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The Coming Auto Bailout

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gags

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I just can't believe anyone was foolish enough to hold on to those bonds this long. What did they expect?
The thing is that as things got worse, the price they could get for the bonds was probably also drifting downward. So, it would not be so much about thinking Chrysler had prospects as much as thinking the prospects were better than implied by the new, lower price. In fact, many of them would not have paid "full price" for the bonds, because they would have bought them when Chrysler was already looking distressed.
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Ford has managed to deal with the UAW getting potential wages down to $55 per hour and saving the company $550 per year, so they still claim they don't need a bailout, even though they had record loses in 2008. $55 per hour is great wages, from my perspective, but if it is coming down from $75 per hour I guess the UAW is finally realizing that if something isn't done soon they lose everything.

"Ford said the agreement would trim its average wages for the 42,000 workers covered under the contract, including the value of benefits, to about $55 per hour this year, while the U.S. operations of foreign-based automakers -- or what auto executives call "transplants" -- pay workers on average $48 to $49 per hour."

Added on Edit: Sorry for the multiple replies in one post. My computer locked up trying to upload my reply.

Maybe they're realizing that they've sheered this sheep to the point where the wool ain't growing back.

I just can't believe anyone was foolish enough to hold on to those bonds this long. What did they expect? That with the government involved all would go well? LOL! B)

...maybe this is "buy and hold" gone mad. B)

Oh yes, the other negative was that Obama took a protectionist stand in his speech, saying people ought to buy American cars. This guy can sure channel Hoover/Roosevelt!

The more I hear this guy speak, the more I start to think that he's just a copycat. Has he come up with anything original, or are all his policies basically a ripoff of his favorite predecessors?

From the restructuring plan put forth by GM it looks like the government will ultimately own about 50% of the equity, the union will own about 40% and the bondholders will get the remaining 10%. GM's existing shareholders will end up with nothing.

Bondholders are supposed to come first. But then, Government has been doing a good job of breaking up contracts...so I guess this is another notch in the belt.

I think it may have more to do with Hummer sales being in the dumps. Although, the new "green" GM certainly won't have any room for Hummers. I wonder if it will have room for cars that people actually want to buy?

...hmmm a "green hummer"? :lol:

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The thing is that as things got worse, the price they could get for the bonds was probably also drifting downward. So, it would not be so much about thinking Chrysler had prospects as much as thinking the prospects were better than implied by the new, lower price. In fact, many of them would not have paid "full price" for the bonds, because they would have bought them when Chrysler was already looking distressed.

I still say it wasn't a smart investment and they should've cut their losses long before now. Some new clients came to us last year with their GM bonds. We advised they sell as soon as possible. It was good advice.

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One possibility is that the lenders will be intimidated behind the scenes by the Whitehouse. The lawyers for the lenders claims that one of the lenders (Perella Weinberg) dropped opposition to the deal when the Whitehouse threatened "... that the full force of the White House press corps would destroy its reputation if it continued to fight." This sounds so much like Paulson's strong-arming. Interestingly, the same company (P.Weinberg) is said to have consulting business with the government (the FDIC in particular). If true, the government can use that leverage as well. I suppose it should be no surprise if we eventually hear that the remaining lenders have changed their minds as well.

I heard that interview on Beckman's show Snerd. There are others in the hedge fund industry who are speaking up about Obama's intimidation tactics and abuse of power:

Cliff Asness, whose firm manages some $20 billion of assets, has written an open letter blasting President Obama for his attack on the hedge fund industry in the wake of the Chrysler bankruptcy.

As you'll recall, hedge funds, which hold approximately $1 billion in Chrysler bonds, refused the government's offer to take approximately thirty cents on the dollar. Obama accused hedge funds of holding out "for the prospect of an unjustified taxpayer-funded bailout."

These comments have enraged many in the industry but few have spoken out publicly. Asness, whose firm doesn't hold Chrysler bonds, says the industry is genuinely afraid in the face of Obama's power. Stating that he himself is "fearful writing this," Asness still pulls no punches:

  • "Let’s be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable with their own money, and many are spectacularly so, but if they give away their clients’ money to share in the “sacrifice”, they are stealing."
  • "The President screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large. Find me a hedge fund that has been bailed out. Find me a hedge fund, even a failed one, that has asked for one. In fact, it was only because hedge funds have not taken government funds that they could stand up to this bullying. The TARP recipients had no choice but to go along."

  • "The President's attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to "sacrifice" some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power."

http://finance.yahoo.com/tech-ticker/artic...sset=&ccode=

Edited by gags
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Asness, whose firm doesn't hold Chrysler bonds, says the industry is genuinely afraid in the face of Obama's power. Stating that he himself is "fearful writing this," ...
Good for him. In the Chrysler bailout many of the lenders were the big banks who don't dare take the government on just now. it is one of those cases where one will never have any proof that they were coerced into going along.

An ex-FDIC executive was interviewed on CNBC today and someone asked him whether banks would fight some new rule the government wanted. He summed it up thus: "You don't tug on Superman's cape".

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Thanks to the RationalCapitalist blog, I found the text of the letter by Mr. Asness, reproduced here.

Unafraid In Greenwich Connecticut

Clifford S. Asness

...

The President has just harshly castigated hedge fund managers for being unwilling to take his administration’s bid for their Chrysler bonds. He called them “speculators” who were “refusing to sacrifice like everyone else” and who wanted “to hold out for the prospect of an unjustified taxpayer-funded bailout.”

The responses of hedge fund managers have been, appropriately, outrage, but generally have been anonymous for fear of going on the record against a powerful President... ...

I run an approximately twenty billion dollar money management firm that offers hedge funds as well as public mutual funds and unhedged traditional investments. My company is not involved in the Chrysler situation, but I am still aghast at the President's comments ... ...

... ...

..., it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable with their own money, and many are spectacularly so, but if they give away their clients’ money to share in the “sacrifice”, they are stealing...

... ...

Last but not least, the President screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large. Find me a hedge fund that has been bailed out. ...

This is America. We have a free enterprise system that has worked spectacularly for us for two hundred plus years. When it fails it fixes itself. Most importantly, it is not an owned lackey of the oval office to be scolded for disobedience by the President.

I am ready for my “personalized” tax rate now.

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Thanks to the RationalCapitalist blog, I found the text of the letter by Mr. Asness, reproduced here.

Thanks Snerd. Interesting read. It is nice to see financiers stand up for themselves. Finally, these are words I've been waiting for management to say proudly. I noticed that Oppenheimer is also standing up for themselves.

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Three cheers for Cliff Asness! I hope he continues to speak out when the SEC decides that his fund needs a little "special attention" and the tax boys decide to look a little deeper at the last 15 years of returns he has filed.

After all, it's OK for Tim Geithner to cheat on his taxes, but if this guy misplaced a comma, they are gonna throw his ass in Federal prison.

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And now there will be more money for audits! (For certain people, I'm sure...certainly not for cabinet members.) :wub:

President Barack Obama proposed on Thursday nearly doubling funds to enforce U.S. tax laws next year, with an aim of more than quadrupling funding for tax compliance to $2.1 billion within five years.

The budget plan seeks $12.1 billion for the Internal Revenue Service, responsible for collecting and enforcing individual and corporate tax laws, for fiscal 2010, which begins October 1. That amounts to a roughly 5.2 percent increase over the IRS budget for 2009, which was $11.5 billion.

Edited by K-Mac
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Of course, the bondholders caved and are now going along with the government's plan:

Geoffrey Gwin, principal of the Group G Capital Partners LLC hedge funds, said that after weighing the obstacles ahead and along with the opposition they had faced before, the group's five remaining members realized that they couldn't mount an effective legal challenge.

"We're still opposing this and not signing the consents, but the active fight has been more challenging," Gwin said. "Everybody's going along with it."

http://finance.yahoo.com/news/Group-drops-...set=&ccode=

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Their "caving" to political pressure is likely to promote some longer-term unintended(?) consequences: http://online.wsj.com/article/SB124217356836613091.html

:dough:

Why should anyone be surprised? When you disregard the rule of law and deny the contractually guaranteed rights of parties to voluntary agreements, investors are going to get very gun shy.

George Schultze will think twice before lending to another troubled company such as Chrysler.

Mr Schultze is one of a group of dissident Chrysler creditors who was rebuked by the US president and other lawmakers for tipping the company into bankruptcy. He rejected an offer aimed at slashing Chrysler’s debt in order to allow the carmaker to be sold.

"It will increase the cost of credit in the capital markets for lots of companies by tinkering with the well- settled priority system,” Mr Schultze said. “Our firm and many other lenders will think twice about lending to companies who have junior creditors that might get an unfair sweetheart deal."

http://www.ft.com/cms/s/0/8ae2592e-3b31-11...?nclick_check=1

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On Thursday, Chrysler announced it was terminating its relationship with nearly 800 of its dealers. On Friday, GM cut about 1,100 dealers and more will come soon. These businesses employ tens of thousands, so this isn't a welcome development.

The Auto Industry has become a case study in how government intervention ends up destroying wealth and ruining people's lives.

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Most private investors have given up the fight to stop their property being handed over to the unions. However, some public pension plans are carrying on the fight.

In several motions with the Chrysler docket earlier, the Indiana State Teachers Retirement Fund, Indiana State Police Pension Trust, and Indiana Major Movers Construction Fund, fiduciaries for "approximately 100,000 civil servants, including police officers, school teachers and their families" have objected to the 363 sale, and demand Judge Gonzalez should block the sale, claiming "the plan is illegal and tramples their rights."

Among other things, the Indiana Pensioners seek to appoint both a trustee and an examiner in the case (an examiner was eventually retained in the Lehman bankruptcy), claiming that the company "has ceded control over their business and their restructuring efforts to the United States Treasury Department" which is using the Chapter 11 process to reward creditors that the "government deems politically important."

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Get ready for government approved clown cars, folks. Fascism is fast upon us.

Some of them look cute and maybe they would be good if you lived in a city and only had to drive around the corner to get milk, but I wouldn't want to drive them back and forth to work.

Sorry for the downloaded image, I can't figure out how to insert an image into the posting! A friend sent me the photo, but I don't know who to attribute it to.

post-2508-1242859081_thumb.jpg

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I would hate to get into an accident in some of those things.

On another note, I'm glad someone is standing up to the crap the bond holders are being fed.

They also said the Treasury “has taken constructive possession of Chrysler and is requiring it to adopt a sale plan in bankruptcy that violates the most fundamental principles of creditor rights – that first-tier secured creditors have absolute priority”.
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Too bad nobody is standing up to the crap American consumers are being fed. Obama's 35.5 mile per gallon super vehicles are going to kill whatever is left of this industry's domestic operations. Unfortunately, the public also doesn't seem to care that this will add thousands of dollars to the price of a car. Not surprisingly, the US auto execs were basically standing next to Obama cheering him on. :wub:

http://www.newsday.com/business/ny-bzemis2...0,3176632.story

Of course, when Americans decide that they don't want to buy these pieces of shit, we can expect a large increase in the gas tax so that we're essentially forced to buy unsafe econoboxes that are made in China.

On the Government Motors (GM) front, it looks as if that moniker is going to be fairly descriptive as the US govt. will probably end up owning a controlling interest in the company. It also appears that the government will forgive the money that it loaned GM and provide a line of credit:

NEW YORK (Reuters) - If General Motors Corp files for bankruptcy, as widely expected, its healthy assets will be quickly sold to a new company owned by the U.S. government, a source familiar with the situation said on Tuesday.

The source, who was not cleared to speak with the media and would not be identified, said the U.S. government would pay for the assets by assuming the automaker's $6 billion of secured debt and forgiving the bulk of the $15.4 billion of emergency loans that the U.S. Treasury has provided to GM.

In addition, the government would extend a credit line to the new company, the source said.

http://www.reuters.com/article/americasPri...E54H6AN20090519

Edited by gags
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The source, who was not cleared to speak with the media and would not be identified, said the U.S. government would pay for the assets by assuming the automaker's $6 billion of secured debt and forgiving the bulk of the $15.4 billion of emergency loans that the U.S. Treasury has provided to GM.

In addition, the government would extend a credit line to the new company, the source said.

http://www.reuters.com/article/americasPri...E54H6AN20090519

This is just so preposterous! Billions and billions of dollars forced from the public to fund an operation that they obviously didn't want very badly in the first place! And with the promise of billions more to come!
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This is just so preposterous! Billions and billions of dollars forced from the public to fund an operation that they obviously didn't want very badly in the first place! And with the promise of billions more to come!

Hey, the boys in Washington have to keep their union supporters happy.... at our expense.

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