nonniey Posted May 4, 2009 Share Posted May 4, 2009 This is the second horrendously bad mistake the President has made in the last two weeks. (Both far worse than any his predecessor made - yes even Iraq). "Obama to Secured Creditors: Drop Dead By Bill Frezza Are you following the disembowelment of Chrysler’s secured creditors with an eye not just toward what it means for the moribund car company but for what it could do to the very concept of secured debt? Has it dawned on you what the consequences will be if the President gets his way and consideration is given to creditors not according to contracts, rules, and established legal precedents but according to which group is most politically favored? And do you believe the President advanced the cause of economic recovery by publicly excoriating “speculators” who once hoped to profit by lending money against hard assets to an ailing company? Profit? There’s no profit to incentivize risk taking in this country, only sacrifice! Law? There’s no law to protect the politically unfavored in this country, only derision! According to U.S. bankruptcy code, secured creditors - that is lenders who have a contractual security interest or claim to specific collateral - have to be paid before unsecured creditors. Unsecured creditors' claims are prioritized according to explicit rules defined by law. With the exception of short-term payments approved by a bankruptcy judge to keep a company running during the reorganization process, each priority level has a right to be paid in full before creditors with the next lowest priority get a dime. That is why secured debt can be had at a lower interest rate than unsecured debt. In fact, that is why troubled companies have any ability at all to raise money. Credit flows because everyone knows the rules of the game, even in bankruptcy. Well, at least they used to. The system is not supposed to deliver equal outcomes or demand equal sacrifice. If it did money could only be borrowed at the highest rates of interest, if at all. Under the law, payment priorities can only be modified if all debtors agree. The ability to hold out and force a company into bankruptcy court is baked into the price of a loan or the discount at which bonds trade. In Chrysler’s case the TARP-backed lenders – that is, banks-too-big-to-fail now living on the dole – chose to kowtow to the executive branch. What they “sacrificed” was the economic interests of their shareholders in favor of the political interests of their management. The non TARP-backed lenders, in this case a handful of hedge funds trying to protect the pension funds, university endowments, and insurance companies that invested in them, balked at getting lower consideration for their secured debt than the UAW is getting for its unsecured obligations. Hence, a trip to court and a tongue lashing by the president. Forget about the law for a moment. Forget about right and wrong. This exercise should be getting easier now that pragmatism is the basis of government policy, right? So think for a moment only about the pragmatic consequences of the administration’s reorganization plan. Why would anyone lend money to heavily unionized companies knowing that if things went wrong, the president and his men could trash their security interests by executive decree, hold them up to public vilification, and subject them to future retribution by regulators? Why would anyone buy the shares of TARP-backed banks or invest alongside them knowing that their executives have proven their willingness to sacrifice shareholders’ interests and throw co-investors under the bus any time the president snaps his fingers? Why would foreigners buy the distressed debt of American companies knowing that this debt cannot be secured by law but only by political clout? How is the Federal Government supposed to unwind its ownership in the growing number of companies it has nationalized if prospective buyers know that should things ever take a turn for the worse, Uncle Sam will be back demanding extralegal “sacrifice” in the name of “saving” jobs? How is private credit supposed to “start flowing again” if the United States of America morphs into a caudillo-run kleptocracy whose explicit policy is to “empower the workers,” chasing ever higher poll numbers by demonizing the very people whose job it is to provide credit? The fate of Chrysler and its workers pale in comparison to the wrecking ball that would be taken to economic order if bankruptcy judge Arthur Gonzalez approves the administration’s plan to give Chrysler’s secured creditors the shaft. And what prize will we-the-people get in return? A doomed third-rate car company majority owned by its militant union run by Italian management building congressionally designed “green” cars no one wants to buy financed by taxpayers into perpetuity because no private investor in their right mind will touch the company with a ten foot pole. Is this supposed to be economic policy or comic opera? How many more billions do you think will be flushed down this rat hole before the fat lady is allowed to sing?" http://www.realclearmarkets.com/articles/2009/05/obama_to_secured_creditors_dro.html Link to comment Share on other sites More sharing options...
Madison Redskin Posted May 4, 2009 Share Posted May 4, 2009 The article makes some decent points, but it's FAR too hysterical, hyperbolic, etc. Link to comment Share on other sites More sharing options...
Predicto Posted May 4, 2009 Share Posted May 4, 2009 Umm... I admit that I don't know everything there is to know about the Chrysler situation, but I do know a bit about large company bankruptcies and how they work, and I think that this guy appears to be hysterically misrepresenting what is going on. This writer is a hedge fund manager who wants to argue that a larger percentage of the bailout money should go to the hedge funds as part of the restructing of Chrysler. There is always negotiation that goes on in these situations - one real possibility is that the company is liquidated and the debt holders get zippo. Another possiblity is that the debt holders get everything they demand from the taxpayer, and everyone else gets zippo. And other possiblities in between. I would go to a different source for my information than this guy. Link to comment Share on other sites More sharing options...
twa Posted May 4, 2009 Share Posted May 4, 2009 The article makes some decent points, but it's FAR too hysterical, hyperbolic, etc. Ok, We are turning into Latin America....Hows that?:saber: Link to comment Share on other sites More sharing options...
twa Posted May 4, 2009 Share Posted May 4, 2009 Predicto...Why is there different levels of compensation being proposed to different parties? http://blogs.abcnews.com/politicalpunch/2009/05/bankruptcy-atto.html http://zerohedge.blogspot.com/2009/05/chrysler-ultimatum-and-full-list-of.html hows this? New York-based OppenheimerFunds said it rejected the offers because the government “unfairly” asked the fund’s shareholders to make greater sacrifices than were being asked of unsecured creditors. “Our holdings in secured Chrysler debt are entitled to priority in long-established U.S. bankruptcy law, and we are obligated to our fund shareholders to support agreements that respect these laws,” the company said in an e-mail. http://www.bloomberg.com/apps/news?pid=20601087&sid=al.LvMtoEItY&refer=home Link to comment Share on other sites More sharing options...
The Evil Genius Posted May 4, 2009 Share Posted May 4, 2009 God forbid the federal government put conditions on the billions in funds that it's giving..excuse me...loaning Chrysler. The horror! Link to comment Share on other sites More sharing options...
nonniey Posted May 4, 2009 Author Share Posted May 4, 2009 Looking at the responses it looks like many don't understand the differences between secured versus unsecured debtors. By law the secured debtors get paid 100% of what they are owed before money/assets are used to pay the unsecured debtors. The adminstrations plan is to throw out the law and payoff unsecured debtors (the UAW) ahead of the secured debtors. Link to comment Share on other sites More sharing options...
da#1skinsfan Posted May 5, 2009 Share Posted May 5, 2009 Looking at the responses it looks like many don't understand the differences between secured versus unsecured debtors. By law the secured debtors get paid 100% of what they are owed before money/assets are used to pay the unsecured debtors. The adminstrations plan is to throw out the law and payoff unsecured debtors (the UAW) ahead of the secured debtors. Why? What is the thought process here? Link to comment Share on other sites More sharing options...
Predicto Posted May 5, 2009 Share Posted May 5, 2009 Predicto...Why is there different levels of compensation being proposed to different parties?http://blogs.abcnews.com/politicalpunch/2009/05/bankruptcy-atto.html http://zerohedge.blogspot.com/2009/05/chrysler-ultimatum-and-full-list-of.html hows this? New York-based OppenheimerFunds said it rejected the offers because the government “unfairly” asked the fund’s shareholders to make greater sacrifices than were being asked of unsecured creditors. “Our holdings in secured Chrysler debt are entitled to priority in long-established U.S. bankruptcy law, and we are obligated to our fund shareholders to support agreements that respect these laws,” the company said in an e-mail. http://www.bloomberg.com/apps/news?pid=20601087&sid=al.LvMtoEItY&refer=home That's what always happens. The secured creditors always argue that they should get everything they want under THEIR interpretation of the bankruptcy laws. The company and other creditors always argue otherwise. Sometimes they reach a deal, sometimes the bankruptcy judge has to work it out. I guess I don't see why this is any different than any other time. Link to comment Share on other sites More sharing options...
Predicto Posted May 5, 2009 Share Posted May 5, 2009 Looking at the responses it looks like many don't understand the differences between secured versus unsecured debtors. By law the secured debtors get paid 100% of what they are owed before money/assets are used to pay the unsecured debtors. The adminstrations plan is to throw out the law and payoff unsecured debtors (the UAW) ahead of the secured debtors. Tell it to the judge. That's what he is there for. Link to comment Share on other sites More sharing options...
twa Posted May 5, 2009 Share Posted May 5, 2009 I guess I don't see why this is any different than any other time. Because of the interference of govt officials? :halo: Link to comment Share on other sites More sharing options...
NavyDave Posted May 5, 2009 Share Posted May 5, 2009 Hmm trying to get creditors who invested in Chrysler, to take 30 cents on the dollar is only fair right??? Thomas Lauria airing the dirty laundry about Car Czar Steve Rattner (slimy ties to New mexico's B Richardson) threatening them to take the deal or using the press to destroy them. Link to comment Share on other sites More sharing options...
deejaydana Posted May 5, 2009 Share Posted May 5, 2009 Isn't it funny how quickly a topic like this can break down along party lines? not funny ha-ha though. This is OUR money being spent here folks. I don't care which party is handling it this is a gigantic waste of our money. Link to comment Share on other sites More sharing options...
Fergasun Posted May 5, 2009 Share Posted May 5, 2009 We wasted *our* money back in January when it was loaned to Chrysler, even though the writing was on the wall. BTW *we* are not getting that money back. I don't understand why this discussion has to fall under "party lines" either. I'm more sympathetic to the secured creditors. This case has the potential to go to the Supreme Court, it seems like (can bankruptcy?). If you really want to get into a discussion let's talk about the secured creditors who agreed to the government's deal. That being JP Morgan Chase, Goldman Sacks, Citigroup, and Morgan Stanley (70%). No doubt there is some agreement between these banks and the Government as to why they would take less on the dollar (probably because there is a bit more TARP money floating out there...). This has the potential to get nasty. Link to comment Share on other sites More sharing options...
Thiebear Posted May 5, 2009 Share Posted May 5, 2009 The government seems to be in full Saprano mode after taking over a company. Get everything you can out of it, run it into the ground and move on. Link to comment Share on other sites More sharing options...
AAARedskin Posted May 5, 2009 Share Posted May 5, 2009 This is the kind of "leadership" you can expect out of a Community Organizer like Obama. None of his actions should surprise anybody. Laws, rights, and rules mean nothing to radical libs. Stay tuned kiddies...this is just the tip of the iceberg with Obama. Yes.....the inmates are now running the asylum. Oh and to all of the wonderful folks here that see no problem with this situation, and who adore every move Obama makes: would you be singing the same tune if IT WAS YOUR MONEY and if YOU were one of the secured creditors? Link to comment Share on other sites More sharing options...
PleaseBlitz Posted May 5, 2009 Share Posted May 5, 2009 The article makes some decent points, but it's FAR too hysterical, hyperbolic, etc. I agree. I was suprised to not see a reference to Swine Flu in there. Link to comment Share on other sites More sharing options...
Madison Redskin Posted May 5, 2009 Share Posted May 5, 2009 Because of the interference of govt officials? :halo: What the hell do you think a bankruptcy matter entails? Bankruptcy proceedings are governed by federal law, and presided over by federal judges. Link to comment Share on other sites More sharing options...
Predicto Posted May 5, 2009 Share Posted May 5, 2009 This appears to be the Obama outrage talking point of the day from the usual sources. Expect a lot of screaming for the next 72 hours, until they move on to something new. Link to comment Share on other sites More sharing options...
December90 Posted May 5, 2009 Share Posted May 5, 2009 This appears to be the Obama outrage talking point of the day from the usual sources. Expect a lot of screaming for the next 72 hours, until they move on to something new. Well, he could stop doing idiotic stuff. Don't give us such easy targets:chair: Link to comment Share on other sites More sharing options...
Cskin Posted May 5, 2009 Share Posted May 5, 2009 That's what always happens. The secured creditors always argue that they should get everything they want under THEIR interpretation of the bankruptcy laws. The company and other creditors always argue otherwise. Sometimes they reach a deal, sometimes the bankruptcy judge has to work it out. I guess I don't see why this is any different than any other time. The secure creditors are right... they are "secured" for a reason. It's today's society, made worse by the Messiah, that rules (read laws) can be ignored if it doesn't suit their desired outcome. Obama is screwing the private sector to payback the support of the Unions in the election. It couldn't be more transparent. And..what makes it worse, the boot licking national media won't report it so as to not portray the Messiah in an unfavorable light. My decision: I won't buy a Chrysler the rest of my life... nor will my family. I'm not about to buy a car from a car manufacturer owned by the UAW. They can peddle that crap elsewhere... because I'm not buying. Of course, at the rate Obama is going... we may all be forced to buy a Chrysler in the next 3 years 8 months... Liberalism (Read Socialism)...the enemy within. Link to comment Share on other sites More sharing options...
GibbsFactor Posted May 5, 2009 Share Posted May 5, 2009 This appears to be the Obama outrage talking point of the day from the usual sources. Expect a lot of screaming for the next 72 hours, until they move on to something new. You do realize that you are the one supporting torture now right? Just saying. Link to comment Share on other sites More sharing options...
Predicto Posted May 5, 2009 Share Posted May 5, 2009 You do realize that you are the one supporting torture now right?Just saying. Ok, explain please. I don't think my position on torture has changed. Link to comment Share on other sites More sharing options...
GibbsFactor Posted May 5, 2009 Share Posted May 5, 2009 Ok, explain please. I don't think my position on torture has changed. Metaphorically speaking... You are backing the President who is going against common practice. Just as Repubs' backed Bush and his war on terror. Link to comment Share on other sites More sharing options...
Predicto Posted May 5, 2009 Share Posted May 5, 2009 Metaphorically speaking...You are backing the President who is going against common practice. Just as Repubs' backed Bush and his war on terror. Am I backing the President on this issue (assuming that you are characterizing his views properly)? Link to comment Share on other sites More sharing options...
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