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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: Joe NYC who wrote (479075)	5/8/2009 3:32:47 AM
From: Joe NYC	2 Recommendations Respond to of 1573718

Barack Obama and the carmakers An offer you can't refuse May 7th 2009 From The Economist print edition In its rush to save Detroit, the American government is trashing creditors’ rights who lent money to General Motors (GM) or Chrysler can have been unaware of their dire finances. Nor can workers have failed to notice their employers’ precarious futures. These were firms that barely stayed afloat in the boom and both creditors and employees were taking a punt on their promise to pay debts and generous health-care benefits. The bet has failed. The recession has tipped both firms into the abyss—together they lost $48 billion last year. Chrysler has entered bankruptcy, from which it may emerge under Fiat’s control (see article). GM could soon follow if efforts to hammer out a voluntary restructuring fail. America’s government, keen to protect workers, is providing taxpayers’ cash to keep the lights on at both firms. But in its haste it has vilified creditors and ridden roughshod over their legitimate claims over the carmakers’ assets. At a time when many businesses must raise new borrowing to survive, that is a big mistake. Bankruptcies involve dividing a shrunken pie. But not all claims are equal: some lenders provide cheaper funds to firms in return for a more secure claim over the assets should things go wrong. They rank above other stakeholders, including shareholders and employees. This principle is now being trashed. On April 30th, after the failure of negotiations, Chrysler entered Chapter 11. Under the proposed scheme, secured creditors owed some $7 billion will recover 28 cents per dollar. Yet an employee health-care trust, operated at arm’s length by the United Auto Workers union, which ranks lower down the capital structure, will receive 43 cents on its $11 billion-odd of claims, as well as a majority stake in the restructured firm. The many creditors who have acquiesced include banks that themselves rely on the government’s purse. The objectors have been denounced as “speculators” by Barack Obama. The judge overseeing the case has consented to a quick, “prepackaged” bankruptcy, which seems to give little scope for creditors to argue their case or pursue the alternative of liquidating the company’s assets. In effect Chrysler and the government have overridden the legal pecking order to put workers’ health-care benefits above more senior creditors’ claims, and then successfully argued in court that the alternative would be so much worse for creditors that it cannot be seriously considered. The Treasury has also put a gun to the heads of GM’s lenders. Unsecured creditors owed about $27 billion are being asked to accept a recovery rate of 5 cents, says Barclays Capital, whereas the health-care trust, which ranks equal to them, gets 50 cents as well as a big stake in the restructured firm. If creditors refuse to co-operate, the government will probably seek to squash them using the same fast-track legal process. Chapter and verse The collapse of Detroit’s giants is a tragedy, affecting tens of thousands of current and former workers. But the best way to offer them support is directly, not by gerrymandering the rules. The investors in these firms are easily portrayed as vultures, but many are entrusted with the savings of ordinary people, and in any case all have a legal claim that entitles them to due process. In a crisis it is easy to put politics first, but if lenders fear their rights will be abused, other firms will find it more expensive to borrow, especially if they have unionised workforces that are seen to be friendly with the government. It may be too late for Chrysler’s secured creditors and if GM’s lenders cannot reach a voluntary agreement, they may face a similar fate. That would establish a terrible precedent. Bankruptcy exists to sort legal claims on assets. If it becomes a tool of social policy, who will then lend to struggling firms in which the government has a political interest economist.com

To: Joe NYC who wrote (479075)	5/8/2009 12:16:55 PM
From: Tenchusatsu	2 Recommendations Read Replies (1) \| Respond to of 1573718

Nice article, Jozef, but Ted is likely going to ask you to leave the country again before he acknowledges any impropriety or socialism in Obama's "bankruptcy" deal. Tenchusatsu

To: Joe NYC who wrote (479075)	5/8/2009 1:28:30 PM
From: tejek	Read Replies (3) \| Respond to of 1573718

(CBS) Chrysler's sad tale that led to this week's bankruptcy hearing in New York is not only an important business and political story. It also encompasses morality, the rule of law and strong-arm tactics used by some politicians. Our story begins with the slow downfall of Chrysler, which succumbed to bankruptcy after experiencing a steep sales decline of 48 percent in one year. During its slide, Chrysler borrowed money from lenders and in return signed a contract promising that as so-called senior creditors, they'd get paid before anyone else if the company went under. These creditors, by the way, represent something of a cross-section of America: the University of Kentucky, Kraft Foods' retirement fund, the Bill and Melinda Gates Foundation, pension funds, teachers' credit unions, and so on. I am not sure where the problem is. The gov't was trying to keep Chrysler out of BK. They wanted the senior creditors to accept something less than 100%. The senior creditors refused. That pissed Obama off. Then Chrysler proceeded into BK. The senior creditors will get their 100%. So they didn't lose. Frankly, I like a gov't that takes an aggressive position in these negotiations instead of letting the private sector walk all over it. Obama did nothing dishonest. If he was looking out for the little guy, the unions, then good.......that's a rarity in gov't esp. under the Rs.