The President’s remarks as Chrysler went into bankruptcy yesterday are mind-numbing. Either he lacks any insight about the financial market, or, he is deceiving the American public. I prefer to believe the former as the latter is not something I care to see from any elected official.
In speaking about the secured creditors unwillingness to go along with his grand plan to save Chrysler from bankruptcy, Obama said,
They “decided to hold out for the prospect of an unjustified, taxpayer-funded bailout”.
In other words, those greedy bankers are at it again. However, nothing could be further from the truth.
Here is the reality. The “greedy” bankers are owed $6.9 billion in debt secured by the assets of Chrysler. So, lets say the bankruptcy “reorganization” doesn’t work for whatever reason, and all of Chrysler’s assets are sold to pay off its debts. After certain administrative expenses, the secured creditors are paid first. If there is nothing left over after that, then the unsecured creditors ( for example, the UAW pension fund, UAW retirees health care fund, and, of course, the $4 billion loan from the government) are wiped out.
Under Obama’s plan to avoid bankruptcy, the UAW retiree health care would give up $6 billion of unsecured debt, and in return, would receive a 55% equity position in Chrysler. The federal government would give up $4 billion (of your money, I might add) of unsecured debt (as well as agree to loan more of your money to Chrysler going forward), and, in return get an 8% equity position in Chrysler. And, those evil “greedy” bankers were supposed to give up almost $5 billion in secured debt, and in return, would get, well, nothing.
2% of the equity in the new company would go to Canada, who, in return would agree to loan money to the new company, and, the remainder (up to 35%) would go to Fiat, who, in return would pay nothing, but would offer their technical expertise.
Aside from the fact that the “new” Obama designed Chrysler has disaster written all over it, how anyone looking at those facts could claim that the bankers blew the deal because of their greed is beyond me.