From Tom Lauria, attorney for most of Chrysler's non TARP creditors:
"I can tell you for sure that I represent one less investor today than I represented yesterday. One of my clients was directly threatened by the White House, and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight. That's how hard it is to stand on this side of the fence."And:
"But what people really need to understand is that the people who bought this debt are pensioneers, teachers' credit unions, personal retiree accounts, retirement plans, college endowments. That's who my clients act as fiduciaries for. And they make all kinds of investments. And as you can imagine in this economy, there are numerous of those investments that have gone bad.This was an investment that people made based on their assessment of the assets of Chrysler, and the view that this was a very secure, very safe investment. And they bought a contract that said they would get a very low rate of return in exchange for that high level of security. So the argument about what they paid for their investment really is irrelevant.
The fact of the matter is they bought a contract that said "you're first in line, and in exchange for that you're going to get a very low rate of return." And I think everybody in this country should be concerned about the fact that the President of the United States, the executive office, is using its power to try to abrogate that contractual right. If the President will attack that contractual right, what right will it not attack?"
Yet not a peep from the Tank Team Media, AKA the Obamanation Alternate PR team.
Incredible!
When private pensions of individuals are destroyed then the government will be their only sourse of income.What better way to control the masses who actually worked hard, invested at the level they were comfortable with and now are seeing it snatched away from them by a tin horn, empty suited, wannabe dictator.
ReplyDeleteThis government is undertaking, in my opinion, criminal action in the Chrysler bankruptcy. Moreover, Obama is fully aware that what he is doing is illegal, which is why he hasn’t asked Congress to intervene, but doing it through his twisted executive schemes. His actions would cause a huge scandal if exposed to the political process.
ReplyDeleteFirst of all, this isn’t the normal method of Chapter 11 bankruptcy; instead, the Administration is negotiating a sale to another, different entity, a “Chrysler 2″, under section 363. This is a conflict of interest because it is collusive bidding - the government is a stakeholder, as an equity holder and also as the recipient of political contributions, but is engineering the bid to the company that is ostensibly going to assume control of Chrysler, Fiat. Fiat will receive 15% of the equity, but it is strange that receives this control without putting up ANY MONEY AT ALL. Very typically, increasing the size of its stake will require politically-minded ideas like location of a Chrysler plant within the US. The UAW is owed unsecured claims of their health care fund, the VEBA, which under the government plan they will be “forced” to convert to 55% of the equity of the “New” Chrysler. For all this, they are offering $2 billion to the secured creditors.
Why is the Administration so eager for this bankruptcy to occur? Well, the general rule in Chapter 11 bankruptcy is that all creditors must agree to a re-organization plan or be proscribed one by the bankruptcy judge. However, the Administration wants a rapid-fire sale to Chrysler 2, because in order to effectively “block” the sale, the small number of dissenting creditors in question would have to put up more money in total ($2 billion) to bid on the assets than the Administration is offering. I will get to why there is no legal remedy in this situation later. Here is another conflict of interest, since the Administration is financing several of the larger creditors, the illegally-financed TARP banks, who will tend to accept less money than they would without yoke. This is a collective action problem: under normal bankruptcy, you can block by dissent; under the Administration plan, there needs to be a kind of coordination between the secured creditors.
First of all, understand that Fiat, the company, isn’t important here. That begs another question - why are they participating, and what is their relationship to the Administration? They are not actually putting up any money, because the Treasury is going to finance the sale of the assets that will be received by “New” Chrysler. You could call it a “shill” bid, there is essentially no third-party bidder. Indeed, why would anyone want to get involved in this messy political situation, especially if the UAW will strike if you don’t give them the same kind of exorbitant deal they would receive under the government? Note also that that same question also hampers the dissenting creditors’ bid. Not only will the UAW get a 55% stake in “New” Chrysler, after Daimler pays $600 million into the pension plan, the Pension Benefit Guaranty Corporation will assume the liabilities of “Old” Chrysler, on the taxpayer’s dime. They get to appoint a director to the board, and the supposedly “neutral” government will get to appoint 4 directors.
The sale under section 363 is designed to pre-empt another rule under section section 1129(a)(7) of the bankruptcy code. It reads,
“With respect to each impaired class of claims or interests – (A)
each holder of a claim or interest of such class . . . (ii) will receive
or retain under the plan on account of such claim or interest
property of a value, as of the effective date of the plan, that is not
less than the amount that such holder would so receive or retain if
the debtor were liquidated under chapter 7 of this title on such
date. ”
So basically, it is a rule that says any reorganization plan should get maximum value for priority level of claims. If it prevailed, the dissenting secured bondholders would be made as whole as possible. But, if the company is sold under the more majoritarian section 363 sale, they never get to exercise those claim; if the trumping bid is the government’s $2 billion, all secured creditors are paid pro-rata, and their claims cease. That’s why the Obama Administration is speaking its Double Speak: “surgical” and “quick” really means “illegal” and “fraudulent”. But the Federal Government is playing both sides, so that’s A-OK.
The success of this plan critically hinges on whether it is judged “sub-rosa” by the presiding judge, which offers remedy for the “fear that a debtor-in-possession will enter into transactions that will, in effect, “short circuit the requirements of [C]hapter 11 for confirmation of a reorganization plan.” So, instead of the alternative where we could have had an open, private process between many stake-holders, we are having a secretive and political process between compromised and possibly corrupt stake-holders.
Good information and analysis, Anon.
ReplyDeleteThis obnoxious process is obviously a lot more insidious than meets the eye.
And yet not a word is seen or heard in the Tank Media about this.
Why are we not surprised?