I hope you all have been paying attention to what the socialists were proposing to the bond holders. http://online.wsj.com/article/SB124105303238271343.html#mod=djemEditorialPage
So our new auto czar in chief who claimed last night that he doesn't want to nationalize the auto industry is trying to create some real new corporate law. As has been reported the negotiations for GM are also breaking down. What the auto czar in chief, or Barry as he used to like being called, has told the bondholders is that for their 27.2 billion in bonds they would get 10% of the new GM stock. For the governments 16.2 billion Barry and his mates would take 50% of the stock. Huh, where in the heck do they get off making this type of demand on the bond holders? But wait the best is yet to come. The UAW which owns no bonds directly would get 40% of the new equity. I have never ever in my life seen a proposal as wacky as this one. I hope the bond holders laughed in Barry's face. Talk about payback for votes. So the estimates are that the government takes around 87 cents on the dollar. The UAW gets an estimate of around 76 cents on the dollar. The bond holders get 5 cents on the dollar. So the group with the largest claim in a bankruptcy filing gets almost nothing in the restructuring if it is agreed to. What would you do if you were a bond holder? Especially a hedge fund or a mutual fund that owes a fiduciary duty to your investors. Under the bankruptcy law these three groups are all equal creditors.
This is the same reason that Chrysler is now BK. Don't believe any of the BS that Barry is spouting now. His blasting of the hedge fund bond holders saying that it is their fault for holding out for a sweeter deal is laughable. Has the most arrogant President in history ever heard of corporate law? If I am managing a hedge fund and I agree to the proposal from Barry, the new car czar, I better start cleaning out my office and hiring a good attorney to represent me in all of the investor law suits. What ever happened to all of the transparency that this administration promised?
Welcome to AmeriKa. I hope you all love socialism. It has worked so well in so many other countries.
President Thomas Jefferson said "That government is best which governs least". President Ronald Reagan said "That government is usually the problem, not the solution". We are now seeing how wise these two men really were.
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8 comments:
Today was an opening salvo in the Chapter 11 War. The bondholders will do better than proposed. Our president was simply looking out for the taxpayer.
The bondholders had not made a serious offer to date. They were asking double what the bonds were trading for. Now, they can wrestle in court.
This is also meant as an eye opener for GM bondholders - I hope they are paying attention.
Rich please, honestly, be quiet.
How can you as a business man, sit there and listen to a government official (yes that is what your boy is) denigrate FREE MARKET...FREEDOM decisions of hedge funds that were unwilling to make a business deal?!!!
My GOD (and I do not use that lightly) how can you support the head of our government publically strong arming private enterprise.
At a time of our relationship, you discribed yourself as a moderate. Bullshit if you can truly support this travesty.
Gary the sissy, so remember your prose on Walmart, that mean company who only wants to make a profit without considering the "social" consequesnces. What happens when "O" targets medical supplies? You know, those damn salesmen, they do not want to work with us. Let's nationalize the medical sales business.
OH, and Hair! (new exclamation mark added to your name). So all those silly social issues you talk about...let's go to medical technology, or better, your investments...yes the man, the "O" has decided that what ever your current investments are just not "socially" acceptable, you take a twenty percent cut in your income or we come after you. You know, for the common good.
That this country does not want this wacko to fail...
What a joke.
The Good Doctor must not be familiar with the Bankruptcy process. What travesty? Anything and everything will be adjudicated in Federal Court under existing US Bankruptcy statutes.
The bondholders were trying to "hold up" a failing enterprise with the idea that Uncle Sam would write the check. They overplayed their hand and they were disappointed.
The only clout that Obama enjoys is money. He has it and Chrysler needs it. He can attach any strings he likes. If the hedge funds want to raise more money and provide it to Chrysler, then they will get to name the tune. That is how it works.
I never suggested that the government should get involved with WalMart. Someone called them patriotic, or brave, or some BS name and I took them to task on the notion of WalMart having a conscience. They don't. They'd move into a small town, then proceed to lower their drug prices to below cost until the only pharmacy left in town had to go under--Then they'd hire the pharmacist at half his previous pay.
The government shouldn't get involved with WalMart. We should stay away and let them die a capitalist death.
Rich,
You are again way off base. On top of it you are all failing to comment on the biggest travesty of the entire debacle and that is that Barry wants to give the UAW 40% of the equity and the non Tarp money investors 10%. That is not trying to open the eyes of the bondholders that is trying to rob one party in favor of another. If you don't think this is going to send a chill when it comes to troubled companies raising private money then you are completely clueless like our President. This administration is extremely dangerous because they are so stupid and arrogant. This appears to be part of the plan, scare the private investors out and let the government run everything. Welcome to socialism.
The Chrysler deal is even worse for the non Tarp invetors. They would have had to be a stupid as Joe Biden to have taken the deal. Barry made this wonderful comment: "I don't stand with those who held out when everyone else is making sacrifices." So the bond holders should take pennies on the dollar and the UAW should own 55% of Chrysler and get 50 cents on the dollar? Under the plan offered to the non Tarp investors the politically favored UAW would basically steal money from the bond holders. What does this have to do with the taxpayers Rich?
These plans are so idiotic that it hurts to think that these are the same people who are running the country we live in.
For Chrysler and GM, the new car czar in chief's plan spells disaster. It is inconceivable that the UAW, the principal source of Chrysler's and GM's problems, will manage the companies back to profitability. More likely, Chrysler and GM will become vehicles through which the federal government provides uneconomic subsidies to unionized auto workers and retirees. In other words the tax payers will continue to pay and pay and pay.
Michael Barone makes a wondeful point on this debacle.
"The bondholders made a good point. They are secured creditors, and in our bankruptcy law secured creditors get paid off in full before unsecured creditors get anything. That's a sound legal principle: why would secured creditors lend anyone anything unless they can get their security back if the loan isn't paid off? In this case, the small bondholders were willing to settle for only 60% of what they were owed. But, they complain, the government wouldn't negotiate directly with them, but only through JPMorganChase, which (unwillingly) took TARP money on October 13 and thus is under pressure to do what the government wants.
Translation into politispeak: The government squeezed the small bondholders too hard in order to protect the United Auto Workers, which of course has over the years been a bounteous source of money (and manpower) for the Democratic party."
I couldn't have said it any better.
The Barry administrations conduct in this affair has been disgraceful. Our bankruptcy laws are well developed and are fairly implemented by experienced bankruptcy judges. Priority among creditors is established according to legal rules and precedents. The process is transparent and subject to appellate review. But in this case, the law did not favor the parties who have the most influence with our current President notably, the UAW so Barry substituted arrogant political threats and bullying for due process. Il Duce would have approved.
For anyone to defend this conduct is equally disgraceful and contrary to all of this countries principles. Now watch Fiat back out. Who could blame them if they are paying any attention to what it will be like to be partners with Barry and his boys.
Mark -
You are looking at this through a warped political lens rather than a pragmatic business view.
1. This will be adjudicated in Federal Court under existing Bankruptcy law. What is wrong with that?
2. If liquidation will bring more for the secured creditors than the company plan, liquidation will be the route. A federal judge will see to it.
3. How much is dormant industrial property selling for these days in Michigan, Ohio and Illinois? Not much. How much for Chrysler patents (all the valuable ones remaining with Daimler)? Even less.
4. The historical capital structure is not being disturbed. The UAW is not only a creditor with $10B+ outstanding, they will be an integral part of the new Chrysler. They have made still more concessions, a ongoing process since the late '70's. The US and Canadian governments are providing DIP financing. Fiat is providing a platform, engineering and entree into overseas markets.
5. 70% of bondholders support the company plan. 30% do not. These generous folks offered to take 60% of par, even though the capitalist free market was paying 15%. So, someone buying debt on Tuesday would be able to quadruple their money on Wednesday if the dissident bondholders had their way. Gosh, how is that unreasonable?
6. The government has legitimate interests - retaining a manufacturing base and tens of thousands of jobs. The Pension Benefit Guarantee Corp (taxpayers) will be on the hook if the UAW obligations are shucked.
7. I can't imagine why anyone without an axe to grind would oppose the Obama Administration approach.
8. Calling the likes of Geithner and Summers stupid is arrogant and dim witted in and of itself.
I am sure that if you were managing a fund with a fiduciary duty that you would just say sure I will take the 5% and yes it is great that the UAW pension fund gets a much larger chunk. You need to go back and read some corporate law books. What the administration is trying to do is robbing investors to make thier favored class better off. In corporate law it does not matter if you work for the company or not so there is no basis in law for the UAW to get a larger portion than the private investors. How can anyone support the government trying to bully and strongarm private investors into making a bad deal and then going to the public and making statements like Barry did about Hedge Funds being greedy. Clearly another example of the class warfare that this administration continues to wage. It is as obvious as the nose on your face. How can anyone in their right mind support this type of governmental intervention. It is anti-American and almost facist.
What Barry and his boys are doing is indefensible and the non Tarp investors had no choice but to say NO. GM will also quickly go into bankruptcy as well. Don't worry it is now so obvious that Barry will do whatever it takes to make his loyal union members not take the short end including pumping some more of the tax payers money into the Union pension funds and guaranteeing union retirement benefits. Geithner and Summers are stupid and arrogant for even proposing this deal since they should know better. But then it became public yesterday that Rahm Emanual is now running the Treasury Department. That better explains how such an unfair deal can even be proposed.
Mark - when is the last time you were his moved by a bankruptcy case? Your fevered interest betrays the fact that yours is a political view, not business.
The company proposes a plan that works best for them. The dissident bondholders do the same. It gets hashed out in court under established law.
Did you expect the company to subjugate it's interests to the bondholders and just sign on to their plan? That is not how it is done.
I expect that negotiations will produce the best possible outcome for all stakeholders under the circumstances.
God bless capitalism and our federal bankruptcy statutes!
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