By on May 10, 2009

David A. Skeel Jr. is the S. Samuel Arsht Professor of Corporate Law at the University of Pennsylvania Law School and author of “Icarus in the Boardroom” (Oxford University Press, 2005) and “Debt’s Dominion: A History of Bankruptcy Law in America” (Princeton University Press, 2001). In an article in the free market American Enterprise Institute’s house organ,  The American, Skeel says that while the Obama administration avowedly patterns itself after FDR’s New Deal, the deal that the President’s task force on autos has cooked up for Chrysler would actually “make a true New Dealer turn over in his grave.”

Prof. Skeel points out that a major aspect of the New Deal was reform of bankruptcy laws that permitted sham sales called “equity receiverships” to bondholders and other creditors.

New Dealers hated the process, which they saw as opaque and designed to foist a deal crafted by the insiders on everyone else. Jerome Frank, a lawyer who later headed an important New Deal agency and became a federal judge, complained in 1933 that the judicial sale in these cases “was a mockery and a sham.” He said, “A sale at which there can be only one bidder, is a sale in name only.”

In 1938, thanks to the handiwork of another prominent New Dealer, future Supreme Court Justice and then-SEC Chairman William Douglas, Congress dramatically altered the bankruptcy laws, eliminating the former practice.

The Obama administration blueprint for Chrysler’s bankruptcy looks startlingly like the artificial sales that the New Dealers so abhorred. Unlike a traditional reorganization, in which the parties negotiate the terms of a restructuring that is then voted on by each class of creditors and shareholders, the administration plans to quickly sell Chrysler’s most important assets to a new entity “New Chrysler” whose stock will be owned by Chrysler’s employees and Fiat.

The senior lenders who objected to the government’s offer (which amounted to little more than 30 percent of their claims) will not have any vote on the sale. Their only option is the one they have pursued: objecting to the sale, and praying that bankruptcy judge Arthur Gonzalez takes a hard look at its terms even while the government is breathing down his neck and saying in a sense, he better approve or else.

The dissident bondholders made Judge Gonzalez’ job a little easier today when they folded after two of the remaining five holdouts withdrew from litigation. Still, Gonzalez has to approve the sale of whatever worthwhile remains among the dross of Chrysler.

What makes the Chrysler plan unique, and makes it similar to the receiverships of the New Dealers’ era, is that it is not really a sale at all. It is a pretend sale and its main purpose is to eliminate the pesky creditors who might otherwise interfere with the government’s plans. It also seems to flout bankruptcy’s priority rules by giving Chrysler’s employees (who are general creditors) a big stake in New Chrysler while forcing senior lenders to take a major haircut. The usual rule is that senior creditors must be paid in full before lower priority creditors are entitled to anything.

Skeel says that the judge can do two things to make sure the sale is appropriate. The first is to get an independent determination of the value of Chrysler. So far all the parties involved in valuing the assets have an interest in exaggerating or lowballing the company’s valuation. The second is to require a complete accounting of the deal so it’s absolutely transparent in terms of who is participating and who’s getting the shortest haircut.

Though much of the criticism of the Obama administration’s plans for Chrysler and GM has centered around government excesses, threats to the capital markets and the rule of law, it’s interesting that Prof. Skeel worries more for what it may portend in terms of bankruptcies in general.

The Chrysler sale looks like the latest of a series of government interventions that have run roughshod over ordinary legal rules, and it appears to be paving the way for a similar strategy in a General Motors bankruptcy. Much of what the government is doing allowing Chrysler to file for bankruptcy, promising to guarantee its warranty obligations is admirable. But the use of a sham sale of the sort the New Dealers thought they had forever eliminated will cause mischief in future bankruptcy cases.

Not only may the government go back to this well, but in the future private parties will conclude that sham sales are a legitimate tool in their own cases.

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84 Comments on “Editorial: Chrysler Zombie Watch 6: Bankruptcy Prof. Condemns Chrysler C11...”


  • avatar
    lw

    You think Chrysler was a raw deal? Check this out…

    http://online.wsj.com/article/SB124163910180492861.html

    These guys stole 166 malls.. that take some brass balls to pull off…

  • avatar
    GS650G

    In the end it is not going to matter because it is doubtful that the “New Chrysler” will sell cars at enough profit to make it. More government money will follow and when we get another chance to vote we can end this madness.

    Instead of abortion flip flops on January 20 of the new administration we can have economic changes by the same edicts.

    People really have short memories, and take a short term view. The current leadership thinks they have a lock on running things for another 40 years. I don’t think it’s practical to assume that although demographics will help them retain power.

    Chrysler is probably not worth saving. It’s too bad but 3 years from now we will look at one of their cars still chugging along and remark about how they used to make them somewhere.

  • avatar
    lw

    @GS650G

    I believe the Dems will lose or retain power based on two #s.

    First – Inflation. Like everyone before them, they are printing money to provide free beer. If they go too far / too fast they will create too much cash and prices will rise (all other things like supply/demand held constant)

    Second – Unemployment / Underemployment. Obama has taken the position that government can solve this via stimulus so if they don’t create real jobs that Joe Six Pack can get/keep/raise a family on…

    If gas is $5 a gallon and unemployment is north of 10%…. Very few incumbents will be spared…

  • avatar
    Pch101

    Headline: The AEI objects to the actions of a Democratic president. In other shocking news, a spokesman for the Catholic church argued against abortion, a Palestinian representative claims that Israel violated international law, and Stormwatch has an article that disputes the Holocaust. All shocking, I know.

    The AEI had no objections to this when the Bush administration did something similar with Washington Mutual. The right-wing must have been hibernating in the woods, dozing peacefully, when a similar approach was used with Lehman. But now that Obama has been elected, they’re suddenly angry and alert, objecting to things that didn’t bother them when done by one of their own. Looks a wee bit selective from here.

    You could ask Stephen Lubben of Seton Hall about his take on this. But since he’s a bankruptcy law professor who doesn’t work for a right-wing lobbying group, I suppose that his assessment doesn’t count.

  • avatar
    John Horner

    “It also seems to flout bankruptcy’s priority rules by giving Chrysler’s employees (who are general creditors) a big stake in New Chrysler while forcing senior lenders to take a major haircut.”

    What a grave injustice! People who have worked for many years, perhaps their whole lives, at a company being given higher priority than the hedge funds and bankers! It is the God Given Right of the Bankers to get as much as possible for themselves whilst tossing those poor saps who are stupid enough to work with their hands out on the street with nothing. Get Joe the Plumber on the job and make sure he knows it is guys like him who are getting taken …..

  • avatar
    instant rebate

    Here is one of the biggest problems that is “fueling” the overall picture and distrust in the United States:

    http://www.pbs.org/now/politics/politics_pop/index.html

  • avatar
    buzzliteyear

    I think a there is a huge assumption in the complaints about the ChyrCo C11 that does not stand up to scrutiny.

    Critics seem to think that because the Obama administration strong-armed the bankruptcy process when…

    —The company in question is a Fortune 500 manufacturing firm.

    —The economy in is the worst slowdown since the Great Depression

    —The government is providing financing to keep the company going (for better or worse)

    —Dragging out the process would almost guarantee a C7 liquidation

    —The main foot-draggers are hedge funds who bought company debt at pennies on the dollar

    …..that the government will start strong-arming all bankruptcy proceedings everywhere.

    That is nonsense.

    Obama is not setting up a Department of Screw-the-Bondholders.

    Yes, some bondholders are going to get screwed in the ChryCo and GM restructures, but that does not mean that the government is going to start wholesale intervention into bankruptcy proceedings.

  • avatar
    Pch101

    Skeel says that the judge can do two things to make sure the sale is appropriate. The first is to get an independent determination of the value of Chrysler. So far all the parties involved in valuing the assets have an interest in exaggerating or lowballing the company’s valuation. The second is to require a complete accounting of the deal so it’s absolutely transparent in terms of who is participating and who’s getting the shortest haircut.

    See, what’s funny about this is that he omitted another option. The bondholders could have blocked the sale by making a “credit bid” up to the amount of their debt. Collectively, they could have bid up to the $6.9 billion that they were owed without putting up any cash. If someone wanted to pay more, then they could have deferred to that buyer and been paid in full at the auction.

    But they didn’t do that. Most of them took an early cash offer, and nobody proposed making a credit bid. Why didn’t they? Credit bids are typical with real estate foreclosures, for example; the lender uses them to take the assets back so that they can sell them as they see fit, preferring to gain control rather than allowing the debtor to sell it.

    If there was so much value there, then why not credit bid? Here’s a thought — there wasn’t that much to get. This whole deal is worth zippo without a buyer (Fiat) and a DIP lender (the US government.) If one of them bails out, you’re left with a liquidation value that makes 30 cents on the dollar look like a home run. Nobody on the bondholder side wanted to risk losing either party.

    The holdouts were simply negotiating for more. It’s a part of the process and most of the process occurs outside of court, not in it.

  • avatar
    CamaroKid

    If there was so much value there, then why not credit bid? Here’s a thought — there wasn’t that much to get. This whole deal is worth zippo without a buyer (Fiat) and a DIP lender (the US government.) If one of them bails out, you’re left with a liquidation value that makes 30 cents on the dollar look like a home run. Nobody on the bondholder side wanted to risk losing either party.

    The holdouts were simply negotiating for more. It’s a part of the process and most of the process occurs outside of court, not in it.

    There is truth and there is politics… The above is the TRUTH… Chrysler isn’t worth a $1.98… Everyone knows that… The press knows that, the Judge knows that, the Government knows that…The market knows that.. This website has blogged that over and over… Suddenly we all think that Chrysler is worth hundreds of Billions…

    The bond holders “held out” in the hopes that the fear that “Obama is a Socialist” will cause public perception to increase their leverage…

    Three things happened… First, the Judge and Obama didn’t blink, they knew that Chrysler without Fiat and their money was worth NOTHING and the Bond holder’s claim was vacuous. Second once everyone saw just who these “poor bondholders were” and when they bought Chrysler paper… The public support EVAPORATED. And third other then Hannity, Beck, Limbaugh and a handful of people wearing tinfoil hats no one is buying this boogieman socialist thing.

  • avatar
    HEATHROI

    The AEI had no objections to this when the Bush administration did something similar with Washington Mutual.

    because their guy was running things into the ground. Now the turkeys from the other coup have control they discover things like limited government and financial responsibility and other thing go down with with the grassroots.

  • avatar
    ihatetrees

    Pch101:
    Headline: The AEI objects to the actions of a Democratic president.

    Better Headline: Respected law professor with conservative views objects to the actions of a Democratic president.

    You could ask Stephen Lubben of Seton Hall about his take on this. But since he’s a bankruptcy law professor who doesn’t work for a right-wing lobbying group, I suppose that his assessment doesn’t count.

    Clever spin. David Skeel works for AEI??? More accurate: “David Skeel works as a Professor at U of P Law School”.

    Steven Lubben works for Seton Hall University Law School. Does Lubben also work for everyone who’s ever published him? My guess is that Steven Lubben is, like 80 percent of all U faculty, a Democrat.

  • avatar
    rjsasko

    “What a grave injustice! People who have worked for many years, perhaps their whole lives, at a company being given higher priority than the hedge funds and bankers! It is the God Given Right of the Bankers to get as much as possible for themselves whilst tossing those poor saps who are stupid enough to work with their hands out on the street with nothing.”

    Hmmm…who had a bigger hand in driving Chrysler into the ground? The bondholders or the UAW? Why the UAW in a unanimous decision. And therefore the little old ladies who make up the owners of the bonds that have an equal right to compensation should lose darn near everything they saved so it can be handed to one of Obama’s most important supporter groups in violation of all precedent in established bankruptcy law; the group largely responsible for the bankruptcy, is “fair”, “just”, or “legal” in what manner?

    If the objective is for a healthy Chrysler (and suppliers) to emerge from the BK the UAW retirees should get squat, the current workers should be paid prevailing non-union wages and benefits, and the unions disbanded. Since boatloads of $$$ are going to the retirees and the UAW I submit that Obama’s team is playing politics and fully expects the Chrysler emerging from BK to fail quickly and this whole drama is just an asset strip from the rightful owners to hand to his minions.

  • avatar
    ihatetrees

    John Horner:
    What a grave injustice! People who have worked for many years, perhaps their whole lives, at a company being given higher priority than the hedge funds and bankers.

    I know pensioned steelworkers & airline workers who took major pension and retirement healthcare haircuts years ago. What’s so different today, other than the UAW has power and influence in certain political areas?

    (Although, how the UAW gets any sort of decent ROI with their piece of New Chrysler is puzzling. Assuming there’s no strong-arm tactics to force TARP recipients into buying chunks of this UAW pig-in-a-poke firm.)

    BTW, many 401K accounts have assets in these ‘hedge funds’. They have a fiduciary duty to maximize return. They also have a duty to stand on principle so this sort of crap doesn’t happen with GM.

  • avatar
    Detroit Todd

    This should have never seen the inside of a courtroom.

    The out-of-court offer to the recalcitrant bondholders was $0.33 on the dollar. Now, they stand to get $0.30.

    So, their big gamble to force a bankruptcy and file sham pleadings with the Court to gum up the works in an attempt to extract a “go away” premium from the Obama Administration failed. Not only for them, but for everyone else. To the tune of tens of millions (at least) in attorneys fees.

    For justice to be truly done, every party’s attorneys’ fees should be carved out of these bondholders $0.30 on the dollar. Notwithstanding what some boneheaded professor in Pennsylvania may have to say about it.

    BTW, it’s interesting that university professors have been villified by conservatives for years and years (i.e., “those who can, do; those who can’t get tenure”), yet now they are to be looked to as fonts of wisdom? Heh!

    I guess anti-intellectualism is only beneficial until: (i) the right-wing is completely out of power at the Federal level, with their economic theories (among others) proven to be disasterous in practice; and (ii) a hack with a right-wing-correct view can be dug up in Pennsylvania and plastered about the internets.

  • avatar
    rjsasko

    “If there was so much value there, then why not credit bid? Here’s a thought — there wasn’t that much to get. This whole deal is worth zippo without a buyer (Fiat) and a DIP lender (the US government.) If one of them bails out, you’re left with a liquidation value that makes 30 cents on the dollar look like a home run. Nobody on the bondholder side wanted to risk losing either party.

    The holdouts were simply negotiating for more. It’s a part of the process and most of the process occurs outside of court, not in it.”

    Are some of you people for real? How can the bondholders possibly get fair treatment when Obama has his thumb on the scale? Either agree to reward his guys or there goes the DIP financing, New Chrysler is toast, and in this market you won’t get squat selling of the assets because there is so much overcapacity in autos. This is a shakedown: negotiation at gunpoint. And shame on so many of you for making excuses for it.

  • avatar
    acurota

    Would any “structured” or “surgical” bankruptcy inevitably have these failings? Honest question.

  • avatar
    ihatetrees

    Detroit Todd:
    BTW, it’s interesting that university professors have been villified by conservatives for years and years (i.e., “those who can, do; those who can’t get tenure”), yet now they are to be looked to as fonts of wisdom? Heh!

    Vilified? “Mocked” is more accurate. That Universities, the supposed bastions of free and open inquiry, are so often staffed with lefties and contemptuous of opposing views is funny. In a sad way.

    “those who can, do – or work for Heritage, Cato, or AEI – where their view are more accepted; those who can’t get tenure”

    FIFY.

  • avatar
    ihatetrees

    rjsasko:
    This is a shakedown: negotiation at gunpoint. And shame on so many of you for making excuses for it.

    I agree that this sets a horrible precedent. But what I don’t see is the endgame for the UAW? How do they get paid when they have nothing but worthless NewCo shares?

    There has to be a ‘fix’ down the road – some TARP sucker will be ‘told’ to start buying New Chrysler. Either that, or the Administration is really stupid in thinking that Fiatsler is going to work.

  • avatar

    You could ask Stephen Lubben of Seton Hall about his take on this. But since he’s a bankruptcy law professor who doesn’t work for a right-wing lobbying group, I suppose that his assessment doesn’t count.

    The fact that their web site published his essay in no way indicates that Prof. Skeel is in the employ of the American Enterprise Institute, beyond perhaps some renumeration for writing, but then Farago’s paid me an others to write for TTAC without him endorsing our points of view and vice versa. Likewise over on the dextrosphere. There’s a lot of actual intellectual debate in conservative and libertarian circles so publications will pay for pieces that don’t necessarily agree with their editorial stances.

    I made it clear in the post that the AEI is free market oriented. If that equates in your mind to “right wing”, that’s your business. Prof. Skeel certainly seems to endorse the New Deal bankruptcy reforms that tried to prevent quicky bankruptcies that helped insider creditors and shut out the less powerful. That seems classically liberal to me, but if you think Prof. Skeel, author of a respected legal history of bankruptcy in the US, is a right wing hack, you’re entitled to your opinion, I suppose.

    While it’s true that ideological conservatives have their own reasons to object to President Obama’s actions regarding the auto industry, the specific criticisms of the treatment of the bondholders have come from moderates like Michael Barone, former Obama supporters like Cliff Asness, and academics like Prof. Skeel.

    It seems that it is President Obama’s partisans who claim that all others are motivated by political and economic interest. Funny that while the administration is rewarding an entity that gave the president’s own political campaign $4 million. But then to the president’s partisans, any opposition to any presidential policy can only be evil and never principled.

    I believe it was the people who saw their interests as aligning with those of the emperor who were the last to notice his dishabiliment.

  • avatar

    What a grave injustice! People who have worked for many years, perhaps their whole lives, at a company being given higher priority than the hedge funds and bankers! It is the God Given Right of the Bankers to get as much as possible for themselves whilst tossing those poor saps who are stupid enough to work with their hands out on the street with nothing.

    And, pray tell, just who will invest in enterprises employing those people if those investments aren’t protected by consistent rules of credit and collateral?

    I hate banks as much as the next guy but figure that they are a necessary evil, along with venture capital and trade/labor unions. You can’t have a functioning economy if people can’t borrow money for enterprises and nobody’s gonna lend money if they don’t get compensated for their risk.

  • avatar
    Harleyflhxi

    Pch101, for once I have to say that I agree with everything you are arguing. Well thought out, good points.

    Not bad for a liberal. :)

    BTW, for those who feel that the UAW is a prime culprit in Chrysler’s woes, what could be a better punishment than to make them one of the owners of Chrysler?

    Think about it.

  • avatar

    See, what’s funny about this is that he omitted another option. The bondholders could have blocked the sale by making a “credit bid” up to the amount of their debt. Collectively, they could have bid up to the $6.9 billion that they were owed without putting up any cash. If someone wanted to pay more, then they could have deferred to that buyer and been paid in full at the auction.

    I believe that was one of the non-TARP creditors’ specific complaints, they were not allowed to used the debt to bid on the company. While Fiat is putting up no cash for their chunk of New Chrysler, and the UAW VEBA is getting equity for debt, the bondholders were not given the opportunity to bid for the company using their debt. They were offered a payout and were not given a chance to counteroffer. Supposedly only cash offers were being entertained and since the US gov’t is the only one willing to put up case, they’re calling the shots.

    Politics aside I see the gov’t using all sorts of double standards that benefit a politically connected entity. If this was a corporation like Halliburton and a Republican president instead of the UAW and Obama, you’d be screeching about this deal.

    Like Rob’t Schwartz says, this one shines and it stinks.

  • avatar

    The public support EVAPORATED. And third other then Hannity, Beck, Limbaugh and a handful of people wearing tinfoil hats no one is buying this boogieman socialist thing.

    That’s what’s funny about the left’s own boogeyman approach, the caricature rarely approaches reality. I don’t hear many conservatives calling the president’s actions regarding the auto industry (and the banking industry as well) socialist, though there is no question that Obama is a man of the left. Conservatives and others, have, however, tried to explain that government management and coercion of business is a characteristic of fascist regimes.

    Of course, as Daniel Pipes has put it, fascism is a heresy of the left.

  • avatar

    BTW, it’s interesting that university professors have been villified by conservatives for years and years (i.e., “those who can, do; those who can’t get tenure”), yet now they are to be looked to as fonts of wisdom? Heh!

    Not really. Newt Gingrich is a university professor. Victor Davis Hanson is a university professor. Conservatives actually respect free inquiry and intellectual pursuit. There’s a lot more internal debate at the National Review than on the staff of The Nation.

    I guess anti-intellectualism is only beneficial until: (i) the right-wing is completely out of power at the Federal level, with their economic theories (among others) proven to be disasterous in practice; and (ii) a hack with a right-wing-correct view can be dug up in Pennsylvania and plastered about the internets.

    The only anti-intellectuals on campus today are those in power on the left who suppress conservative and libertarian speech. If you want to see anti-intellectualism, check out all the various XYZ Studies departments. While you’re mocking the Christian creationists, just be sure you don’t offend the Native American Studies professors who believe in native origin myths and a young earth.

    Speaking of anti-intellectualism, it’s OT to the thread, but how do you feel about your fellow lefties like the Huffington Post and that Kennedy wastrel who reject the hard science about vaccinations?

    As for your silly ad hominum about Prof. Skeel, I’d be interested to see how well you’d do when applying to Penn’s law school. Skeel is a respected bankruptcy law professor who’s literally written a book on the subject. He previously taught at Georgetown, Virginia, Temple and Wisconsin law schools. He’s an associate of the European Corporate Governance Institute and has been a scholar in residence at the American Bankruptcy Institute. He’s the author of two books, one a history of bankruptcy in America, and over 20 scholarly legal papers.

    However, if someone dares to disagree with the anointed One, the Obamessiah, he must be immediately vilified as a right winger, regardless of his actual political affiliations and ideologies.

    As for WaMu or Lehman Bros., whatever criticism of the Bush administration’s spending, banking and recovery policies there were came from conservatives, not those on the left. It was congressional conservatives that almost derailed the original TARP legislation.

  • avatar
    Pch101

    How can the bondholders possibly get fair treatment when Obama has his thumb on the scale?

    Please. If I was a Non-TARP Savior of The Universe looking to make a killing on these fantastic assets, this is what I would do –

    -Go to the TARP Victims of The Evil Administration Pitiful Bondholders, and pay them a premium to buy their bonds

    -Now that I control all the bonds, credit bid the sale at par. Bye bye, bloodsucking evil Fiat.

    -Go get my own DIP financing and run this fantastic jewel of a company, or else put some ads on Craigslist, hire out some stalls at the Detroit Swap Meet and Flea Market, and sell off the pieces for a fantastic profit.

    If that’s as absurd as it sounds, then you’re right, it is. Totally ridiculous. Nobody would do that deal because it’s a sure money loser.

    The fact that their web site published his essay in no way indicates that Prof. Skeel is in the employ of the American Enterprise Institute

    Er, the AEI is a lobbying group. They do not publish dissenting views — everything that it publishes will tow the party line of the organization.

    That is not a criticism of either Prof. Skeel, who is entitled to his interpretation of the law, or of the AEI, which is reliably conservative in line with its mission, but with the author of this piece, for continually confusing the slanted with the objective.

    You would not go to the AEI for a balanced view of the situation anymore than you’d go to the UAW or the World Socialist Web for an objective take. It’s OK to get their views and to consider them, but to pretend that they are definitive and dispositive is frankly ridiculous.

    One thing that you refuse to understand is that bankruptcy law includes a fair bit of room for interpretation. On one hand, there are certain doctrines about priority that we are supposed to respect. But on the other, we have the social purposes of bankruptcy that can also prevail at times, which allow for cramdown and consideration for economic and social objectives. Some of the principles are contradictory, and creditors and debtors lawyers will pick and choose the law and cases that best serve their sides.

    It comes down to this — when the case is mammoth, as is this one, courts have a lot of discretion. That discretion is within the bounds of the law, and it’s bound to make one group happy and to piss off another.

    In this case, the judge had to balance the gravity of the situation to the economy and the possibility that the majority of bondholders could lose value if things took too long, with the counterargument of a minority that might be right but can’t prove it. The judge couldn’t please everyone, given the polarity of the sides.

  • avatar
    troonbop

    Not even obozo can breathe life into zombie car makers and suddenly make them popular with consumers. It’s going to be pure delight watching that arrogant sack of shit wearing this debacle around his neck like a rotting albatross.

  • avatar
    RogerB34

    UAW gets 42 cents, debt holders 30 cents. That’s the rub. The real issue is cost to the taxpayer. The Big O will keep funding a failed company regardless of economic merit.

  • avatar
    George B

    I think it’s wrong to go to the partisan trenches over this article. Law Professor David Skeel appears to be defending part of the New Deal and offering constructive criticism of how the assets of Chrysler were sold to New Chrysler in an opaque insider deal. He points out that “the sale itself is the real ballgame” and suggests how to make the process more transparent.

    My problems with the government backed sale of Chrysler to New Chrysler instead of C7 liquidation are 1) I have to pay money for an organization virtually guaranteed to fail within a few years and 2) the few current good models at Chrysler don’t get liberated from the people who ran Chrysler into the ground until later in their limited product life.

  • avatar
    Pch101

    UAW gets 42 cents

    That’s about 42 cents more than they’re actually getting.

    To clarify — they’re getting 0 cents. What they have done is accept a bunch of stock that may or may not eventually be worth something, and no cash.

    Both the UAW and government have walked away from their loans. This should please the bondholders, because they don’t need to wrestle with either party for the money. If this is to remain an 11 (and it looks as if it will), the bondholders could be crammed down and get even less than what they’re getting already. The bondholders should be thrilled that they don’t have to do battle with the federal government over the cash in the bad company.

  • avatar

    UAW gets 42 cents, debt holders 30 cents.

    I’ve seen accounts that have the UAW VEBA getting 82 cents in stock for every dollar of debt forgiven.

    Since that stock is said to be worthless and since the gov’t is now financing the operations of Chrysler, is it not accurate to say that the taxpayers are buying Chrysler for the UAW?

  • avatar
    agenthex

    And, pray tell, just who will invest in enterprises employing those people if those investments aren’t protected by consistent rules of credit and collateral?

    We’re still waiting for the explanation of statute of law that’s been broken. I keep hearing the innuendo, numerous accusation that’ve conclusively shown to be false (ie. they were lies in the first place), but still nothing of substance.

    Now the new “queue jumping” is a farcical argument about some claim to intellectualism. I would expect intellectuals to at least present some evidence to their claim.

    ——

    The only anti-intellectuals on campus today are those in power on the left who suppress conservative and libertarian speech.

    That’s because said speech is misleading by design, not to mention incredibly idiotic. For example:

    Speaking of anti-intellectualism, it’s OT to the thread, but how do you feel about your fellow lefties like the Huffington Post and that Kennedy wastrel who reject the hard science about vaccinations?

    Conservatism has already done enough to try to undermine science by appealing to mass ignorance, beginning with rejecting it in the first place.

    The fact that the vaccination fear mongers still think there’s anything remotely scientific they can grasp onto really shows how disrespectful they are towards said process.

    Conservatives and others, have, however, tried to explain that government management and coercion of business is a characteristic of fascist regimes.

    This is why they’re getting laughed at by anyone who’s ever remotely studied politics. If Obama is any bit fascist, all of western europe must still be led by Mussolini’s ghost. That’s supposed to be a joke, but one poster took me as a real conservative for a similar remark earlier, and I can’t blame him.

    “Conservatives” these days are incredibly hysterical and taken to exaggeration, which is only hysterically funny because they seem to completely forget acting like reactionaries pretty much undermines their cause.

    Er, the AEI is a lobbying group. They do not publish dissenting views — everything that it publishes will tow the party line of the organization.

    Please remember that next time you need “studies” from them to support your assertions. ;-)

    =======

    In summary, PCH has mentioned several times that it would be best to leave politics out of these topics. While that’s not unreasonable to request, the reason why relatively mundane news items like specifics of bankruptcy law are being dragged out as symptoms of the fascism (aka. the new communism) is because they are led by political desperation. Addressing the root cause of the problem would go farther to eliminate it.

    The reality of the political landscape currently in the US is that the “right” out of sheer incompetence driven by greed have lost their claim to power. But instead of learning some lessons from this, now they’ve taken to being obstructionists at every opportunity with unseemly disregard for anyone trying to avoid their sideshow. We generally would not tolerate this kind of behavior in children.

    You would think in a long discussion about bankruptcy, the poetic parallel would dawn on them that crap unreliable products, dumbed down management, and to a lesser extent crap organization and crap marketing would lead to inevitable failure. In the marketplace of ideas, they’ve lost to better competition — and to complete the circle of irony, all they would need now is to ask for a government bailout of their bankrupt movement.

  • avatar
    buzzliteyear

    One more point that the ChryCo C11 critics don’t seem to understand. The following ideas can simultaneously be true:

    1) The way the Obama administration went about ‘saving’ Chrysler was a bad idea.

    2) Given that the Obama administration chose the Fiatsler path, strong-arming the non-TARP lenders was almost inevitable.

    3) The administration strong-arming the non-TARP lenders is NOT a prelude to general wave of government-dictated bankruptcy settlements.

    I think the Fiatsler solution is a dumb one, but I’m not going to cry for the bondholders. They were pretty much screwed no matter how this played out, and if they are slightly more screwed than they would have been had they had their way….well, my 401k turned into a 200.5k over the past year. Times are tough for everyone.

  • avatar
    Pch101

    I’ve seen accounts that have the UAW VEBA getting 82 cents in stock for every dollar of debt forgiven.

    And pray tell, who exactly is going to pay 82 cents for this equity?

    Do you see the bondholders clamoring to forsake their cash for this valuable equity? No, you don’t. Why not?

  • avatar

    PCH101,

    Speaking of the bondholders making a credit bid for Chrysler Stephen Lubben himself discusses that aspect of the case, as well as other irregularities:

    Chrysler & Credit Bidding
    posted by Stephen Lubben

    As I made clear in my prior post, I think that many of the arguments advanced against the Chrysler sale motion are largely noise, generated by confusion over the structure of the deal. But I also mentioned that one real problem I see here turns on the dissenting lenders’ apparent inability to credit bid.

    The Bankruptcy Code expressly recognizes the right of a secured creditor to “credit bid” its claim in a §363 sale, just as a home lender can bid the value of its mortgage in a state foreclosure sale. § 363(k).

    Thus, if the debtor moves to sell its assets worth $100 in a 363 sale, the bank with a $40 lien on the assets can bid “$40” and offset its secured claim against the bid, meaning that the bank only has to pay cash for the debtor’s assets if the auction price goes above $40.

    Thus, if Chrysler were a typical chapter 11 case, the senior lending group would be able to credit bid up to $6.9 billion for the debtor’s assets. If the lenders won the auction, they could then sell the assets to Fiat or anyone else.

    Here the lenders (as a group) decided to forgo their right to credit bid and instead accept $2 billion in cash. The offer was at one point raised to $2.2 billion, but that has apparently been taken off the table since Chrysler entered chapter 11.

    Normally I’d say that the lenders’ decision to take the $2 billion was a strong indication that they expected Chrysler’s assets to sell for a price less than or equal to that amount, mooting their need to credit bid. But in this case the decision to take the $2 billion offer is being driven by the largest lenders, all of whom are to some degree under the control of the Treasury Department.

    I think we have to concede that this control, and the conflict it creates, and the President’s decision to publicly scold the dissenting senior lenders has tainted this process, making it unlike a normal chapter 11 case. The decision to scold the dissenting lenders – perhaps driven by the lenders somewhat juvenile press release – is perplexing, since it seems to blame them for a chapter 11 case that I believe would have happened anyway. Moreover, holdouts are a fact of life in workouts and chapter 11 cases – the trick is to figure out how to deal with them, and publicly shaming them is probably not going to help that process. However politics sometimes produces silliness, even among those who should know better.

    The real issue is how much do we believe all this has tainted the process. In this case, you could argue that the Fiat price would be so low without the union agreement that the secureds are getting the same or even a higher recovery on an absolute basis. But we’ll never know for sure and in that sense the process is tainted, and I think this is not harmless. Future hedge funds may pay lower prices to buy distressed debt in large companies like Chrysler and future secured lenders may therefore require higher interest rates from borrowers. Moreover, the global story that we tell about the benefits of having a system like chapter 11 is diminished by this case.

    Ideally the entire GM and Chrysler situation would have moved to bankruptcy court much earlier, where the process could have been conducted more like a normal chapter 11 case. As I’ve written, too much of the decision to avoid chapter 11 in the recent crisis has been driven by unwarranted fear of chapter 11, driven by either a serious misunderstanding of what modern chapter 11 practice entails, or an intentional effort to create fear and panic about chapter 11, to support the case for a bailout.

    How does this influence the pending sale hearing? Probably not very much. A bankruptcy judge simply takes the case as it comes, and can’t spend too much time worrying about the backstory.

    (And for those of you wondering about §363(m), keep in mind that the “entity” that will purchase the debtor’s assets probably doesn’t have a good faith problem — see also §§101(15), (41) — unless we engage in some viel piercing).

    (emphasis added)

  • avatar

    And pray tell, who exactly is going to pay 82 cents for this equity?

    The UAW, apparently.

  • avatar
    Pch101

    The UAW, apparently.

    Really? Do you have a copy of the check?

    You really don’t follow what’s happening here. They are taking stock because there is nothing else to take. They’re walking away from a $10 billion loan that they can’t collect, in exchange for equity that has had an arbitrary value assigned to it that could not be converted into cash at that amount today, and that is unlikely to be converted into it anytime soon.

    As of today, it’s worth nothing, and unless Fiat succeeds, it will continue to be worth nothing. The whole thing is a hope and a prayer that something comes of it, nothing more. That’s why the bondholders don’t want it — they are not optimistic for the future of the enterprise. Frankly, I don’t blame them.

    The real issue is how much do we believe all this has tainted the process. In this case, you could argue that the Fiat price would be so low without the union agreement that the secureds are getting the same or even a higher recovery on an absolute basis

    Yep, that is the point. And it is very difficult to argue for a higher value. The bondholders couldn’t defend that argument once they had made it.

    How does this influence the pending sale hearing? Probably not very much.

    Pretty much.

    I do agree with him that the president should have stayed out of it. The argument against the bondholders was one for bankruptcy counsel to make, not the administration.

  • avatar
    agenthex

    But we’ll never know for sure and in that sense the process is tainted, and I think this is not harmless.

    So basically he doesn’t actually believe it’s worth more, but he’ll lay the innuendo out there to imply that in some alternate universe it might be so he can get published by some conservative thinktank to trick people who don’t know any better. I don’t see any new information.

    It makes me wonder if the conservatives who don’t beat their wives use dead horses instead.

  • avatar
    lw

    IMHO..

    Employees are due every nickel they get in pay and benefits while they are working.

    If they negotiate for a long term benefit like a pension, the company should be funding it with every pay check and the fund should be with a 3rd party that can be trusted.

    Anyone that assumes / expects more than that is just kidding themselves.

    As soon as the UAW accepted health care that was under funded in the present, they effectively lost control the benefit. The UAW isn’t dumb…. Buzz even said they have been planning for a Ch. 11 for years. The VEBA was designed from day 1 as a mechanism to extract cash from a Ch. 11.

    Any bondholders that invest in a Union run industry better get some suhweet terms because they will likely lose priority in a Ch. 11.

    Welcome to the new world where investors are “bad” and Joe Six pack can do no wrong.

    If you live for another 80 years you can scream from your wheelchair while your great grandchild buys a $10M McMansion on a 1 year ARM at .5% courtesy of Alan Greenspan’s great grandson.

  • avatar
    Pch101

    The VEBA was designed from day 1 as a mechanism to extract cash from a Ch. 11.

    Then things haven’t gone as planned, because they are getting no cash.

    The VEBA has ultimately been a stall tactic for both the company and the union, to conceal the fact that the benefits were underfunded and the pensions were being raided.

    In effect, the union leadership and company management conspired with a small “c” to not let the workers in on the joke. The bankruptcy is just perpetuating this bit of humor, because there are these allusions to value that isn’t there.

    I feel badly for the workers, but they have their own alleged representatives to blame. Nobody bothered to connect the dots for them and show them that there was no scenario in which their union could prosper while their employers failed.

  • avatar
    CliffG

    This bankruptcy argument is interesting, I know a lot more than I used to. I do think that the elephant in the room for the government is the PBGC, which is on the hook for billions from Chrysler and GM, and would be functionally bankrupt (actually it already is) itself if it had to pick up those pieces. $4 bil. her and $4 bil. there might seem like large numbers, except for the possible $60 bil. that is actually at risk. Thus, why Bush punted it to Obama and the eventual Fed. guarantee which the bankruptcy judge really has no choice but to choose.

    Will Chrysler eventually fail anyway? Of course. But, it does keep everyone’s minds off the $400 billion blowout at Fannie Mae and Freddie Mac. Hey, those companies were run by political insiders, how did that all work out?

    As for Wamu, if a bank runs about a 20% reserve, and manages to lose about that much in deposits over a three month period, how much should shareholders and bondholders expect to receive? Sure they got creamed, but if you are $188 bil. bank one day, three months later are a $150 bil. bank, and in one week lose another $16 bil. in deposits….um, crap. As an aside I do think Bernanke/Paulsen/Geithner should be in jail. But, that’s just me.

  • avatar

    But we’ll never know for sure and in that sense the process is tainted, and I think this is not harmless.

    So basically he doesn’t actually believe it’s worth more, but he’ll lay the innuendo out there to imply that in some alternate universe it might be so he can get published by some conservative thinktank to trick people who don’t know any better. I don’t see any new information.

    It makes me wonder if the conservatives who don’t beat their wives use dead horses instead.

    Ummm, I was quoting Stephen Lubben, he was the guy PCH101 said everything was cool with the PTFOA’s plan for Chrysler.

  • avatar
    lw

    @Pch101

    I should have been more specific. The VEBA was designed to grab assets out of Ch. 11 by formalizing the debt to the UAW.

    Looks like they get a massive amount of stock, which they will turn into cash at a later date.

    So VEBA = cash, eventually.

  • avatar
    CPTG

    ‘Obama Nation’ has quickly turned into an ‘Obamanation’ and to think I voted for the clown!!! Oh Well!!!

    In 1913, a General from the Imperial German Army constructed a matrix as to what kind of officers he wanted working for him. The general (the name excapes me now) said their are four types of officers: Stupid and Lazy, Stupid and Industrious, Smart and Lazy and Smart and Industrious.

    SMART AND LAZY; These are the ideal attributes of Presidents, CEOs and Generals. To know what needs to be done and you surround yourself with good people to do it for you.

    SMART AND INDUSTRIOUS: These are the people you want working for you—with these people on your side, you can work wonders and earn that golden parachute.

    STUPID AND LAZY: These are your Cannon Fodder people. They make the best infantry officers, EEO officers, public spokesmen and middle managers. Just make sure they are HYPER LOYAL to you and require counter-signatures on all expenditures above $200.00.

    STUPID AND INDUSTRIOUS: FROG MARCH THESE PEOPLE OFF YOUR PROPERTY!!! VOTE THESE PEOPLE OUT OF OFFICE, RELIEVE THEM OF COMMAND and CASHIER THEM OUT OF THE SERVICE. They will take you under and everyone around them. Sometimes they are out and out crooks (Maddoff), Sometimes they are Masters of the Universe who really aint (The Rogue Trader at Berrings Bank) and sometimes they are F-ups who mean well, sound brilliant but will valiantly march you and everyone off a cliff (Rev Jim Jones).

    Obama scares me. He’s a former Community Activist and the Montra of any “Community Activist’ is to “ALWAYS BE DOING SOMETHING”!!!

    The Bankers took off their tops and shimmied up the pole and OBAMA couldn’t wait to stuff Dollars down their G-Strings (This is a good analogy—disregard the fact that my shipmates and I will be hitting several strip clubs this evening!!!). He’s tipped the bankers almost One Trillion dollars and he’s got nothing to show for it.

    Now Pres. Obama is lap dancing with the Car Companies for billions and billions of dollars and we are ALL going to go home frustrated on this deal (I may not be a ‘Bankrupcy Expert’ like Herr Professor here, but I do know a thing about Lap Dancing and going home FRUSTRATED!!!) CPTG

  • avatar
    Pch101

    I was quoting Stephen Lubben, he was the guy PCH101 said everything was cool with the PTFOA’s plan for Chrysler.

    You don’t really follow Lubben’s argument, or see how it differs substantially from either your guy at the AEI or the bondholders.

    For one, Lubben is upholding this case as being a legitimate 11 reorganization. In contrast, the holdouts had argued that it isn’t really an 11 at all, but a sham deal disguising what should be a 7 liquidation. Very different argument.

    For another, Lubben isn’t contesting the value, although he does dislike the process at which it is being arrived. He wishes that this was a slower 11, not the bondholder’s 7, which would legitimize this number that reasonable people know is a fair one.

    He isn’t claiming that the asset sale is a dodge around priority rules, as does Skeel. Lubben upholds the structure of the case as being a legitimate 11.

    He also thinks that much of the commentary along the lines of those such as yourself is hyped and over the top, for the reasons stated above.

    Lubben’s sticking point is that he would prefer to see a slower case. But he doesn’t necessarily see this particular case ending up any differently because it has been sped up. He also believes that if there wasn’t the level of bad information being propagated in the press about the Chapter 11 process that it could be done here with a longer timeframe, which would avoid the appearance of impropriety.

    I don’t agree with him or with the PTFOA on 100% of this, but both are far more reasonable than most of the hysteria I’ve seen from right-wing bloggers about this, who apparently just discovered the dubious joys of the bankruptcy code.

    I do find it amusing that the conservative bloggers never found their BK mojo when Lehman was doing something similar to this. A lot of the responses on the right have obviously been fueled by a desire to nail Obama moreso than from any genuine passion for the advancement of American jurisprudence. It’s not the principle that matters to the right, it’s just an excuse to criticize whoever beats them in elections. Had a Republican done it, there would be barely a whisper about it.

    Looks like they get a massive amount of stock, which they will turn into cash at a later date.

    You are very optimistic. You must believe that Fiat is going to fix this, because if they don’t, the VEBA won’t have two sticks to rub together.

  • avatar
    kowsnofskia

    “However, if someone dares to disagree with the anointed One, the Obamessiah, he must be immediately vilified as a right winger, regardless of his actual political affiliations and ideologies.”

    Ain’t it ever true.

  • avatar
    Mr. Sparky

    TTAC is a much better place when it’s less political. This article was written for a less than unbiased source. TTAC deserves better.

    Let’s delete this blog entry and try again shall we?

  • avatar
    agenthex

    Ummm, I was quoting Stephen Lubben, he was the guy PCH101 said everything was cool with the PTFOA’s plan for Chrysler.

    That’s his opinion, not mine.

    I was going to take issue with statement:

    I do agree with him that the president should have stayed out of it. The argument against the bondholders was one for bankruptcy counsel to make, not the administration.

    but didn’t because it’s not terribly significant either way. In general the corporate mindset has traditionally been conservative, and it was one of most successful themes the blue party has taken out of the red party’s playbook to get to their position today.

    This and the GM bankruptcy are public affairs, in that taxpayer money is being used to save jobs for the moment (and not to save hedge funds). Taking a stand on this issue reinforces the appearance that the administration are not pushovers, and appearances are important for confidence. In addition, Obama’s statements on the rationale were accurate and transparent, more so than I would expect out of a politician.

    What is significant here is that his political opposition is grossly misreporting the facts, and that is ultimately counterproductive, especially if the point is some form of dissension. I don’t particularly care for toeing the line, but these days taking the dissenting view risks standing too close to swine, and there are reportedly cases of that being contagious.

    On a final note, I’ve written some pretty inflammatory statements here, which would predictably antagonize “conservatives”. However, scapegoating the politico rank and file would be like blaming the UAW for D3 problems. If people want something to get angry about, beginning with the decision-makers of the perpetually failing organization that is conservatism would be a good start.

  • avatar
    Arminius

    I’m glad to see that Obama has finally bridged the partisan divide.

  • avatar

    You don’t really follow Lubben’s argument, or see how it differs substantially from either your guy at the AEI or the bondholders.

    Yes I do. I was just highlighting the fact that he has reservations of his own about the administration’s actions, particularly the risk to capital and the way the gov’t is pushing its weight around with the TARP. He also indicates, contrary to your assertion, that the bondholders were not given the chance to use the debt they held to bid on the new company.

    But in this case the decision to take the $2 billion offer is being driven by the largest lenders, all of whom are to some degree under the control of the Treasury Department.

    I think we have to concede that this control, and the conflict it creates, and the President’s decision to publicly scold the dissenting senior lenders has tainted this process, making it unlike a normal chapter 11 case…

    Future hedge funds may pay lower prices to buy distressed debt in large companies like Chrysler and future secured lenders may therefore require higher interest rates from borrowers.

    My “guy at the AEI” is more properly a bankruptcy law professor at the University of Pennsylvania. Have you ever referred to Judge Ruth Bader Ginsberg as that “gal from the ACLU”? Though that’s a poor analogy since Ginsberg actually worked for the ACLU.

  • avatar

    Mr. Sparky :
    May 10th, 2009 at 8:47 pm

    TTAC is a much better place when it’s less political. This article was written for a less than unbiased source. TTAC deserves better.

    Let’s delete this blog entry and try again shall we?

    Let’s not and hope that not many of the B&B want to censor dissenting opinions

    Look, I’d rather write about cars but the meltdown of Detroit is inextricably linked to politics.

    What difference does it make that the piece was published by the AEI? The guy is an expert on bankruptcy. PCH101 cited a leftist bankruptcy prof and I didn’t question his credentials because he’s a lefty.

  • avatar

    In general the corporate mindset has traditionally been conservative,

    This is a common misconception. In general corporations are neither conservative nor progressive but rather concerned with profit and the company’s own corporate culture. I worked for a pretty big company (DuPont) with some pretty high executives and someone once described the company as politically correct. Companies don’t like free markets, they want monopolies protected by government regulation.

  • avatar
    Robert Schwartz

    Ronnie Schreiber: thanks for posting the above, but I find this discussion dispiriting.

    Apparently some folks believe that people should receive based on their moral status. Unions good. Hedge funds bad. USW

    This is very problematic as a theory of justice. None of us would stand up to scrutiny. All of have sufficient evil in our hearts, and in our deeds, that we would be found unworthy. Christopher Hitchens wrote an indictment of Mother Theresa.

    In the hands of the crooked or the incompetent, friends, relatives and tribe members will be preferred. The ultimate injustice will become that only the loyal minions of the powerful receive, and everyone else learns about the nobility of want.

    The correct doctrine is do no injustice in judgment; do not be partial to the poor nor favor the great, but judge every one fairly according to the law.

    PCH101: Thank you for posting Prof Lubben’s commentary. It only reinforces my belief about this deal:

    IT SHINES AND IT STINKS

  • avatar
    ohsnapback

    Blah Bleh Belch.

    You are all arguing political stripes, flavors and nuances while Rome burns to the ground.

    How about everyone coming to agree that the U.S. needs world class scientists, engineers, chemists and mathematicians, and a commitment to building world class products again, that the world lusts after, if we’re ever going to be able to compete in the global economy?

    Keep fiddling away, Obama AND Sean Hannity/Glenn Beck lovers.

  • avatar
    agenthex

    I’m glad to see that Obama has finally bridged the partisan divide.

    This is a misconception. The strategy for a post-partisan era isn’t equal parts blue and red, it’s to make the blue part more accommodating and push red to the fringe where they’re irrelevant and nobody cares they’re irrelevant. Getting goaded into becoming the fundamentalist party in an increasingly progressive world does not forebode well for their future.


    This is a common misconception. In general corporations are neither conservative nor progressive but rather concerned with profit and the company’s own corporate culture.

    That’s only because you use the term conservative to mean paleo-conservative, which is archaic and obsolete. There is no political representation for this group, and they’re barely tolerated by the republicans only in far as it may coincide in a few votes.

    Corps want gov to work for them, so naturally possessing $, they pay for the politics. The republican party (ie. the current day conservatives) has traditionally been the facilitator, and it brought them much success. The democrats got in on the action to an extent more recently, and thus by adding this essential component of american politics, they were able to build a broader base.

    The correct doctrine is do no injustice in judgment; do not be partial to the poor nor favor the great, but judge every one fairly according to the law.

    That’s good advice. I’m sure the wealthy would love their new public defenders.

    More on topic, the “hedge funds” actually got a fairly generous deal from the taxpayers, since no one else was going to pay them 2bil. Of course, being greedy ungrateful SOB’s, they decide to shake us down for more $’s. The law and its precedence was upheld and they got smacked down; there is no one seriously debating otherwise; the furthest anyone who has a rep to protect will go is detached bitching.

    So the question then becomes: who are these people defending them? Are they due to profit from this at the expense of the taxpayer? Or did they just get suckered into doing it?


    IT SHINES AND IT STINKS

    Welcome to the world of M&A.

    Keep fiddling away, Obama AND Sean Hannity/Glenn Beck lovers.

    It’s funny you should say this. We seem to clearly have one party with decent leadership and at least the commitment to moving forward with concerns you have, and another who’ve been fighting progress with their dying breath.

    Or are you suggesting it’s possible without some central political resolve? I’m sure we’re open to ideas here.

  • avatar
    ruckover

    Ronnie Schreiber:
    “The only anti-intellectuals on campus today are those in power on the left who suppress conservative and libertarian speech. If you want to see anti-intellectualism, check out all the various XYZ Studies departments. While you’re mocking the Christian creationists, just be sure you don’t offend the Native American Studies professors who believe in native origin myths and a young earth.”

    Well, clearly that first sentence is false, simply based upon the breadth of the claim. I am not sure of any studies that support the central claim, either. I would never mock, nor allow my students to mock, Christian creationist; although, I would argue that their beliefs don’t need to be considered seriously in certain classes, such as those based on the scientific method. In all other classes that spring to mind at this wretched hour, I would hope that those beliefs would be treated with dignity and respect (just as I would hope the Native American mythology or any other mythology would be treated with respect).

  • avatar
    Dynamic88

    Re: Politics

    While I like TTAC better when it isn’t political, we must acknowledge that RF has allowed counterpoints to the editorial – as long as there is no flaming.

    The only suggestion I have is that Pch101 should be writing editorials.

    I’d like to thank Pch101 for his efforts to give us a balanced POV. Not all of us know a lot about bankruptcy.

  • avatar
    AnalogKid

    Two important points here, amidst the smoke and haze:

    From the article: “Skeel says that the judge can do two things to make sure the sale is appropriate. The first is to get an independent determination of the value of Chrysler… The second is to require a complete accounting of the deal…”

    Is there any evidence that this is not happening? The fact that we are arguing over the valuation and that the potential participant stakes are well known indicates that Skeel’s requirements for legitimacy have already been met. This is not a “sham sale.” If there is another buyer out there they are free to come forward.

    Second, Lubbens’ concern regarding credit bidding: “But in this case the decision to take the $2 billion offer is being driven by the largest lenders, all of whom are to some degree under the control of the Treasury Department.”

    This is a fair point, probably the only legit complaint that can be made about the deal. But what are you gonna’ do? Consider for a moment the state of affairs that has led to this. The Chrysler lenders are themselves mostly insolvent and only massive government intervention has saved them from their own bankruptcies. The government has a legitimate interest in maintaining the viability of the banks as well as in maintaining Chrysler as a contributor to the economy. This is about the best deal you’re going to get under these circumstances, for Chrysler and probably for GM when the time comes.

  • avatar
    Pch101

    PCH101 cited a leftist bankruptcy prof

    That’s hilarious. Honestly, I haven’t got a clue what Lubben’s politics are, and it never occurred to me to even try to find out. I just know that someone who approaches this with those nuances isn’t going to be on the AEI payroll. In the real world, bankruptcy is not typically cast in such black-and-white, good-and-evil terms as it has been by the author here.

    A week ago, right-wing political bloggers didn’t know the difference between the Bankruptcy Code and the Da Vinci Code. Now, a few days later, they still don’t know, yet they’re suddenly experts about how the country is being destroyed by Democrats, who just so happen to be using the same approaches with Chrysler that were used just weeks ago by Republicans with Lehman. How convenient.

    This right-left stuff is frankly tedious, given that it is about as appropriate to this discussion as it would be in discussing potato chips. When I’ve dealt with these matters, it wasn’t a matter of left/right, Dem/GOP, fascist/communist, Hitler/Mother Theresa, but a matter of what theory of law would best suit the side that I was on at the time. That’s how the law often works — you pick the bits that work best for you, and hope that the other guy forgets the best bits that would work for him.

    In BK court, it’s not pinko commie destroyer of mankind vs. conservative hero, but creditor vs. debtor. There is enough ambiguity and contradiction in the body of law that both sides can make perfectly good arguments that naturally clash. It’s up to the judge to piece the facts together and make a call. That’s just how it is.

    These political bloggers do a wonderful job at perverting everything and anything into a political discussion. They would find a way to turn a conversation about Golden retrievers into a battle of good and evil. Lawyers and clients try to win cases, and the law has enough slack in it that both sides get to win on occasion. There’s nothing uniquely right- or left-wing about trying to win a favorable ruling.

  • avatar
    agenthex

    “But in this case the decision to take the $2 billion offer is being driven by the largest lenders, all of whom are to some degree under the control of the Treasury Department.”

    This is a fair point, probably the only legit complaint that can be made about the deal.

    Not really. That would only be true if it came to a vote, which it didn’t/doesn’t. They had their day in court, and they lost, badly. And despite PCH’s lawyerly implication that there are two perfectly good arguments, tho a decent point in general, they clearly didn’t have much on their side from the start. You know things are going badly when they start pulling out first order bill of rights interpretations over existing case law.

    This right-left stuff is frankly tedious, given that it is about as appropriate to this discussion as it would be in discussing potato chips.

    These matters are editorialize out everyday, so first it’s not unreasonable that people are riled up by opinions no matter how stupid, and secondly this does involve the government’s significant compromised decisions (tho I’ve also made the point it’s largely irrelevant to the outcome of this case).

    Until those reasons of worldview which tend to effect people in irrational ways are understood and broken down, it’s quite impossible for any reasonable (in your case, legal) interpretation of events to occur since humans are pattern recognizers and everyone has their own sets.

  • avatar
    windswords

    Pch101:

    “But they didn’t do that. Most of them took an early cash offer, and nobody proposed making a credit bid. Why didn’t they? Credit bids are typical with real estate foreclosures, for example; the lender uses them to take the assets back so that they can sell them as they see fit, preferring to gain control rather than allowing the debtor to sell it.

    If there was so much value there, then why not credit bid? Here’s a thought — there wasn’t that much to get. This whole deal is worth zippo without a buyer (Fiat) and a DIP lender (the US government.) If one of them bails out, you’re left with a liquidation value that makes 30 cents on the dollar look like a home run.”

    Have I not been saying this for the last week or two? In a market of 15-16 million, you could find a buyer for the plants, tooling, etc. In this market? No way Jose. Without FIAT and Obama it’s not worth 10 cents on the dollar. And neither is GM. I hope those GM creditors are watching this. You can wax eloquent all you want about creditor’s rights, Obama’s interference, and the “rule of law”, but if the government wasn’t involved, those creditors would write off a TOTAL loss, even if they forced this back in December.

  • avatar
    Robert Schwartz

    agenthex: “I’ve written some pretty inflammatory statements here”

    We can agree on that.

  • avatar
    windswords

    “The reality of the political landscape currently in the US is that the “right” out of sheer incompetence driven by greed have lost their claim to power. But instead of learning some lessons from this, now they’ve taken to being obstructionists at every opportunity with unseemly disregard for anyone trying to avoid their sideshow. We generally would not tolerate this kind of behavior in children.”

    I had to chuckle at this, because I still remember the rediculous rantings of the left over everything that the last administration did, the silly conspiracy theories about 9/11, and calling them “ultra-right wing”, even as GWB angered conservatives over the border, supreme court nominees, and spending. And the press not only tolerated the childish behavior of the left but were it’s enablers.

    “I would never mock, nor allow my students to mock, Christian creationist; although, I would argue that their beliefs don’t need to be considered seriously in certain classes, such as those based on the scientific method.”

    While I applaud your stance I think that the example is a bad one. Things like creationism/Intelligent Design are easy targets for mocking, as are left wing rants like the 9/11 conspiracy or AIDS was invented by the CIA mythology or just about any position taken by Ward Churchill. What appalls conservatives like Dennis Praeger or David Horowitz is the open disdain on campus for legitimate arguments over public policy and social issues like: illegal immigration, social safety net programs, affirmative action/quotas, man made Global Warming, etc. These issues have good arguments on both sides, but they are rarely debated on campuses, or they are under circumstances that make it unfair to the conservative viewpoint (like having a panel discussion with three of four taking the liberal view of a position). If you are truly open minded and wish to have all parties state their cases in an open and fair forum then I commend you but I believe that you are in the minority on today’s campuses.

  • avatar
    instant rebate

    One pint of view: Make the General Motors loan/bail-out work. There is just to many families, businesses tied to this industry. Seems the Union/Management thing has turned their commitments around to make profits which will get this country moving agian.

  • avatar
    mel23

    The correct doctrine is do no injustice in judgment; do not be partial to the poor nor favor the great, but judge every one fairly according to the law.

    This works fine assuming that laws are just. Of course our system where legal bribes go a long way in determining what is legal, this procedure does not bring justice in many cases.

  • avatar
    jkross22

    There appears to be universal agreement that Chrysler is doomed. If so, and all this effort is much ado about nothing, than why do anything? As most of us see it, Obama’s actions are simply procrastinating Chrysler’s failure, delaying the inevitable, kicking the can down the road, etc. From the Obama admin viewpoint, the taxpayer, the people he said he would protect, are paying for the mistakes of a failed private enterprise to the tune of billions now AND billions later.

    Candidly, if Obama said something to the effect of, “Look, Chrysler is not a viable company. We’re going to help the employees with retraining programs, increase funding to the SBA to help these folks start companies, etc. but I’m not going to pour taxpayer dollars into saving a corpse.”, I would have TREMENDOUS respect for him. It would be the hard thing to do, and would be the more beneficial course of action to take to help those he’s saying he wants to help. Instead, under the guise of saving jobs, his administration is wasting tremendous resources on a project nearly everyone agrees will fail.

    The $64 billion question now becomes, what will the administration do with GM? How will these rule alterations effect proceedings?

  • avatar
    agenthex

    We can agree on that.

    If you feel they are inaccurate in any way, please let me know.

    I had to chuckle at this, because I still remember the rediculous rantings of the left over everything that the last administration did,

    Some people still like to draw parallels in a desperate attempt to paint everyone with their shit brush, but the reality is that the result of most of the last admin’s policies were dismal failures. I’m pretty sure that correctness still matters in evaluation of rants.

    Cheney’s crew had severe and disastrous consequences for that party. Ironically, the current strategy for blue party to achieve majority status is to use the inherent stubbornness of the other side (ie “conservatism”) against themselves as most americans abandon the now obvious shipwreck.

    Things like creationism/Intelligent Design are easy targets for mocking, as are left wing rants like the 9/11 conspiracy or AIDS was invented by the CIA mythology or just about any position taken by Ward Churchill.

    This is a good example of the failure of logic that has ruined conservatism in the US. The comparison here is quite clearly between what amounts to de facto party positions to caricatured fringe ones. While this may work for party faithful, success in our political system hinges on capturing the middle.

  • avatar
    agenthex

    Instead, under the guise of saving jobs, his administration is wasting tremendous resources on a project nearly everyone agrees will fail.

    I’m pretty sure the econ strategy was to turn this crash into the recessionary part of a cycle. If this works, the bankruptcies will buy enough time for normal job transitions to happen eventually. Jobs programs will help no doubt, but it’s not necessary an either/or choice. Setting up these agencies take time, which is definitely money in this case.

    To use an analogy, if this were a sinking ship, minimizing the rate of sink is critical as rescuers arrive.

    As an aside, I don’t think you can imagine the ruckus if obama were to institute the obviously communist (AND fascist at the same time no doubt) programs you bring up. Perhaps they’d also like to extend my analogy by extolling the virtues of market forces to best allocate lifeboats.

  • avatar
    jkross22

    “This is a good example of the failure of logic that has ruined conservatism in the US.”

    Actually, what has hurt conservatism is the Republicans. Conservative logic has always made sense, but the people implementing it often haven’t. Same is true for liberals, but then, based on your posts, I doubt you can see that.

  • avatar
    jkross22

    “Setting up these agencies take time, which is definitely money in this case.”

    The SBA already exists and ETA already exists.

    http://www.doleta.gov/

    The infrastructure is in place to support this effort. The political will is what is lacking. Wasn’t this all about jobs?

    “To use an analogy, if this were a sinking ship, minimizing the rate of sink is critical as rescuers arrive.”

    To use another analogy, if this were a burning house, Obama’s admin is chopping down more trees to burn instead of sending in more firefighters or others to save people.

    “As an aside, I don’t think you can imagine the ruckus if obama were to institute the obviously communist (AND fascist at the same time no doubt) programs you bring up. Perhaps they’d also like to extend my analogy by extolling the virtues of market forces to best allocate lifeboats.”

    As opposed to the ruckus free environment we have now? Since Obama is already being called all sorts of names, taking this action wouldn’t change anyone’s mind about him… except the people most impacted by this.

    This is all about resource allocation. The Obama admin thinks it will cost everyone less in the long run to spend a boatload now AND a boatload later, rather than spending a boatload now and being done with it.

  • avatar
    Pch101

    The Obama admin thinks it will cost everyone less in the long run to spend a boatload now AND a boatload later, rather than spending a boatload now and being done with it.

    This could be a matter of a math disagreement. You may be lowballing the costs of the get-it-over-with alternative, and overestimating the costs of the stall option.

    Aside from the economic consequences of a failure at this stage of the recovery, the real lurking problem here is the gross underfunding of the PBGC and the existing pension funds of GM and Chrysler. The last balance sheet that I saw of GM’s had underfunded pension benefits of about $50 billion, with Rick Wagoner looting it over the last several years. Chrysler’s situation is probably similar.

    A full liquidation puts a lot of their pension obligations into the PBGC. To support that hit could require either a massive infusion by government of what is supposed to be a self-supporting program, or else the premiums are going to have to skyrocket, which will not amuse the corporations who have to fund them.

    In essence, we have a fragile pension system from which corporations have been routinely stealing, leaving the problem in the hands of the federal government. The automaker situation promises to make this worse.

    If those pensions can remain with the NewCo’s, that will be quite a victory. We can hope that the beneficiaries die off over time, and those obligations can eventually be reduced to a more manageable level or eliminated altogether.

    If they can pull that off with Chrysler, the likelihood of doing that with GM increases. That would be a win of sorts for the taxpayer; funding the pensions to that degree would not provide any fiscal stimulus, which at this point is something that we could use. Not a great situation, but better than the alternatives.

  • avatar
    agenthex

    Conservative logic has always made sense, but the people implementing it often haven’t.

    Perhaps you can name some examples of its effectiveness. In fact, we’ll make it a bet. Count up all population of the places successful with your preferred policies, and we’ll see many multiples of that we can find in places with better, more progressive ones.

    The infrastructure is in place to support this effort. The political will is what is lacking.

    No it’s not. There are no jobs for these people to find. This should be quite obvious given the news lately. In case you haven’t noticed, they are spending quite of bit of dough to create new programs that will provide decent employment (eg. green energy).

    A part of the econ problem is decrease spending creating deflation, and dropping a load of middle-class jobs all at once for unemployment pay is quite destructive.

    To use another analogy, if this were a burning house, Obama’s admin is chopping down more trees to burn instead of sending in more firefighters or others to save people.

    The general rule with analogies is that they have to make some sort of sense. If obama were creating more unemployment, this would, but clearly that’s not true, so perhaps you can leave making analogies to others better at it.

    The Obama admin thinks it will cost everyone less in the long run to spend a boatload now AND a boatload later, rather than spending a boatload now and being done with it.

    I don’t think people quite realize how fragile a growth based economy can be. There’s a cost associated with success, and just as important, successful relative to the international competition.

    It’s kind of interesting that the game that’s played to keep all the econ parameters in check is clear to everyone at the top (see last admin’s rescue of banks), and then look at the propaganda that’s pushed to the bottom.

  • avatar
    wsn

    Pch101 :
    May 10th, 2009 at 10:09 am

    Headline: The AEI objects to the actions of a Democratic president.

    ———————————–

    Headline: UAW’s unofficial DIY BK lawyer at TTAC has more BK “credential” than a law professor.

  • avatar
    jkross22

    “There are no jobs for these people to find. “

    Really? I guess you haven’t been to most hospital websites, engineering company websites, chemical company websites, etc. There are thousands of unfilled jobs in the US. Jobs that will not pay inflated, Union salaries, but great jobs that would require retraining and are necessary to the economy. Your negativity is not only destructive, it’s factually incorrect. Maybe you should turn off the news!

    “If obama were creating more unemployment, this would, but clearly that’s not true, so perhaps you can leave making analogies to others better at it.”

    Opportunity cost. If Obama continues to spend billions for zombie car companies to be kept on the gov’t teet, that’s money that cannot be spent on other more productive endeavors. Unless of course he wants to keep printing money. Oh wait…

    “I don’t think people quite realize how fragile a growth based economy can be. “

    It’s more about how confident people are. When people price in armageddon into the price of stocks, we’ve seen what happens. This argument of fragility of market being used as an excuse to have government interfere with a private company going bankrupt is over the top dumb. Reminds me of the people defending no bid government contracts.

    The fact of the matter is that no one else is dumb enough to throw money at Chrysler.

  • avatar
    agenthex

    more BK “credential” than a law professor.

    No, you got it wrong. Conservatives are supposed to slam these ivory tower intellectual types with all their “knowledge” and “edumacation” and flocks of promiscuous college co-eds. Don’t you know obama’s a law prof, too?

    In any case, ironic appeal to authority aside, you should realize the piece referenced in the TTAC post is an editorial, not a legal brief.

  • avatar
    agenthex

    Really? I guess you haven’t been to most hospital websites, engineering company websites, chemical company websites, etc. There are thousands of unfilled jobs in the US.

    During the severe downturn, most companies have frozen hiring due to uncertain prospects. An HR website is not exactly the internal headcount spreadsheet. Also, if we’re talking about UAW specifically, I’m pretty auto line workers are not well qualified for hospital/engineering/chemical jobs.

    Unless of course he wants to keep printing money.

    It’s more about how confident people are. When people price in armageddon into the price of stocks, we’ve seen what happens.

    There’s this very simplistic view of our monetary system and policy floating around conservative circles, and not a very internally consistent one either.

    “Printing money” is exactly what is done to mitigate contractions, and when that isn’t enough, fiscal spending is used to supplement. Some of that money should come back during the good times, but if there’s a problem in washington, it’s that no one has the balls to raise taxes then, and one group in particular is notorious for sabotaging this.

    If you need any reference on the frailty of markets, just look up the numerous periodic crashes before the current policies where formed. Note this is BEFORE the higher overall leverage we utilize today.

    The fact of the matter is that no one else is dumb enough to throw money at Chrysler.

    Yes, that is one role of government: cleaning up after market externalities that no business is “dumb” enough to do.

  • avatar
    agenthex

    PS. If you want the dumb-ness to stop, get corps to stop externalizing. Since we can’t exactly trust them, we’ll have to set up regulations and enforcement to that effect. Sounds like a plan.

  • avatar
    lw

    There are jobs.. plenty of jobs if you already have the right skills and not too much experience. They can hire an engineer with 2-5 years of experience for the wage of someone coming right out of school.

    The only way to fix the employment issues when a bubble bursts is to create a new bubble that everyone can easily transition into.

    In 2001 you might have been a laid off web developer… By 2002 you had burned thru your severance, took a real estate exam on a Saturday afternoon and you were making $200K a year slinging homes.

    Until someone blows a new bubble, these guys are stuck. At the point the whole idea of a bubble seems silly.

    Imagine a car bubble… People are bidding up cars on the lots, begging to get them. Camping out at night.. Following car carriers down the highway to see if they can grab one at the dealer. They have 5 SUVs at home, but they are all going up in value. The factories are running 24x7x365 and can’t keep up. Banks are loaning money like crazy because their worst case is that they repo the car and sell it at a profit.

    Anyone laid off from the real estate bubble opens a car dealership. McDonalds and Starbucks are being torn down to make room for dealerships. The new dealerships have just a couple cars for old farts that still want a test drive, but most everyone just orders them on the web. Hell worst case they don’t like it and they sell it 6 months later for a profit.

    Every night is Flip this Car! How to detail your car to maximize profits!

    Seems silly… But that’s exactly what millions of people did with homes.

  • avatar

    Perhaps you can name some examples of its effectiveness. In fact, we’ll make it a bet. Count up all population of the places successful with your preferred policies, and we’ll see many multiples of that we can find in places with better, more progressive ones.

    I don’t know about places where conservatives have been in power for a long time, but progressives have been in power in Detroit for 60 years. The city’s population has declined by 50% in that period, the public schools have a graduation rate of 24%, and half the adults are functionally illiterate. The city is represented by Carolyn Cheeks Kilpatrick (Kwame’s mom) in Congress and by Monica Conyers on the city council.

    Detroit is an incubator for progressive ideas.

  • avatar
    agenthex

    I don’t know about places where conservatives have been in power for a long time,

    Come on, the world is a big place. You’re not limited to the socialist wasteland that is present day America.

    Detroit is an incubator for progressive ideas.

    I thought was it was the coastlines, where all america’s innovation resides, and whose tax dollars are exported to the heartland. This is a competition, remember, and I’m going to win by orders of magnitude if you don’t get cracking.

    I would help you, but all the places I know that embrace “true” conservative/libertarian ideals are shitholes like somalia, or fundamentalist theocracy that aren’t christian, or parasitic tax havens.

  • avatar
    lw

    @ Ronnie

    Detroit was great until the free beer ran out. Once GM/Ford/Chryco couldn’t set the prices for cars and had to compete with more efficient corporate cultures/strategies, it all went to hell.

    If Washington really wants to save the remaining bits they should merge it all under Ford and give Ford the power to set the minimum price for all vehicles sold in the US.

    Then if DC needs a bigger kickback or the UAW needs the next Viagra covered, Ford could just raise the price of each car a few bucks.

    We would end up paying $50K for a car with manual windows, but Detroit would thrive.

  • avatar
    CamaroKid

    I don’t hear many conservatives calling the president’s actions regarding the auto industry (and the banking industry as well) socialist.

    Of course you won’t, since it was Bush and Paulson who Socialized all of these things…(you missed the Insurance Industry BTW ;) )

    And, pray tell, just who will invest in enterprises employing those people if those investments aren’t protected by consistent rules of credit and collateral?

    Wow Ronnie… We got into this mess because no-one was willing to lend money to Chrysler before all of this happened. Perhaps ’cause they knew the company wasn’t worth anything and they knew in a BK they would lose everything…

    Lots of spin going on here… You need to review DIP financing and the pecking order that a DIP financier has.. No rules have been broken…

    This site has been talking about how Chrysler isn’t worth 25 cents for how long now? How long have we had the “Suicide Watch” and now all of a sudden Chrysler is worth Billions and Billions… And the Bond holders are getting screwed… These bonds have had junk or near junk ratings since when? January 1991!

    Sorry but the facts do not support the “hey these guys got screwed” hypothesis.

    If they did, the bond holders would probably still be in court… These guy sure packed up and went home fast, didn’t they? You would think people with such a strong case would have actually put up at least a teeny tiny fight.

    It was like:
    “Hey judge, we want more money”…
    “No?.. umm.. are you sure?”…
    “OK.. Will you at least validate our parking?”
    “No? not even that?… wow you guys sure play hardball”

  • avatar
    NBK-Boston

    Ronnie Schreiber writes:

    [I]s it not accurate to say that the taxpayers are buying Chrysler for the UAW?

    I’d agree that it is completely accurate to say that.

    I’d also say that such a view is largely incompatible with the simple view that the government is fundamentally re-ordering bankruptcy law by stealing assets that belong to the secured creditors and giving said assets to the politically favored unsecured creditors.

    Critics of the bailout: Get your story straight! Either the Obama administration is stealing from the bondholders to pay off the UAW, or the administration is buying out the creditors and making a gift of assets to the UAW. Or it’s doing both, by underpaying the bondholders for the assets (and forcing them to live with it) and then giving those assets to the UAW.

    Pick one of those three options. Stick with it. (Ronnie: It’s almost too late for you. You’ve alternated between two or three of those arguments over the past few days, so I’m actually not sure how best to understand your criticism.) Bring evidence to support your view. Do not ignore facts inconvenient to the position you choose. And if you prefer the third option, be prepared to acknowledge both sides of that position, and stand ready to explain exactly how much (in dollars and cents, or at least rounded to the nearest hundred-million) the government is underpaying, how you arrived at that valuation, and how the government is managing to (or is trying to) railroad that past the bankruptcy judge.

  • avatar
    ihatetrees

    NBK-Boston :
    Critics of the bailout: Get your story straight!

    Given the government is owner and referee in many aspects, there’s more than 3 possibilities.

    The UAW’s VEBA chunk of New Chrysler is probably worthless. But, the government is a major player in finance and banking firms. The fix may be in for a future inflated ‘sale’ of New Chrysler stock.

    Secured creditors should have gone for a partial equity position in the New Chrysler to be part of the above possible ‘play’. However, it may have been tough to get a decent enough chunk of New Chrysler – seriously diluting the UAW share for ‘moneychangers and speculators’ would have not gone over well.

  • avatar
    Geotpf

    Judges aren’t bullyed by what the government wants. It’s part of the job description-the ability to tell anybody, including the government, that they are in the wrong. The bankruptcy judge will do what he believes the law tells him to do, not what Obama tells him to do.

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