Chrysler rip-off could mean economic disaster

Monday, June 8, 2009

In a previous post, The New Mafia is headed by the Obama Family, I wrote about how Obama’s Chrysler Bondholder rip-off was risky and dangerous. As I’ve pointed out, Obama threw out the rule of law during the Chrysler bankruptcy in order to reward his political cronies, the UAW. In following through with his egregious actions, the administration risked legal action from the bondholders that could potentially ruin the fragile deal with Fiat and send Chrysler into liquidation.

This possibility took another step closer to coming to fruition today as the lawyers for the State of Indiana have requested that the Supreme Court stay the agreement with Fiat based on their contractual rights to fully collect on the Chrysler debt that they held according to a WSJ article. I must admit that I am very concerned about the potential outcome. I doubt the possibility that the Supreme Court would not rule in Indiana’s favor should they agree to hear the case. A favorable ruling for Indiana would likely result in Fiat stepping away from the deal and a liquidation of Chrysler. In turn, Chrysler’s liquidation would mean more economic disaster for an already decimated economy. It result in the loss of all jobs at Chrysler, dealerships, and hardships for trade creditors who are lending free capital to the struggling company. Even more concerning is the possibility that the GM bankruptcy may take the same ill fated turn.

While the media continues to carry the water for Obama downplays the significance (in hopes for a favorable Obama outcome so they do not need to report the gamble Obama is making) or tries to vilify the State of Indiana, the truth is that we are in this position because of Obama. He made the brazen, miscalculated decision to violate his oath of office on behalf of his political allies and as a result we are staring at a potentially economically devastating situation.

Update #1:

THE SUPREME COURT HAS ISSUED A STAY. Such an uneccasary tragedy. Thanks Obama. Next time do the right thing instead of playing politics.


Obama Nation said...

Obama doesn't want to "save or create" jobs, as this proves. He wants to put in the economy in the tank so that he can gain an unfathomable amount of control.

June 8, 2009 at 12:46 PM
The Law said...

I'm glad you wrote this, because I had a question about this issue, and I figured I'd wait for an appropriate entry before I asked lol.

As I understand it, Obama's plan with Chrysler involved giving pentions to the UAW at the expense of the bondholders who were promised that money in investment.

Now if I understand the main issue correctly, here are three senarios:

Senario 1: The government never bails out the automakers. Chrysler goes into bankruptcy, presumably chapter 7, and has to liquidate its assests. Doesn't a certain % of the assests pay off some of the debt and the other percentage goes to bondholders? wouldn't that mean they wouldn't get the full amount their owed?

Senario 2: the automakers are bailed out, and the UAW gets their pensions. The bondholders lose a significant part of their investment. If Chrysler emerges stronger from this catstrophe, wouldnt that mean the UAW gets their pension AND the bondholders make their money back and more? Is that the gamble here?

Senario 3: The automakers get their bailout, and the UAW gets their pension. Indiana is challenging the legality of Obama's move. The deadline approaches and Fiat wants out. If Chrysler liquidates then, doesnt that mean everybody gets zero, or at least less then they would have if they did not contest the legality?

June 9, 2009 at 4:05 AM

All good questions.

In senario 1, it's actually unlikely that Chrysler would have gone straight to chapter 11. It's the choice of the company to chose which one to file, most companies try a couple rounds of chapter 11 before going to chapter 7. To answer your question, in bankruptcy there is basically a line that is formed and your place in line is determined by a number system. Let me give you an example to illistrate how it works. A company has $100 in assets. They owe secured bondholders $50, banks $30, worker's pension $40. The line forms: bondholders, then banks, then worker's pension. Bondholder's get all $50 back, there is now $50 left. Banks get all $30, there is now $20 left. Pension get the leftovers, $20 and are out $20. In Chrysler's case, I've read that they were secured up to %80 of their investment. That means that they would get %80 and if there was anything left, the other creditors would get in line. If the assets were not worth 80%, then the bondholders would get everything the assets were worth.

Scenario 2: Potentially you may be correct. I believe the Chrysler bondholders did not get any stock (I think, I know they were offered some prebankruptcy, but I think they were left in the dust in bankruptcy), but GM stockholders are. However, recouping for bondholders and probably the pensions as well, will be all but impossible. I'll use a GM example (please note that number of shares can differ). The shares they had when they went into bankruptcy was 300 million and stock was worth less than $1. GM shareholders I believe were to get 25% of GM so they have 75,000,000 shares. The bondholders, who held billions in debt, now have $75,000,000. I'm not totally sure how much bondholder's need to recoupe, so I'll just go with $1 billion. With 30% growth annually in the stock, which would be amazing, it would take 44 years to recoupe $1 billion, let alone the several billion they are losing. Yes, that is the gamble least with GM.

Scenario 3: I don't know what the payout would be, or if the company would in fact liquidate. It's sort of an all bets are off scenario. I'm fairly certain that the bondholders would get much more than 30 cents on the dollar or else they wouldn't go through the trouble. I'm fairly certain that all employees would be laid off and pensions would be completely gone.

June 9, 2009 at 2:06 PM

First line I meant straight to chapter 7.

June 9, 2009 at 2:07 PM

Post a Comment