RSS Feed MenuRepublicans Darrell Issa and Lamar Smith released this statement about the Obama administration’s muscling of Chrysler bondholders:
As Ranking Members of the House Committee on Oversight and Government Reform and the House Judiciary Committee, we are writing to express our concern over the recent actions of your Administration that culminated in Chrysler’s bankruptcy filing. We are deeply troubled by your Administration’s tactics in strong-arming and subsequently demonizing certain Chrysler bondholders for refusing to comply with your Administration’s plan for restructuring the company.
While you criticized some Chrysler bondholders as “speculators” who were “refusing to sacrifice like everyone else,” what you did not mention is that Chrysler borrowed and spent the $6.9 billion that it owes these bondholders. Your Administration offered only $2 billion to these creditors, who are first in line to get repaid in a bankruptcy proceeding. It is not surprising that they rejected your offer. Indeed, it is perfectly appropriate for them to have done so. The bondholders owe a fiduciary duty to their shareholders to maximize returns on their investments, which rightly precludes them from making “sacrifices” to appease aggressive politicians.
Moreover, the hedge funds and other investment funds that refused your Administration’s demands often include pension funds as investors. Thus, the ultimate “sacrifice” that you were demanding may have to come out of the retirement plans of the teachers, firefighters, and police officers who depend on these investments.
We are also troubled by reports that the White House threatened to destroy the reputation of at least one of the Chrysler bondholders. The reports indicate that Perella Weinberg, which subsequently capitulated to your Administration’s demands, “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.” These reports, if true, raise disturbing questions about your Administration’s willingness to engage in Chicago-style enforcement techniques.
The full text of the letter can be read here.
Bulldoglover100 // May 6, 2009 at 7:01 pm
Try to keep up David. This report that the White House had threatened anyone was not backed up by anyone and as such as has been debunked. Proof = Facts and anything less keeps us in the hole. We must stop reporting annon sources who say things LOL THAT should make them suspect in the beginning and should be beneath this site.
kroner // May 6, 2009 at 9:24 pm
It sounds like some these bondholders need to refresh themselves on the meaning of “bankruptcy.” This is the inherent risk of investing in corporate bonds. It’s why you get a decent interest rate.
krove // May 7, 2009 at 4:14 am
Hmm, so now the self styled “Taliban” party is now aligning itself with hedge funds. That should go down as well as supporting torture.
krove // May 7, 2009 at 4:15 am
If these funds get more than 30 cents on the dollar from the bankruptcy I will be amazed.
InTheMiddle12 // May 7, 2009 at 5:19 am
Let me get this right – these people are defending a failed corporation who acted recklessly because they want to try and prove a successful administration (per the polls) who appear to be acting quickly, intelligently and with far more integrity then the last administration, as bullies?The same people who defended the most secretive, hard-nosed tactical administration that lied time and time again about torture, let alone going to a war that was a choice and trumped up.This is exactly why Time Magazine’s cover asking if the GOP survives is completely legitimate. I don’t think playing the corporate victim to government rescue is a very smart strategy. Then again, the GOP haven’t been atune to reality in sometime so perhaps it’s asking too much too soon to expect something different.
barker13 // May 7, 2009 at 5:25 am
Re: Kroner; 9:24 PM –”It sounds like some these bondholders need to refresh themselves on the meaning of “bankruptcy.”"I believe they understand the concept… however… they also understand the law.Once you’re in Chapter 11, secured lenders are first in line to get paid, followed by taxing authorities such as state and local governments. Next come unsecured creditors, bondholders, and people with legal claims against the company. Shareholders are dead last.(*SHRUG*)http://smallbusiness.yahoo.com/r-article-a-114092-m-4-sc-20-bankruptcy_101-iBondholders vs. stockholders… secured vs. unsecured… preferred vs. er… not preferred (i.e. “common”)…As I understand it there was an entire branch of EXISTING LAW to deal with this sort of thing prior to the Bush and then Obama administrations deciding such laws weren’t good enough.(*SHRUG*)BILL
ottovbvs // May 7, 2009 at 7:22 am
This I’m afraid is another one of the patented Republican manufactured controversies such as handshakes. Like all of them, it has little substance and, even worse, puts the GOP in the position of defending a group of people who are going to get zero sympathy from most member of the public. From defending torturers we’ve now moved on to defending vulture investors.For months Republican politicians and pundits have been urging the admin to put Chrysler and GM into “surgical bankruptcies.” The admin didn’t want to do this for a variety of reasons and tried to negotiate around it but were ultimately forced to go that route with Chrysler because of the intransigence of a small group of bondholders who wanted regular bankrupty and the liquidation of Chrysler regardless of collateral damage to employment, suppliers and other stakeholders. At no point did this dissident group own more than 5 or 6% of the secured debt and most of them acquired it at substantial discounts as a speculation. Those that actually lent Chrysler money (mainly the big banks) have gone along with the surgical bankruptcy. The dissidents have now been whittled down because of the threat of adverse publicity to a group that now owns around 3% of it. The matter is now in the courts, not the hands of the administration, but a bankruptcy judge immune from pressure, but who has consistently ruled against this minority dissident group. These are the facts. Two observations on the process. Firstly, pressure from groups of stakeholders in bankrupcty proceedings as each strives to gain some financial advantage are commonplace but the Republicans are choosing to make this a political issue. Secondly, much has been made out of the fact that the UAW has ended up with 39% of the company. They have received this as settlement of legal obligations that any bankruptcy court would put ahead of most other creditors. Paul Ingrassia who is an expert on the auto industry and very anti union acknowledged this in the WSJ several days ago.In short Republicans are once again putting themselves in a false position that does not accord with the facts and exposes them to ridicule as defenders of a group of speculators. Why David goes along with this and all these suggestions of gangsterism, or sees any political dividend is more questionable.
sinz54 // May 7, 2009 at 7:40 am
InTheMiddle12: No, you don’t have it right.Perella Weinberg doesn’t work for Chrysler. Google for his investment firm.He runs a fund management company. Some of those funds were heavily invested in Chrysler bonds–and they want the most return on their dollar. They believe that the deal that Obama worked out benefits the unions at their expense–and I believe that is true.However, anybody who invested in a fund that was heavily invested in U.S. auto companies was stupid, and their clients were stupid for not knowing the holdings of the funds they had bought, and what the risks were.This is exactly the same problem we had with securitized mortgages. Those who invested in such securities totally forgot that housing prices can go down as well as up. Am I supposed to feel sorry for them?
sinz54 // May 7, 2009 at 7:47 am
ottovbvs: I read Mr. Ingrassia’s paper.What he said was that the legal obligations that led to the UAW ownership stake came from trust funds that handled the workers’ medical benefits. The fact that morphing these trust funds led to a 39% stake in Chrysler and a 55% (!!!) stake in GM, tells you just how huge these health care liabilities are.If we had instituted health care reform years ago to cut the link between corporations and health care, then these companies wouldn’t have had this huge health care albatross around their necks, and we wouldn’t be in this pickle today. ANY type of health care reform proposal that broke the link between employment and health care would have done this: single-payer, ObamaCare, even McCainCare.Unfortunately, the GOP can’t make that argument, because their base wishes that the whole health-care issue would just go away.
sinz54 // May 7, 2009 at 7:53 am
Mr. Ingrassia’s paper is still here athttp://online.wsj.com/article/SB124104678893870699.htmlThe UAW had forced the auto companies to provide them with an extremely generous health care plan. Their workers receive care 100% free, with no premiums and no deductibles. That’s better than the plans offered by most white-collar high-tech companies. As a result, all the soaring health care costs America has experienced got carried onto the auto companies, rather than being shared in part with the workers as in other companies.I can blame the UAW for being too aggressive. But the root cause of all this is that America has this bizarro health care system in which health care is provided by one’s employer. There was never any economic rationale for this; it started as a perk during World War II when wages were frozen and companies couldn’t offer wage increases to attract more workers.
ottovbvs // May 7, 2009 at 7:55 am
sinz54 wrote 4 minutes ago “The fact that morphing these trust funds led to a 39% stake in Chrysler and a 55% (!!!) stake in GM, tells you just how huge these health care liabilities are.”……So what, they are legal obligation as even Ingrassia aknowledges. They cannot be nullified and in a bankruptcy proceeding would unquestionably get preferential treatment…..You’re right about healthcare. This problem would neve have existed had the state been running a program as is the case with every one these companies competitors in Japan, Germany, France, etc.
ottovbvs // May 7, 2009 at 8:00 am
sinz54 wrote 3 minutes agoI’m fairly familiar with the auto industry having been involved in parts manufacture. This whole “being nasty to hedge funds” controversy as I’ve explained elsewhere is phony. Why the Republicans are choosing to try and turn it into an issue is a mystery to me because it’s not an argument they can win.
ChristianMiller // May 7, 2009 at 12:03 pm
Wow. Frum is starting to use harsh words. Maybe he is starting to see what he’s up against.
Mike K // May 7, 2009 at 5:05 pm
“For months Republican politicians and pundits have been urging the admin to put Chrysler and GM into “surgical bankruptcies.” The admin didn’t want to do this for a variety of reasons and tried to negotiate around it but were ultimately forced to go that route with Chrysler because of the intransigence of a small group of bondholders who wanted regular bankrupty and the liquidation of Chrysler regardless of collateral damage to employment, suppliers and other stakeholders. “So, Continental Airlines was “liquidated” when it went through bankruptcy ? What are all those people flying ?The intransigent bondholders (stupid in your estimation) are relying on the US Constitution which bans “takings” without due process. That due process is called bankruptcy. We have all known all along that the Democrats would try to avoid BK in order to protect the UAW which has a strong hold on the party. I suspect, unless they all cave in to The Chicago Way, the whole thing will be declared unconstitutional. The only thing that could save Chrysler (unlikely) and GM (possible) is bankruptcy. That would release them from the work rules and other contract provisions that making them nonviable. The UAW would rather see them disappear, it seems.
Mike K // May 7, 2009 at 5:06 pm
By the way, a large share of those bondholders are Chrysler retirees, which explains their “stupidity.” Most of the rest are pension plans.
ottovbvs // May 8, 2009 at 4:43 am
Mike K 5:05 PMMike get your facts straight. The total debt we’re talking about is around $6.9 billion. Other than the holders of initially about $500 billion of it which has now been whittled down to around $350 billion all the debt holders voted in favor of the surgical bankruptcy proceeding which is still a bankruptcy proceeding although expedited. The list of the dissidents has now been published, although they resisted this but were over ruled by the bankruptcy judge, and it’s basically a bunch of hedge funds who bought the debt speculatively. And I never said these people were stupid. Just greedy and doing what creditors always do in these situations…jockey for maximum advantage. Otherwise I’m not sure what point you’re making other than some generalized assertion that whatever the admin does is wrong.