Obama worse than Kissinger?

[Ben Kenobi]

nstead, the union just acquired a 55% stake in Chrysler and the bondholders are taking massive hits on the face value of their debt.

Did they do that?

Die UAW motors, die!

[Jon Miller]

Jon, you obviously are STILL HAVING TROUBLE UNDERSTANDING THIS.

Chrysler got a second (or third, or nth chance, whatever you want to call it) with the current secured debt.

Right, and then they needed at least two more.

Then the government stepped in and gave in an n+1 chance which it wouldn't have had otherwise (except possibly by going through bankruptcy).

True.

The people who gave Chrysler their nth chance are WORSE OFF than if the government hadn't stepped in at all!

Just like when the people who gave Chrysler their first chance are worse off than if the people who gave Chrysler their nth chance hadn't done so.

The NEXT GUY isn't going to give a company like Chrysler an nth chance. He's going to withhold funding at the rates that Chrysler paid BECAUSE HE'S AFRAID HE'LL END UP LIKE THIS SET OF SUCKERS.

This is a bad idea because it'll drive MORE COMPANIES INTO BANKRUPTCY, absent additional bailouts.

And if the company is being mismanaged like Chrysler, I agree, it is good that the funding should be withheld. More companies should go into bankruptcy, rather then continue to be loaned money to mismanage.

Currently the interest rates are lower than they should be due to soft bailouts. This will rise them, for companies that are being mismanaged. And maybe force the company to fail or fix itself, which is the goal.

Honestly, this is the most retarded thing this new administration has done. Previously the loss was isolated to whatever money the government put into these ****holes of companies. NOW the loss can be transmitted across the entire ****ing economy as everybody else watches the **** going down and starts withholding money from any company which shows even a hint of a problem. That's PRECISELY what we don't want (what we're just getting over, actually).

The loss was with the money the government put into the companies, as well as with future companies which would not be fixed up due to the expectations fo government bailouts.

Now people know that even government bailouts have risk, and there will be further reason to fix things rather than get to the point where they become (politically) necessary.

JM

[KrazyHorse]

Just like when the people who gave Chrysler their first chance are worse off than if the people who gave Chrysler their nth chance hadn't done so.

Actually, no Jon. They aren't. Corporate debt rolls over far more frequently than that. Otherwise it wouldn't be possible for the system to operate as it does.

IIUC Chrysler has NO unsecured debt. All the unsecured debtholders have been paid off.

[Jon Miller]

Obligations/debt, same sort of thing.

JM

[Drake Tungsten]

Unafraid In Greenwich Connecticut
Clifford S. Asness
Managing and Founding Principal
AQR Capital Management, LLC

The President has just harshly castigated hedge fund managers for being unwilling to take his administration’s bid for their Chrysler bonds. He called them “speculators” who were “refusing to sacrifice like everyone else” and who wanted “to hold out for the prospect of an unjustified taxpayer-funded bailout.”

The responses of hedge fund managers have been, appropriately, outrage, but generally have been anonymous for fear of going on the record against a powerful President (an exception, though still in the form of a “group letter”, was the superb note from “The Committee of Chrysler Non-TARP Lenders” some of the points of which I echo here, and a relatively few firms, like Oppenheimer, that have publicly defended themselves). Furthermore, one by one the managers and banks are said to be caving to the President’s wishes out of justifiable fear.

I run an approximately twenty billion dollar money management firm that offers hedge funds as well as public mutual funds and unhedged traditional investments. My company is not involved in the Chrysler situation, but I am still aghast at the President's comments (of course these are my own views not those of my company). Furthermore, for some reason I was not born with the common sense to keep it to myself, though my title should more accurately be called "Not Afraid Enough" as I am indeed fearful writing this... It’s really a bad idea to speak out. Angering the President is a mistake and, my views will annoy half my clients. I hope my clients will understand that I’m entitled to my voice and to speak it loudly, just as they are in this great country. I hope they will also like that I do not think I have the right to intentionally “sacrifice” their money without their permission.

Here's a shock. When hedge funds, pension funds, mutual funds, and individuals, including very sweet grandmothers, lend their money they expect to get it back. However, they know, or should know, they take the risk of not being paid back. But if such a bad event happens it usually does not result in a complete loss. A firm in bankruptcy still has assets. It’s not always a pretty process. Bankruptcy court is about figuring out how to most fairly divvy up the remaining assets based on who is owed what and whose contracts come first. The process already has built-in partial protections for employees and pensions, and can set lenders' contracts aside in order to help the company survive, all of which are the rules of the game lenders know before they lend. But, without this recovery process nobody would lend to risky borrowers. Essentially, lenders accept less than shareholders (means bonds return less than stocks) in good times only because they get more than shareholders in bad times.

The above is how it works in America, or how it’s supposed to work. The President and his team sought to avoid having Chrysler go through this process, proposing their own plan for re-organizing the company and partially paying off Chrysler’s creditors. Some bond holders thought this plan unfair. Specifically, they thought it unfairly favored the United Auto Workers, and unfairly paid bondholders less than they would get in bankruptcy court. So, they said no to the plan and decided, as is their right, to take their chances in the bankruptcy process. But, as his quotes above show, the President thought they were being unpatriotic or worse.

Let’s be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable with their own money, and many are spectacularly so, but if they give away their clients’ money to share in the “sacrifice”, they are stealing. Clients of hedge funds include, among others, pension funds of all kinds of workers, unionized and not. The managers have a fiduciary obligation to look after their clients’ money as best they can, not to support the President, nor to oppose him, nor otherwise advance their personal political views. That’s how the system works. If you hired an investment professional and he could preserve more of your money in a financial disaster, but instead he decided to spend it on the UAW so you could “share in the sacrifice”, you would not be happy.

Let’s quickly review a few side issues.

The President's attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to "sacrifice" some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power.

Let’s also mention only in passing the irony of this same President begging hedge funds to borrow more to purchase other troubled securities. That he expects them to do so when he has already shown what happens if they ask for their money to be repaid fairly would be amusing if not so dangerous. That hedge funds might not participate in these programs because of fear of getting sucked into some toxic demagoguery that ends in arbitrary punishment for trying to work with the Treasury is distressing. Some useful programs, like those designed to help finance consumer loans, won't work because of this irresponsible hectoring.

Last but not least, the President screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large. Find me a hedge fund that has been bailed out. Find me a hedge fund, even a failed one, that has asked for one. In fact, it was only because hedge funds have not taken government funds that they could stand up to this bullying. The TARP recipients had no choice but to go along. The hedge funds were singled out only because they are unpopular, not because they behaved any differently from any other ethical manager of other people's money. The President’s comments here are backwards and libelous. Yet, somehow I don’t think the hedge funds will be following ACORN’s lead and trucking in a bunch of paid professional protestors soon. Hedge funds really need a community organizer.

This is America. We have a free enterprise system that has worked spectacularly for us for two hundred plus years. When it fails it fixes itself. Most importantly, it is not an owned lackey of the oval office to be scolded for disobedience by the President.

I am ready for my “personalized” tax rate now.

http://www.businessinsider.com/henry-blodget-this-hedge-fund-managers-not-afraid-of-big-bad-obama-2009-5

Right on, brother.

[KrazyHorse]

Perhaps congress should threaten to enact a 90% tax on whatever debt repayment the bondholders receive. That'll show those greedy bastards.

[chequita guevara]

Wahhh, I'm a poor little billionaire.

[KrazyHorse]

Perhaps you should have bothered reading through my post where I explained that this has nothing to do with feeling bad for the debtholders.

[DinoDoc]

Wahhh, I'm a poor little billionaire.

Yeah, how dare they try and live up to thier responsibilities in the face of a President attempting threaten them into violating the fiduciary they have to protect thier client's money.

[chequita guevara]

one incident from that scene haunted me then, and still gives me bladder-spasms today. It involved the most notorious of all the Santa Cruz serial killers, Edmund Kemper, who murdered and rapd hitchhiking hippie girls, chopping up their bodies and sodomizing the cuts. One day Kemper picked up a young dance student named Aiko Koo, drove her into the woods, and pulled out a gun to terrify her. It worked. As Kemper later said, “I pulled the gun out to show her I had it...she was freaking out. Then I put the gun away and that had more effect on her than pulling it out.”

Now here comes the really disturbing part: instead of killing her right then and there, Kemper put the gun down, stopped his car and got out, then closed and locked the door. I repeat: Kemper locked himself out of the car. With his gun inside, next to the girl.

Guess what the girl did? She unlocked the door and let him back in.

As Kemper himself later explained, “She could have reached over and grabbed the gun, but I think she never gave it a thought.”

This is what little people who whine for the powerful do.

[Drake Tungsten]

You're such a dumb**** sometimes, che. Why don't you drop the retarded communism and come into the light? There's still hope for you...

[notyoueither]

The irony is that you let ideology blind you to necessity. (I realize the irony of that statement coming from me). The point being, you berate the government for taking actions that are necessary to keep American capitalism from collapsing, even if they violate some of the basic tenets of free market ideology. You'd rather the whole house of card collapse than see the government not play by the rules.

That can lead to a larger collapse when people can no longer trust the government to adhere to the rule of law.

If the economy is tanking, then corporations should not expect business as usual, but rather extraordinary measures from the government that might throw them under the bus in order to save the whole system. In the long run, it's in the interests of capitalism for the government to run roughshod over individual corporations if it keeps the whole system running. It's the only reason its still around.

Actions like this undermine the system. Eventually there no longer is a system. There is the whim of the leaders of the party at the top.

Hello, Mexico!

[Straybow]

tldr

The UAW has screwed themselves over. They've repeatedly thrown their weight around at bargaining until none of the big three US car manufactureres can make a profit selling cars. They only make profit on selling parts.

After Chrysler was bailed out thirty years ago they were making about $100 per car and GM was making about $1000. Ford was in the red with cars, but made it up selling trucks. They've all been in the red for at least a decade, maybe longer.

If they're "too big to fail" the government should've intervened and forced the UAW to give up benefits and pay to make the companies profitable. Tell them to put up and shut up, or start looking for jobs somewhere else. But that's never going to happen.

[Drake Tungsten]

tldr

The UAW has screwed themselves over.

You obviously didn't read anything. The UAW is making out great in the Chrysler deal.

[trev]

Liquidate Chrysler. In the long run two viable companies is better than 3 unviable companies. Also to stop flowon effects, the gov't should provide Chryslers suppliers with financial support so they can continue to supply Ford and GM with parts. This solution will assist GM and Ford to pick up extra sales and marketshare with one less competitor and therefore return them to profitability quicker.