Obama and Chrysler
May 3, 2009
Posted by Jody Eisenman | Filed under Uncategorized
In a move that was widely discussed but initially denied, auto maker Chrysler filed for bankruptcy last week. It became apparent to almost everyone involved that despite a bailout, the automaker was simply too far gone to be saved. Instead, Italian automaker Fiat will enter into a global partnership with Chrysler. Officials believe that Chrysler could emerge from bankruptcy in just 60 days. This would be quite remarkable as most bankruptcies of this magnitude take at least a year to work through. In any case, all eyes now shift to GM, which is widely expected to file Chapter 11 as well.
What is curious is President Obamas’ reaction to this. Obama has been integrally involved in this and the financial crisis to a much greater extent than Bush was. In an attempt to stave off bankruptcy, the company negotiated with the bondholders in an unsuccessful attempt to get them to take 33 cents on the dollar. Although most of the bondholders (led by Citigroup, Goldman Sachs and JP Morgan) agreed, a group of 20 hedge funds refused. What is curious is that Obama then blasted them for their “intransigence” and refusal to sacrifice for the greater good. As I stated earlier, http://www.jodyeisenman.com/2009/04/28/general-motors-and-the-swine-flu bondholders are only interested in getting the return of their money. If they were to receive more in a bankruptcy, why should they ever agree to take less? After all, these bondholders were the ones who lent money to Chrysler in the first place! What is also interesting is that the banks listed above all took TARP money from the government, while the hedge funds have received zero, and are thus independent minded. Anyone think that taking the money influenced the banks’ willingness to negotiate?
By now, everyone realizes that the excess debt led to many of the financial problems we are now facing. This is true on both the individual (consumer) level, as well the corporate level, especially in the financial sector. The government is trying to solve this problem by adding MORE debt via extraordinary national deficits and and Geithners’ public/private partnership for the bad bank debt, which we have discussed earlier. Here’s the kicker: By attacking the bondholders, Obama is criticizing the very people who decided to help the economy by lending money in the first place!Based on these attacks of Chrysler and GM bondholders, why would anyone choose to lend money (i.e. buy their bonds) of the automakers (or for that matter, anyone else) ever again? When you go to collect according to the rules, you are criticized for being greedy. Yet, these are the very institutions that Obama needs in order to stimulate the economy. We clearly live in strange times!
