Chrysler’s Creditors Cave

Last Friday, the small group of Chrysler’s secured creditors, who had thus far refused to buckle under to the pressure, decided to throw in the towel and withdraw their legal protest to the Obama administration’s plan to resuscitate the failed auto company.  In a move more symbolic than meaningful, the group has decided that although it will not support the President’s plan, it won’t raise any further legal objections.

Thomas Luria, lead counsel for the “dissident” creditors, put it this way:

Being such a small group trying to fight the force of the government made [the funds] very uncomfortable.  In the end, they just concluded that the political cost to their institutions was too high to bear.

The group became “small” months ago, and, it should come as no surprise why it did.

The White House’s success at dividing and conquering the creditors began even before the April 30 bankruptcy filing, when it persuaded four large banks acting as Chrysler’s top lenders to accept the deal. The White House used as a cudgel the more than $100 billion in bailout funding given to the banks since last fall, including JP Morgan, Citigroup, Goldman Sachs and Morgan Stanley.

So, in the end, Chicago style political muscle trumps both fairness and the law.

Going forward then, Chrysler will be sold to Fiat, although, given the circumstances, “sold” is a term only this administration could use with a straight face.  In reality, Fiat will be given up to a 35% interest in Chrysler in exchange for Fiat’s “automotive expertise”.  (That, too, is hard to say with a straight face.)  And, the UAW will own 55% of the new company.  The problem, of course, is when this new Chrysler emerges from bankruptcy it will find the same world as existed before bankruptcy.  Labor contracts will still make Chrysler vehicles uncompetitive with foreign manufacturers, folks that didn’t like Chrysler products before still won’t like them, and the plan to build “little green” cars will still be met with the same public disdain as it always has.

So, as taxpayers, brace yourself for a very long “ride” of government subsidy after government subsidy until the majority of some future Congress puts a stop to the madness.

2 replies
  1. gillie28
    gillie28 says:

    Glad this was posted as I've been trying to grasp (with my mathmatically challenged brain) how this deal was processed. According to Glenn Beck – who I watched for the first time because he was reporting on this, and it seems few others are doing so – the unions got 4.6 billion and a note for 9% – yep, that's 9%, almost as good as Madoff! Then they received (and this is the UNIONS) 600 million in legacy costs from Chrysler and 55% of the new company. They also elect one of the nine directors of the board (Congress, who is always on our side, will pick 4).

    The public (us the taxpayer) is owed 4 billion from the Tarp funds we gave to Chryler. We are getting back (hold your collective breaths) ZERO, nada, zilch. Of the 300 million in fees we are owed, we will also get back the grand sum of ZERO. In addition to getting nothing back for OUR Tarp money, we also have the honor of GIVING another 3.2 billion under the bankruptcy restructuring deal. Then, if Chrysler manages to stay in business we (the taxpayer, us) are even more privileged: we donate yet ANOTHER 4.7 billion dollars. Oh, by the way, we do own 8% of the company after bankcruptcy. Let's ses: Unions 55; Taxpayers 8. That's seems fair enough, doesn't it??? Like Beck said, "Who made this deal for us?"

    p.s. if this is faulty math and logic, PLEASE post as there's nothing better I'd like than to have this be wrong!!!

  2. GaryInSoGlast
    GaryInSoGlast says:

    I have two choices for my response to this.  I could express my anger that these people gave up the fight and that that was our money (investors) that they gave away.  The other way is to express my fear.  The Obama administration scared these people into a corner.  They are not interested in contracts or laws.  They are all powerful and they're telling me that I'm not entitled to money unless they say I am.  We are in real trouble.  I hope it's not just the conservatives that know this now.  That money wasn't just invested for conservative retirements.

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