Chrysler rip-off could mean economic disaster

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.

You can read some of the emails between the government and Chrysler over the last few months in the WSJ.

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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.

The New Mafia is headed by the Obama Family

The most appalling, egregious move on Obama’s part has been in the treatment of Chrylser and GM’s bondholders. The recent wheeling and dealing (or however you say it in Austrian) going on with the GM bondholders give us an even clearer picture of what occurred with Chrysler and how Obama uses and operates the government. While the media turns their heads. While the media spins Obama’s garbage. Obama is running the government like a mafia godfather using his executive power to rob ordinary citizens. It is Obama’s most recent war in the name of fairness that brings hard evidence to light on how morally bankrupt Obama truly has become.

There are three undisputable facts that have been made evident by Chrysler and GM restructuring plans. First, Obama is willing to reward political cronies at all cost. Second, Obama has no qualms gambling with the US economy to do so. Third, Obama has no respect for the rule of law or any American who operates outside of the political groups who supports him.

To start out, I must expose the standard media template that is being irresponsibly repeated in the media like a broken record. We have been spun a host of stories on how the bondholders are greedy and trying to get more money from the government than they deserve. Most importantly, the actions of the bondholders are going to send the country into depression.

The problem with the coverage is this; why isn’t anyone questioning Obama’s leadership in the matter? According to the media and everyone in Obama’s administration, this is the only possible plan that could be hatched from his think tank. All the while, no one really questions why the UAW is making out so sweet on the deal. Obama offered the UAW 17.5% GM and 45% of Chrysler. This offer was not made to save jobs, to save wages, but to ensure the safety of the UAW worker’s pension, while at the same time giving control of the companies to political allies. As I’ve pointed out before, the UAW supported Obama big time with campaign contributions and with paid commercials. Why give the bondholders the short end of the stick? As I’ve also mentioned in previous posts, the bondholders were not involved in management decisions and they do not hold stock like an investor does. The purpose of a bond is to be safe in that bondholders will not lose their investment. Bondholders bought automaker debt, which was to be secured by first lien status against the company’s assets.

Let’s take a look at these evil bondholders who must be robbed so that the UAW can have a large interest in owning the automakers. There is Jim Modica. He and his wife are retirees who have all their life savings in GM bonds a total of $700,000. They live off of the yearly interest of $80,000. Normally, this is a good and secure investment as they would be able to recoup their investment in bankruptcy. That was until Obama got involved. Now Jim may loose his entire life savings while Obama tramples on contract law like he did with Chrysler. There is Chris Crowe a 50 year old home inspector who had bought bonds to pay for his son’s education and upcoming property taxes. Once again, a good safe investment until Obama decided to reward his UAW cronies. Obama has offered these bondholders 10% and rumored today 15% of GM stock, which is worthless. Sorry Jim and Chris, if only you ran the UAW Obama would have broken the law on your behalf.

What is more reckless is that Obama is gambling on the fact that his mafia style politics will be able to overcome all bondholder opposition. His gambling chip is nothing less than the US economy. There is a chance Chrysler’s bankruptcy may take a turn into chapter 7 liquidation as a federal judge listens to arguments and complaints from the Indiana State Treasurer who is looking to recoup losses to the state road fund and the teachers/police pension funds. Those funds lost millions when Obama robbed the state in the Chrysler chapter 11. It may be unlikely that this judge will rule in Indiana’s favor, even though the law of the land is on Indiana’s side. What happens if the case goes to the Supreme Court? I find it unlikely that they would side with Obama on this issue. As the debate rages many believe Fiat will withdraw if the bankruptcy is not concluded by June 15th. With thousands of Chrysler jobs and the economy at stake, one must ask what Obama was gaining in his actions? Did the UAW have a legal claim higher than the State of Indiana? No! Would it have been against the law if the Chrysler pensions were given the bondholders deal in reverse? No! Is what Obama did against the law and therefore robbery? Yes!

The bondholders are not only robbed, but many were also bullied. Three people from three different hedge funds claimed that they were bullied by Obama’s Car Czar. Not hard to believe when the following occurred after the AIG bonuses:

"Arrayed around a long mahogany table in the White House state dining room last week, the CEOs of the most powerful financial institutions in the world offered several explanations for paying high salaries to their employees — and, by extension, to themselves.

“These are complicated companies,” one CEO said. Offered another: “We’re competing for talent on an international market.” But President Barack Obama wasn’t in a mood to hear them out. He stopped the conversation and offered a blunt reminder of the public’s reaction to such explanations. “Be careful how you make those statements, gentlemen. The public isn’t buying that.” “My administration,” the president added, “is the only thing between you and the pitchforks.”

This is a clear threat from the President of the US against his own citizens.

Threats are nothing new to this President. He threatened to rescind stimulus money if Arnold lowered Union employee wages in the state. It’s rare the Obama administration makes any policy without a threat.

Rewarding political allies is also nothing new as there is mounting evidence that the Chrysler dealership closing were also politically motivated.

Where is the media? Where is the outrage from the left? Those who had hearings over Valerie Plame's ruined carreer and those who cheered over the prosecution of Scooter Libby. Where are the investigations? We had months of media coverage and hearings regarding Plame. How many months of hearings and coverage over the firing of a few dozen federal prosecutors? How much more should we investigate the robbing of more than a 1,000 Chrysler and GM bondholders?
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Update:

The following Time article is a perfect example of the Obama spinning, propaganda dribble coming out of the media on the automaker’s restructuring. It paints those opposing Obama as boardroom cronies, plays up Obama’s risk taking, car board’s brilliance, and all those hard sacrifices being taken by the UAW. It also tries to promote the bankruptcy of Chrysler as all part of the grand plan. The article also down plays the contract law being broken by Obama, the bullying of the Treasury Department, Obama's hand in making these automakers recovery more difficult as a result of his new emmision standards, the political relationship with the UAW and shrugs at the losses being suffered from soon to be closed dealerships. The author calls the autoworkers underdogs and in the next paragraph tells us the days of “mom and pop” dealerships are over. At the same time fails to explain why the bondholders had to go to the whipping post instead of the UAW. Why indeed? If Obama is going to break contract law, why do it for the UAW instead of the bondholders? Don't kid yourself Obama Media, this is all politics.

Left Coast Rebel has an excellent post giving another example of the mafia style government Obama is running. Check it out here.

Why does President Obama Hate Retired Teachers/Policemen so Much?

In an earlier post I wrote about how investors in Chrysler bonds were your everyday people and not greedy capitalists out to stop the Obamatrain. Do you remember this Obama quote?

“Now, while many stakeholders made sacrifices and worked constructively, I have to tell you, some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout.

They were hoping that everybody else would make sacrifices and they would have to make none. Some demanded twice the return that other lenders were getting.

I don't stand with them. I stand with Chrysler's employees and their families and communities. I stand with Chrysler's management, its dealers, and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars.”

Last week we saw that Obama didn’t really stand for the dealers like he said. He put over 60% of them out of business. It turns out he also doesn’t stand with the Indiana state pension fund for teachers and policeman. According to a WSJ article, the state pension fund lost millions due to the Chrysler restructuring as a bondholder. Another fund that was penalized was their state road and bridge construction fund.

What? Obama was going after those greedy hedge funds right? That’s correct, if you think that retired teachers and policemen are greedy. Millions of Americans invest in bonds because they want a safe investment for their retirement. A bond fully secured by the Chrysler’s assets seemed safe enough, right? Nope! You see Obama needed to give the UAW 55% of Chrysler. Why, because the UAW gave Obama almost $2 million in contributions, plus another $3 million in advertising.

This is truly a low moment in Obama’s Presidency and he’s only 5 months in. I cannot believe the cronyism propped up by this President. I cannot believe the left complained so long about Bush, but turn their heads at Obama’s brutish administration which is so much more brazen.

The law of unintended consequences must now be satisfied. First, Obama and the government now get to deal with a lawsuit from the state of Indiana. I just hope Indiana is willing to go all the way in their pursuit of the money that is rightfully due to the teachers and police. These people deserve every penny from their pension. Second, hedge funds have determined that the risk of loss due to politics is so high, that they will not be investing in any company that receives government aide. The UAW shouldn’t worry however, I’m sure one of Obama’s banks will be forced to give them money.

I’ve stayed out of the personal attacks on Obama so far, but after this I’ve decided to step into the ring. Obama truly is a tyrant and a petty one at that!

How Chrysler's Bond Holders Can and Will Trump Obama

I wasn’t going to post on this, but after hearing all the spin going on about Chrysler I felt as though I had a more down to earth analysis on the subject. While Obama supporters tout the recent events and Obama’s decision regarding Chrysler as a success and those of Rush’s ilk tout Obama’s moves as a page out of the Peron playbook, I feel there are a few moving parts to this story that aren’t being talked about. Make no mistake; this is a clear Obama failure!

To begin with, we need to identify exactly who the parties involved are:

Obama and the Tax Payers – The federal government has loaned $4 billion dollars to Chrysler. In theory, Obama is acting in the tax payer’s “interest” (I say in theory, because he had other options that would have been more prudent in serving our interests). Please note that the loan made was the most recent and unsecured. This is very important in the matter of law.

UAW – This is the autoworkers union for blue collar jobs only. They have contracts with Chrysler giving benefits to auto worker employees and retirees far above and beyond anyone else in the auto industry or the entire US. This includes decades old programs like the job bank, 100% health care coverage, and huge hourly wages.

Bond Holders and the Bond Holder Board – The bond holders have lent Chrysler $6.9 billion dollars. The group that Obama has singled out (the hedge funds) are part of the bond holder board and represent many, many, many (probably millions) of investors in Chrylser bonds. You are probably a bond holder and you don’t even know it. Hedge funds have holdings from teachers unions, state pensions, 401ks, 403bs, and insurance companies. The Bond Holder Board is representing everyone with a stake in owning this debt in Chrysler. They do not manage Chrysler in an way.

Shareholders – These are the owners of Chrysler and are in no way associated with the bond holders. The shareholders picked the management of Chrysler. They partly responsible for the poor UAW contract agreements that have bled the company dry.

Trade creditors – Trade creditors are the suppliers that have lent products such as metal, rubber, glass and so on with trade credit. They have last standing in a bankruptcy and the debt is unsecured.

Here is the background leading up to the Chrysler Bankruptcy

When Obama first seized the auto industry, the progs jumped out and justified the action stating that, “we (the tax payers) lent them (the shareholders…not the bond holders) money, there should be strings attached.” Remember this argument as it is very important! I believe that the take over was to enable Obama to both hide the severity of the situation and work behind closed doors. This has been the case with the banks. However, the strategy that Obama chose was a huge mistake. In taking over these companies, Obama is now responsible for turning them around. Even if he doesn’t want to run them, as he claims, he will be held responsible for their fate. This position is quickly becoming a no win situation for Obama.

Although Obama got on stage and declared victory with a Fiat deal, the real situation is further from the truth. You see, there is another party with interest in Chrysler and that is the bond holders. To a large degree, the media and Obama has been portraying the government’s stake in the company as supreme. In fact, Obama’s hand is much, much weaker than the bond holders. Why is that? While Obama has claimed de facto ownership of the stockholders, the bond holders have the rights to all of Chrysler’s assets according to USA Today. The government’s loan is unsecured. To illustrate, Obama has seized the rights to live in an apartment. However, the bond holders are the landlords and they have the right to evict Obama at anytime.

We know over the last month that Chrysler and the government went into negotiations with Fiat, the UAW, and the bond holders. We don’t know what deal was made with the UAW. According to the UAW in a FoxNews article, the concessions were huge. We do know a few things. The UAW is keeping their 100% healthcare for current blue collar employees and retirees and is receiving a 35% share in Chrysler. I submit that the UAW had to make very small concessions and would have been the second biggest winner had all deals been done. We know Fiat was to pay off all the tax payer money before they took any ownership. Please take note that the tax payer debt is to be fully restored making Obama and the tax payers, the biggest winner. If bankruptcy is avoided, theoretically the trade creditors would be fully restored.

Analysis

Last night, Obama angrily stated:

“Now, while many stakeholders made sacrifices and worked constructively, I have to tell you, some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout.

They were hoping that everybody else would make sacrifices and they would have to make none. Some demanded twice the return that other lenders were getting.

I don't stand with them. I stand with Chrysler's employees and their families and communities. I stand with Chrysler's management, its dealers, and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars.” (Please note that there was no mention of the specifics of the UAW last night. None! We are told they made a great sacrifice, but not told what it was).

Now, I can only speculate that the UAW concessions were small. I think I have good reasoning for this assumption since the UAW and Obama are not giving the specifics on the deal. Obama’s argument is that everyone was making huge sacrifices except the bond holders. Nothing could be further from the truth.

The bond holders have the biggest poker hand in this game. They have a larger loan to Chrysler than the government and have the rights to the assets. The government is almost dead last in the eyes of bankruptcy. The only difference is they have a big microphone.

The truth is that the government’s deal with the bondholders was very poor. Paying bond holders 30 cents on the dollar is a pretty poor deal. The government originally offered 10 cents on the dollar. To give you an idea; the bond holders held $6.9 billion dollars and was offered $2 billion dollars. Meanwhile, the government was to get back all of their $4 billion dollars. No, the bond holders have the strongest hand so logically they should get the best and strongest deal. They were looking for $50 cents on the dollar and a 40% stake in Chrysler. I’ll bet that’s slightly better than the UAW.

Why shouldn’t they get it? The progs argue that there should be strings attached. The bond holders have much bigger strings than the President. They have more invested and invested before the government did, yet they were offered a worse deal than the government. If there shouldn’t be strings attached for the bond holders, then there shouldn’t be for the government either. According to the law the bond holders have a higher right.

Whenever government gets involved the bureaucracy wants to create winners and losers. Obama wanted to secure his political capital by getting reimbursed for the tax payer loan. I speculate that he made the UAW’s interest second on the list. He couldn’t get a deal with Fiat without having to pair down the UAW contracts, but I’d also bet their deal wasn’t as sour as Obama and the UAW have tried to make out. The bond holders were to come out third. However, when you venture into the private world, you can’t make these amateur mistakes. Obama thought and probably still thinks he has a winning hand (by the way, there is no one on his auto advisory board that has run a company), but in reality he’s close to last on the list. The question is, “what will happen in chapter 11?” You better believe that the bond holders will be getting better than $.30 on the dollar or you will see a move to push it all into chapter 7 liquidation of Chrysler. That means that the bond holders will win and the UAW, Obama, and the tax payers are going to lose big. Do you wonder why the CEO’s didn’t want to go into chapter 11? I think there is a serious case to be made that the bond holders were threatening to take the company to chapter 7, which is their right should they choose to exercise it.

If that happens, Obama will try and vilify the bond holders. He will try and equate them to CEOs and corporations, just like the normal progressive template. He’s already tried to do it in his speech. In actuality, this was a huge error on Obama’s administration. This is an error likely to blow up in everyone’s faces. You cannot go into a negotiation, hold a losing hand and then expect to win. Luckily the bond holders (remember that’s you and me), will likely get our money back. Funny how at the same time, we will also lose (thanks Obama).

Check out Obama’s transcript from his speech.