Here's the thing: hedge fund managers don't care what the public thinks. The public isn't allowed to invest in them. And the holdouts are, basically definitionally, not direct beneficiaries of federal largesse.
No, hedge funds care what rich people think. And if you were a rich people, how would you react to the news that a hedge fund manager who had a senior lien had refused to allow his claim to be treated like unsecured debt in a bankruptcy? Would you be outraged and pull your money? Remember that as a rich people, you could have donated large sums to the UAW, or the US government, if you wanted to.
This might well be good publicity for the holdouts. I'd certainly rather put my money in with Oppenheimer than with someone manager who is going to toss his fiduciary duty to the winds and make large tax-free gifts to the United Auto Workers. But then, I'm not very patriotic.
Which brings us to the real question, which is, when did it become the government's job to intervene in the bankruptcy process to move junior creditors who belong to favored political constituencies to the front of the line? Leave aside the moral point that these people lent money under a given set of rules, and now the government wants to intervene in our extremely well-functioning (and generous) bankruptcy regime solely in order to save a favored Democratic interest group.
No, leave that aside for the nonce, and let's pretend that the most important thing in the world, far more interesting than stupid concepts like the rule of law, is saving unions. What do you think this is going to do to the supply of credit for industries with powerful unions? My liberal readers who ardently desire a return to the days of potent private unions should ask themselves what might happen to the labor movement in this country if any shop that unionizes suddenly has to pay through the nose for credit. Ask yourself, indeed, what this might do to Chrysler, since this is unlikely to be the last time in the life of the firm that they need credit. Though it may well be the last time they get it, on anything other than usurious terms.
Megan,
I had raised the same concerns last night in reply to one of Conor's posts here: http://business.theatlantic.com/2009/05/casting_the_hedge_funds_as_villains.php
Fiat's position is just too pat. I've got a feeling that when this comes out of BK, they are going to leverage the UAW as majority shareholder to come up with the operating cash on their own, and stick the UAW with the bill. Since they have no cash in the deal, Fiat can threaten to walk, and the Obama administration cant really take anything away from them.
In the end, the UAW is going to be forced to sell their new equity at substantially below market rates in order to raise cash. Lets be honest - who is going to come in and pay dollar for dollar when there is a chance the government might come back and take the equity away?
Any how, do the little biscuits come with jam? If they have blackberry, it might be worth the price of admission.
Megan McArdle, I see you're inserting yourself in yet one more subject that you know utterly nothing about. That's par for the course. If the Atlantic Monthly ever had a dumber "economics columnist" than you, I've yet to see it.
The government did nothing wrong here. As the provider of $4 billion in DIP financing, the Treasury has a direct interest in Chrysler's emergence from Chapter 11 proceedings. All but three creditors had signed onto the deal, and on Friday one of the holdouts, Perella Weinberg, capitulated.
Then, after it happened, we were treated to some sour grapes from a lawyer who whined that Perella Weinberg had been forced into it by government threats. Why, the government had threatened to go to the press! O, the horror! The government was going to tell its side of the story. Shocking!
As for the tussle between senior and junior creditors, Megan, get off your lazy and pampered Republican ass and study some bankruptcy cases. Or are you afraid that you don't have the mental horsepower? If you actually condescending to do some real work here, you'd find that fighting among creditors is what bankruptcy is all about.
Holdouts, too. Just every EVERY bankruptcy has some holdout creditors. The DIP financier doesn't like holdouts because they gum up the works and endanger the payback prospects. Courts don't particularly like holdouts either. They don't succeed very often, although they can cause delays.
There was nothing unusual in the Chrysler bankruptcy. Of course, Megan McArdle is too stupid, and too lazy, to know that. So I thought I'd point out to her, her readers, and the Atlantic Monthly that, once again, its so-called "economics correspondent" makes the average fashion writer look like a rocket scientist.
Horrible Leftie,
After you are done with your personal attacks on Megan, I would like you to address what I believe to be the most important part of her analysis. The notion that union shops will have to pay significantly higher interest rates would put them at an even greater disadvantage than they already have, which is quite considerable.
Do you believe her to be correct or incorrect? I believe her to be correct because whether or not your analysis of bankruptcy is correct, I know perceptions matter in setting interest rates.
Horrible Leftie: It won't make any difference, because nobody is going to buy cars from Obama/UAW Motors. Some trucks, maybe, but that will be all. No one in their right mind will loan them money at competitive rates. GM and Chrysler will become Amtraks, and the government will put money into them every year to buy the votes of the workers and to tap the union's campaign war chest at election time. GM and Chrysler should have filed BK on their own over a year ago, chucked the union work rules, and tried to become competitive with other auto manufacturers in North America. That was bad mamagement. This is your show now; I'll just sit back with my sno-cone and popcorn and watch the industrial equivalent of a slow motion skydiving accident.
Megan McArdle is a lazy idiot. Virtually everything she writes is poorly researched, and this article was no exception. The UAW made big wage concessions, and the retiree benefits are going to be cut. The idea that they come out of this unscathed is flat wrong. If McArdle wants to have opinions, fine. But why can't the woman EVER get her facts straight?
She's a joke, and it's an ongoing mystery to me as to why the Atlantic Monthly keeps her around.
As for GM and Chrysler, the bailout of them was initiated last fall by the Bush administration. Obama's people have been putting all kinds of pressure on Chrysler and GM, and the end result will be FAR smaller companies. That still might not work, but it's ludicrous to allow Perella Whineberg and a few other holdout creditors to squeeze money from the taxpayers.
The UAW has made concessions. Whoopee-frackin'-do! The time to do that was ten years ago when they were bleeding the companies (with management complicity). Workers (taxpayers) whose pensions are invested in funds holding GM and Chrysler bonds are supposed to take a bath because the unions want to preserve their archaic work rules and continue to strangle the companies? PUH-LEEZ. I don't feel a bit sorry for the UAW. The sooner they are pounding sand and looking in the mirror wondering what went wrong, the better. They did it to themselves.
I'm not crying crocodile tears for the UAW, but it's a fact that they made significant concessions. Megan McArdle, who couldn't research her way to the office elevator, missed that fact.