Should We Be Concerned About What is Going On With Chrysler?
Thursday, May 07, 2009
The other night as I was watching the news, yes Fox news, I heard an attorney from Case & White talking about how his clients (the Chrysler bondholders) were being asked to take a deal for .33 cents on the dollar and they were being chastised (bullied was the word that was used) by the Administration for holding out. Now bondholders are secured creditors and should get paid more in a bankruptcy than unsecured creditors (including the union). Now the assets of Chrysler are being sold to a new company controlled by Fiat and the union!! I just can’t believe some of this stuff we are hearing and that is going on in America and give alot of respect to those that can speak out, specifically Cliff Asness, a hedge fund manager at AQR Capital. Here is an excerpt of what he has to say:
“Here’s a shock. When hedge funds, pension funds, mutual funds, and individuals, including very sweet grandmothers, lend their money they expect to get it back. However, they know, or should know, they take the risk of not being paid back. But if such a bad event happens it usually does not result in a complete loss. A firm in bankruptcy still has assets. It’s not always a pretty process. Bankruptcy court is about figuring out how to most fairly divvy up the remaining assets based on who is owed what and whose contracts come first. The process already has built-in partial protections for employees and pensions, and can set lenders’ contracts aside in order to help the company survive, all of which are the rules of the game lenders know before they lend. But, without this recovery process nobody would lend to risky borrowers. Essentially, lenders accept less than shareholders (means bonds return less than stocks) in good times only because they get more than shareholders in bad times.
The above is how it works in America, or how it’s supposed to work. The President and his team sought to avoid having Chrysler go through this process, proposing their own plan for re-organizing the company and partially paying off Chrysler’s creditors. Some bond holders thought this plan unfair. Specifically, they thought it unfairly favored the United Auto Workers, and unfairly paid bondholders less than they would get in bankruptcy court. So, they said no to the plan and decided, as is their right, to take their chances in the bankruptcy process. But, as his quotes above show, the President thought they were being unpatriotic or worse.“
“If you hired an investment professional and he could preserve more of your money in a financial disaster, but instead he decided to spend it on the UAW so you could “share in the sacrifice”, you would not be happy. The managers have a fiduciary obligation to look after their clients’ money as best they can, not to support the President, nor to oppose him, nor otherwise advance their personal political views. That’s how the system works. If you hired an investment professional and he could preserve more of your money in a financial disaster, but instead he decided to spend it on the UAW so you could “share in the sacrifice”, you would not be happy.“
“The President’s attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to “sacrifice” some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power.“
No I would not be happy. Not happy with how this is all playing out.
Through bankruptcy I lost earned nonqualified pension. Can I deduct the loss.These were “earned” contractual benfits that were discontinued via bankruptcy court. A settlement for 25% of calculated value was paid in new stock as an unsecured claim.
Posted by deutsche rentenversicherung on 12/02 at 07:44 AM