…Now, while many stakeholders made sacrifices and worked constructively, I have to tell you, some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout.
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 those who held out when everybody else is making sacrifices. That’s why I’m supporting Chrysler’s plans to use our bankruptcy laws to clear away its remaining obligations so the company can get back on its feet and on to a path of success.
That statement by President Obama was horrifying at best.
First of all the responsibility of those “hedge fund” and other inverstors is not to the “public good” its to those share holders that put up the money to make the investment. Those who were negotiating in their name had the responsibility to get the most money possible out of any Chrysler deal.
According to all sources, these holdout investors believe that they can get more out of a bankruptcy court then what they were getting from Uncle Sam. They represent those first in line to get money.
The President’s speech was very misleading. Were they willing to sacrifice ? The reports are that they were willing to take 40 Cents on the Dollar. Sounds like a sacrifice to me. Part of the problem is that the President was trying to protect his union buddies once again. And since the other investors that Obama was talking about received TARP funds, they were being well compensated for playing along with the Obama plan. TARP was making up the difference in the losses, these hedge funds had no TARP to bank on.
Obama’s “public good” stance was just what got us into this mess. Government pushed the banking community to make loans to those who could not afford them for the “public good.”
Ask Ken Lewis of Bank of America what happens when you make decisions based on the “public good” and what kind of support you get from the government.
In the end, those hedge funds made a very patriotic decision to push Chrysler into bankruptcy, and President Obama’s little rant was a disgusting display of his hatred toward the capitalist system.
Hooray for Chrysler’s Rogue Creditors
By Rick Newman
One rap against President Obama is that he never gets mad. The Chrysler bankruptcy may have proven otherwise.
When Obama singled out “investment firms and hedge funds” that wouldn’t agree to restructure Chrysler’s debt on the government’s terms, his scorn was palpable. “I don’t stand with them,” he said pointedly. “I don’t stand with those who held out when everybody else is making sacrifices.”
The president was referring to a group of financial firms that hold a big chunk of Chrysler’s $6.9 billion in debt. Some of Chrysler’s creditors agreed to take 33 cents on the dollar and let Chrsyler off the hook. But other creditors said no to that deal, gambling that they’d get more from a bankruptcy judge. They may be right: Fitch Ratings estimates that bondholders could get 50 to 70 percent of their money back if Chrysler liquidates, and a bit less if Chrysler emerges as a going concern. In either case, that’s a better outcome for creditors than the 33 percent return they would have gotten under the government’s offer.
On $1 billion in debt, the difference between a 33 percent and a 50 percent redemption is $170 million. On the whole $6.9 billion in debt, the difference would be almost $2 billion. Sure, some of that accrues to rich investors who can probably afford the haircut, but much of the money is invested on behalf of pension funds, mutual funds, and the retirement accounts of ordinary Americans. Should they really accept a deeper loss because the government asked them to?
Obama implied that it’s in the nation’s interest for private firms to make sacrifices to facilitate a government bailout of a failed company. There’s some precedent for this. Last fall, the Bush administration and its insistent Treasury Secretary, Henry Paulson, “persuaded” a bunch of big banks to take billions in bailout money. Some of them, like Citigroup and Bank of America, clearly needed it. Others, like Goldman Sachs, could have gotten by without the money. The idea was to include everybody in the bailout, so there would be no stigma associated with a bank taking government money – and hopefully no panic by the bank’s customers.
Several months later, many of those banks wish they had said no. Goldman wants to pay back $10 billion in bailout money as soon as it’s “allowed” to. The chairman of Wells Fargo has called the government’s intervention in his firm “asinine” and complained that it has actually hurt the bank’s performance. While universal bailouts may have destigmatized the neediest recipients, they’ve also linked the fate of healthy banks to that of sick ones.
Taxpayers, meanwhile, are left puzzling over why the government is spending their money to bail out banks that seem downright ungrateful. And instead of allowing bad banks to fail and good ones to survive, which would make the whole industry healthier, the government seems to be administering narcotic to the whole industry, whether needed or not.
Bankruptcy court exists for a good reason: To deal with companies like Chrysler that need prudent relief from their debts, or are so broken that they need to be liquidated. Artificially propping up Chrysler would only prolong problems that are plaguing the whole industry. It could even harm competitors like Ford, which is struggling too but so far restructuring itself without government aid. Other companies, like Circuit City and Linen ‘n Things, have declared bankruptcy without the luxury of a presidential intervention. The only thing that seems to make Chrysler different is that it’s bigger and has better lobbyists.
So if Chrysler’s creditors are making it harder for the uncompetitive automaker to survive on bailouts and giveaways, that may very well be a good thing. It might even mark the return of capitalism to an economy becoming too dependent on government assistance. It must take guts to say no to the president. But it’s a step toward reasserting the role of business in the economy – and diminishing the role of politics.