by the way, represent something of a cross-section of America: the University of Kentucky, Kraft Foods' retirement fund, the Bill and Melinda Gates Foundation, pension funds, teachers' credit unions, and so on.
A normal bankruptcy filing would be straightforward. Senior creditors get paid 100 cents on the dollar. Everyone else gets in line.
But President Obama and his allies don't want that to happen. So they interfered on behalf of unions (the junior creditors) and publicly upbraided the senior creditors who were asserting their contractual rights and threatening to head to bankruptcy court.
Last week Mr. Obama lambasted them as "a small group of speculators" who "endanger Chrysler's future by refusing to sacrifice like everyone else."
Rep. John Dingell, a Michigan Democrat, sent reporters a statement calling the creditors "vultures" and "rouge hedge funds." Michigan Gov. Jennifer Granholm piled on, taking aim during her radio address at a "few greedy hedge funds that didn't care how much pain the company's failure would have inflicted on families and communities everywhere."
It must be a coincidence that the United Auto Workers has handed $25.4 million to federal politicians over the last two decades, with 99 percent of that cash going to Democrats. And that Mr. Obama's final campaign stop on Election Day was a UAW phone bank.
If those politicians thought about this a bit more, they'd probably realize their mistake. Creditors didn't force Chrysler's management to head to the capital markets and beg for funds: It was poor management, uncompetitive wages, and a union that opposed pay cuts.
Without those greedy "vultures" and "rogues" injecting sorely-needed cash into a business they knew was risky, Chrysler might have been forced to declare bankruptcy much earlier. (And now that lenders know they may be demonized by the president, will they be as likely to help out next time?)
One of the better critiques of this unusual situation comes from Clifford Asness, managing partner at a $20 billion hedge fund named AQR Capital Management. His essay responds to what he called "toxic demagoguery" and says "the president's attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him."
On Wednesday, the list of creditors standing up for their rights shrunk and now includes OppenheimerFunds, Stairway Capital, Schultze Asset Management, Group G Partners, and Foxhill Capital Partners - which hold a combined $295 million of about $6.9 billion in secured Chrysler debt.
A document that the non-TARP creditors filed with the bankruptcy judge about the proposed sale to Fiat says: "The sale is far from an arm's length transaction, but rather, is the result of a tainted sales process dominated by the United States government... It is a sale that was orchestrated entirely by the Treasury and foisted upon (Chrysler)... Well before the filing, (Chrysler) had ceased to function as an independent company and had become an instrumentality of the government."
So if you're keeping score, you have a bankrupt company depending on the government for money negotiating with some TARP-funded creditors depending on the government for money and still more creditors who may hold insurance policies with AIG, which depends on the government for money. And we're already hearing similar allegations about General Motors and political interference.
One disturbing report came from a well-respected attorney representing the dissident Chrysler creditors. Thomas Lauria, the head of White & Case's bankruptcy practice, says that he was threatened by Steven Rattner, the White House's auto task force chief. (A White House spokesman denies making any threats.)
"I represent one less investor today than I represented yesterday," Lauria said on a Detroit radio show. "One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight. That's how hard it is to stand on this side of the fence." Lauria said that his clients were willing to compromise on 50 cents on the dollar, but the government offered them only 29 cents.
In the Federalist Papers in 1788, James Madison wrote that "laws impairing the obligation of contracts are contrary to the first principles of the social compact, and to every principle of sound legislation." Unfortunately, Washington politicians seem to pay little attention to history, morality, or the rule of law.
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Secured credit lines are being extended to individuals and business every day. This business with Chrysler has had NO EFFECT WHATSOEVER on business as usual.
Instead of repeating the lies crafted by Wall Street propagandists, why don't you go an apply for a secured line of credit?
That is, if you weren't all a bunch of unemployable morons that don't have the balls or the brains to do anything but re-post your favorite political lies on the cbsnews.com boards.
Credit headlines from this week:
Sears Swings to a Profit and Secures New Credit
J. Alexander?s Announces New Credit Facilites
ZTE Bags Another $10B in Credit
Canwest raises $175M in new financing
NHL is latest to get a credit deal done
Golden Star Resources secures $30M credit line
THQ Announces Commitment for $35 Million Senior Secured Credit
Get a f'n clue and a job!!!!!
I immediately called Chrysler because now I'm out almost $300.00 that I've already paid bills on! After 20 minutes on the phone trying to understand foreign accents I'm supposed to be receiving replacement checks (yea checks) in 10 to 14 days!! But they won't pay for the bank fees that I now have to eat. Chrysler even had the nerve to tell me to call my bank and ask them to waive the fees. Again...***. It's not my banks fault that Chrysler wrote me 2 hot checks, not my fault that Chrysler wrote me 2 hots checks....IT CHRYSLER'S FAULT!
At this time, I would be very nervous to purchase anything Chrysler. Its the little people like us who are going to suffer. Thank God I traded in my Chrysler for a Suzuki. I guess it worked out for the best that Chrysler wouldn't give me a good deal and Suzuki could. What does that say? Anyone who currently owns a Chrysler and purchased an extended Warranty and Gap insurance beware you could be screwed in the end!
So in essence what has been accomplished by a few Chrylser employees has now sent ripples throughout the entire bond market. Instead of making credit easier, now it will make it more difficult for companies struggling to get credit. Bond values are plummeting just like 401Ks and all of the equity here in the US.
The dems must get over their infatuation with the poor, or else the US is going to be an entire nation of excactly that - an entire nation of poor people.
You did not vote for Obama, never campaign for him, and has never been a democrat. You don't have the makeup of a democrat, and you want join the party that survive on the suffering of others? The party that vehemently opposed: the civil rights movement, workers rights, financial aid to students, and subsidized student loans. Programs that offer equal opportunity to everyone, including poor people to be the best that they can be. Spare me your lies; I think you've found a party that fits your psychograph.
Do you know how many high paid lawyers are the pay rolls of these investors, if the government did anything illegal, they would have been court litigating. I bet you so closed minded so you don't how often the so call "victims" investors take advantage of the little guy. The author tried humanized the investors, trust me these are hedge funds and mutual funds who only care about their percentages and commissions.
If the government doesn't fight for the workers, who's going to fight for them?