UPDATE: More details about this story and related stories of government intervention and wealth redistribution are here.
UPDATE: Welcome visitors from 4Simpsons! Thanks for the link!
This bombshell comes to me from my favorite commenter ECM.
Newsbusters is reporting that the White House is making threats to Chrysler’s creditors. Obama is living that these creditors allowed Chrysler to go bankrupt, because he would prefer to throw your money at his auto union worker constituents. What does it mean when the President of the United States threatens and coerces private investors?
- Private property is abolished
- The free market is abolished
- The rule of law is abolished
- The Constitution has been abolished
- Private contracts are abolished
- Capitalism is abolished
It means that socialism has come to the United States, just as the rest of the world is abandoning a failed system.We are now the equivalent of Zimbabwe and North Korea! Our run of liberty and prosperity is now OVER.
The source of the story is a radio interview conducted between 760 WJR’s radio host Frank Beckmann and Tom Lauria, the attorney representing Chrysler’s non-TARP creditors. I am reproducing the full transcript, because you need to read the whole thing, especially what I’ve bolded.
Beckmann: So what’s the matter with your vulture clients who are so greedy and selfish. Why won’t they go along with this?
Lauria: Well, they bought a contract that says that they get paid before anyone else does by Chrysler. And they have been told by the government who is in complete control of Chrysler, oddly enough, that despite their contractual right, they do not get paid before everyone else.
So they are standing on their rights, standing on the law, trying to defend in effect what is the Constitution of the United States, to make sure that they get what they’re entitled to for their investors.
Beckmann: Tom, let me make the argument against you in another way. We’ve heard the President say this, “I wouldn’t want to stand on their side.” Ron Gettelfinger says “Everyone else has made concessions. These people won’t; they’re greedy.” Why not take a concession that is being asked of everybody else and is being accepted by everybody else, including other hedge funds that had bought some of these bonds in Chrysler?
Lauria: Well that’s a great question, because let me tell you it’s no fun standing on this side of the fence opposing the President of the United States. In fact, let me just say, people have asked me who I represent, and that’s a moving target.
I can tell you for sure that I represent one less investor today than I represented yesterday. One of my clients was directly threatened by the White House, and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight. That’s how hard it is to stand on this side of the fence.
Beckmann: Was that Perella Weinberg?
Lauria: That was Perella Weinberg.
Beckmann: All right.
Lauria: Now let me just tell you, to be clear, that we do not oppose the rehabilitation of Chrysler. We think it is vitally important that a company like Chrysler be protected to the extent that it can be within the framework of the law. I want to also say that we do not oppose the government backstopping or supporting the pensioneers and retirees and workers of Chrysler.
I actually think that in a troubled economic time like we’re in, that is an appropriate role for the government to perform. What we do oppose, however, is the abuse of the bankruptcy law to coerce first-lien lenders subsidize the rehabilitation of Chrysler or the backstop of the obligations to the pensioneers and retirees beyond what they will do voluntarily.
And just to be clear, these clients of mine have agreed to compromise 50% of their first-lien position to help support the rehabilitation of Chrysler — Contrary to what the President said yesterday in his new conference that “these people will not give to support the effort,” they have agreed to compromise 50% of what they’re owed to support the rehabilitation of Chrysler, despite the fact that they’re under no obligation whatsoever to do so.
That is what we stand for, and that is what we’re going to go to court to fight for.
Beckmann: OK, so they have offered to take 50 cents on the dollar. What are they being offered in return, and how does that compare to what other stakeholders, say the UAW, are going to be receiving?
Lauria: Here’s the troubling circumstance here. My clients bought a position in the Chrysler capital structure that entitles them to be paid “first dollars out.” That is, they’re to be paid 100 cents of what they’re owed before any junior creditors get a penny.
The government has offerend them 29 cents on the dollar, in the context of a restructuring of Chrysler that will send over $10 billion of value to junior claims. And when I say $10 (billion), that’s a floor. As we’re continuing to review the papers that Chrysler has filed in the bankruptcy court, that number may actually be more like $20 billion. So in other words, my clients, who are contractually entitled to 100 cents on the dollar, are being asked to take 29 cents on the dollar, while junior creditors are being offered somewhere between $10-$20 billion of value in the Chrysler rehabilitation.
Now I ask your listeners, what would they do if they were in our position?
Beckmann: Now Tom Lauria, let me cite a New York Times piece, I believe this was yesterday’s New York Times. No, it’s today’s as a matter of fact. And it says about the creditors who are standing firm: “Many of them bought Chrysler debt for about 30 cents on the dollar.” So what they’re saying is, “Look, they got a discount to begin with. They’re getting a good deal here. If they bought it for 30 and they’re being offered 29, that’s a great deal, better percentagewise than anybody else got.”
Lauria: Well, what people need to understand, first of all, that that is only speculation. There are people who bought this debt at par in my group, there are people who bought this at 70 cents, there are people who bought it at other prices. But what people really need to understand is that the people who bought this debt are pensioneers, teachers’ credit unions, personal retiree accounts, retirement plans, college endowments. That’s who my clients act as fiduciaries for. And they make all kinds of investments. And as you can imagine in this economy, there are numerous of those investments that have gone bad.
This was an investment that people made based on their assessment of the assets of Chrysler, and the view that this was a very secure, very safe investment. And they bought a contract that said they would get a very low rate of return in exchange for that high level of security. So the argument about what they paid for their investment really is irrelevant.
The fact of the matter is they bought a contract that said “you’re first in line, and in exchange for that you’re going to get a very low rate of return.” And I think everybody in this country should be concerned about the fact that the President of the United States, the executive office, is using its power to try to abrogate that contractual right. If the President will attack that contractual right, what right will it not attack?
Beckmann: You made a comment to me before we went on the air about the significance of this case as it relates to the Constitution. I’d like you to explain that to my audience.
Lauria: Well, look, there are kind of two aspects to that. The first is the right to property and the right to contract are kind of sacronsanct in this country. I think everybody understands that when you make a deal it’s supposed to be honored, and if it’s not honored you’re supposed to be able to get protection in court. And what is happening here, through the force of the United States government, and that’s what’s disturbing about this — I mean, private parties have contract disputes all the time — but for the United States Government to step in, the Executive Office of the United States Government, who under the Constitution is charged with enforcing the laws to step in and try to in effect break the laws, I think we should all be concerned about that. That is a constitutional issue.
OK, number one. Number two, realize that our Constitution is premised on the notion that there is a balance between the three branches of government: the executive, the legislature, and the judiciary.
And what’s going to be happening, in fact I’m going to have to go here, because I’m heading down to the bankruptcy court to start taking on this battle, which is of epic proportions. But what is going on here is you’ve got the executive branch coming into the judicial branch. And I think it is really important for the Constitution of the United States that people understand that the judicial branch can stand independent and interpret and apply the laws as it’s required to do under the Constitution in the face of intense pressure from the Executive branch to do otherwise.
Beckmann: Tom Lauria, really appreciate it. Final question, will Oppenheimer Funds and Stairway Capital, your other two clients in this, are they committed to standing firm? I’ve got to believe they’re facing the same pressure Perella Weinberg did before it changed its mind and said “Okay, we’ll go along now.”
Lauria: Well they are today, but the Executive Office hasn’t called them yet and made threats to them. So, maybe by tomorrow I won’t have any clients, and maybe this fight will be over.
Click the link below to see more commentary from National Review, Wall Street Journal and Hot Air.
The editors of the National Review comment on the story.
The administration tried desperately to keep Chrysler out of bankruptcy court; in the process, it demonstrated exactly why that institution is so valuable. Obama’s auto task force attempted to browbeat Chrysler’s creditors into taking a terrible deal in order to spare the United Auto Workers union as much pain as possible. The large banks, which owe their continued existence to the $700 billion Troubled Asset Relief Program (TARP), caved and agreed to take a massive haircut on their secured Chrysler debt. But a group of smaller firms, calling themselves “The Committee of Chrysler Non-TARP lenders,” refused to play ball.
In a statement released yesterday, the firms pointed out that they would be shirking their fiduciary duty to their investors if they did not hold out for the best possible deal. For them, the best deal is bankruptcy. In bankruptcy court, secured debtholders take priority over other creditors. The administration’s plan called for secured lenders to get in line behind the UAW.
For resisting this expropriation and following the law, the non-TARP lenders were publicly denounced as vicious Benedict Arnolds by a sitting American president. “I stand with Chrysler’s employees and their families and communities,” Obama said — not “those who held out when everybody else is making sacrifices.” He stands, he said, “with the millions of Americans who own and want to buy Chrysler cars.” If millions of Americans wanted to buy Chrysler cars, the company wouldn’t need the president of the United States to be its pitchman.
Hot Air has more here about whether the media will call Obama to account:
Glenn Reynolds wonders how the White House press corps will feel about being used as an arm of the administration to beat its opposition into submission. My guess? Enchanted, with just a couple of exceptions. He also wonders whether they will show the slightest inclination to ask about these allegations. So far, it looks like the Sounds of Silence on the WHPC dial rather than We’re Not Gonna Take It.
Bear in mind that this is one attorney operating in his client’s interest, and attorneys do like to make media waves by fighting cases on the evening news and the front page before they fight them in court. However, the WHPC should be asking whether they’re getting played by the Obama administration — and consider the strong possibility that they’ve allowed themselves to be put in that position.
Commenter ECM adds a link to a WSJ piece:
Here’s a link to the WSJ piece where the rapacious, evil, capitalists stake out their position on the matter (which was quoted from in the NRO piece):
Heritage Foundation has more analysis here.
Specifically, the creditors refused to settle the debt owed to them by Chrysler for 29 cents on the dollar. The offer was far below what the UAW would get under Obama’s plan, and the creditors thought they could do better, electing to bring the matter up before a bankruptcy judge.
…True, the holdouts represent only a small minority of Chrysler’s creditors. But among those who did agree to the terms, the four biggest – Citi, JPMorgan Chase, Morgan Stanley and Goldman Sachs – are banks which themselves took massive bailout money from the feds, and whose future is largely in the Administration’s hands. Not only does the government own a substantial amount of their stock, but government “stress tests” of their stability are due to come out next week.
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