Sunday, May 3, 2009

On Chrysler's Bankruptcy

I haven't been monitoring the Chrysler situation all that closely, but what I have seen, I find pretty disturbing.  Most pundits' reactions have had a flavor similar to Restless' take...
...but nonetheless it seems to me that this is likely the best solution for essentially everyone, with the glaring exception of the bondholders.
Mark me as a hopeless finance romantic, but from my perspective, the mistreatment of the bondholders by the government is a pretty serious issue.   The bondholders in question hold senior debt, which means under the rule of law, they have senior rights to the company's assets.  But under the rule of Obama, that seems to no longer be the case, as some union benefits, which should be junior to the bondholders in the pecking order, have been elevated to equal status by Obama fiat.   This is a wonderful political gambit by Obama, thrilling to to his constituency, even if leaves tired, old, rule of law cranks like me feeling chill.   I am guessing any potential lenders in the future will share my queasiness.  Why loan anyone money if the government can wipe out your claim at its whim.  I thought Obama was trying to revive the credit markets, not suffocate them.

As far as the bankruptcy itself goes, I have already demonstrated by inability to comprehend bankruptcy law, and I'll leave it to the smarter legal heads on KP to sort out mysteries like section 363 of the bankruptcy code.

Finally, if you haven't read any of the allegations concerning intimidation by the Obama administration, you absolutely need to take a gander at this.   Pretty lively stuff, and while it is purely he-said-she-said at the moment, you must be well into your second pitcher of the Kool-Aid not to believe this type of thing is going on.

UPDATE:  I found a nicely presented argument from a hedge fund manager echoing some of my thoughts above.   It's hard to pity hedge funds or their managers, considering some of the astronomical bonuses that have been received over the last decade, but before you give Obama a giant huzzah and gleefully throw those greedy hedge funds under the bus, at least consider their point of view.

1 comment:

Restless Native said...

Gams, you know I love you, but I have to admit I am sure that the conversation beginnning with "Who the fuck do you think you're dealing with" happened. I am sure it did. I also do love 'Pubs finding themselves shocked at this kind of rhetoric coming out of the White House. Very un-ladylike. The difference between this White House and the last is not in the tone or the tenor but in the counter-party and the issue. Bush & Co twised arms as well as LBJ and probably Geo. Washington. This is not new. The Prima Ballerina is a tough SOB and the people he is turning the screws on for the reason which said screws are being turned, for me, simply don't elicit any kind of "oh dear" response.

Fascism? Come on. Really. Bondholders rights v. everyone's freedom to have a phone conversation not listened to by the NSA. Or have thier library card (quaint) be reviewed?

If we are a fascist state we have Cheney and Rummy to thank via W.

I think contract law is very important and I don't think, in normal circumstances, that bondholders should have to take a haircut. Liquidate the company normally and let everyone queue up for their share. Notwithstanding, we are not in Kansas anymore. sweetheart, and things are going to get a bit yucky down in the trenches.