Must read in Chrysler Debacle: Letter from eeevil “hedge fund managers”
Posted by danishova on May 1, 2009
Listen up Barack! As you demonize this group, remember that in this country you do not have the right to arbitrarily change bankruptcy laws at your whim.
As a “Constitutional Lawyer” you, of all people, should be aware of the fundamental concepts which separate us from Banana Republics, fascist, or totalitarian states.
You do not get to ignore the law, and pick winners and losers (in order to, say, reward and empower the United Automakers Union at the expense of senior investors). As the qando blog notes: Democrats, meanwhile, have looked to the United Auto Workers for support at the expense of senior secured loans. Since 2000, the union has given $12.5 million to Democrats compared with only $94,540 to Republicans. More about this disgraceful attempt to run around senior creditors here.
Here are some helpful definitions to keep in mind for laypeople (like moi):
There are two purposes for a loan secured by debt. In the first purpose, by extending the loan through securing the debt, the creditor is relieved of most of the financial risks involved because it allows the creditor to take the property in the event that the debt is not properly repaid. In exchange, this permits the second purpose where the debtors may receive loans on more favorable terms than that available for unsecured debt, or to be extended credit under circumstances when credit under terms of unsecured debt would not be extended at all. The creditor may offer a loan with attractive interest rates and repayment periods for the secured debt.
In other words, it provides the advantage of favorable terms to the borrower, in exchange for seniority in the event of default or bankruptcy. Seniority is defined here:
In finance, seniority refers to the order of repayment in the event of bankruptcy. Senior debt must be repaid before subordinated debt is repaid. Bonds that have the same seniority in a company’s capital structure are described as being pari passu.
Now, here’s the link to the PDF file for the letter from the Committee of Chrysler Non-Tarp Lenders.
1. Excellent analysis of Barack’s attempt at a “Chrysler Cram Down” at Contrarian Musings. The final paragraph:
This case is about much more than what happens to Chrysler. It’s about whether the government will enforce and abide by contracts. When these investors bought this debt, they believed that they had first claim on the assets of Chrysler. Now, the Obama administration has arbitrarily altered the position of the creditors to manipulate an outcome that favors junior creditors who happen to have more political muscle than the secured creditors. It is a lesson that every investor should take to heart; in the Obama administration it is political influence that matters the most. President Obama doesn’t stand with the people who have the law on their side. He stands with the people he believes are most deserving regardless of the law. That is a dangerous precedent to set.
2. Heh. Barack just interrupted the White House Press Briefing to talk about Justice Souter’s retirement. The most important qualification for a jurist? Empathy. It’s notable that he wants to ignore the constitution and choose whether to be “empathetic” to people who bought what they thought was senior secured debt, or to favor the groups like the U.A.W. with empathy, and move them to the front of the line.
3. Ed Morrissey reports that one bondholder (called a “vulture” by Obama) has backed down after being threatened by the Obama White House, and thus “Mob Rule” is being redefined by this administration.
4. Obama to Chrysler: You vill make this car!
(Mark Lennihan / Associated Press)
5. Obama administration denies they used threats:
"The charge is completely untrue," said White House deputy press secretary Bill Burton, "and there’s obviously no evidence to suggest that this happened in any way."
I see no reason to believe the White House after they tried to force an illegal deal on the investors and then proceeded to smear them when they refused to go along.