Hedge Fund Blaming is Insulting (but it works)


An interesting rebuttal to the White House’s blaming of hedge funds for the collapse of the Chrysler deal:


Here’s the skinny:

Chrysler has debt – ie BONDS that investors purchased to earn interest and get their principal back on maturity. And just so you know, the reason people buy bonds vs. stocks is for the income AND the fact that if the company failed, they would be FIRST in line to claim the assets. This is why Chrysler could offer these bonds and only have to pay a lower interest – similar to a mortgage: the bank gives you a lower rate because your house is collateral whereas credit cards charge a higher rate because there is NO collateral.

The White House said in a statement, in so many words, that the bond holders who did not want to accept the Chrysler bailout deal were somehow not “team players,” and not serving in the best “interest of the country.” The statement mentioned the sacrifices made by the employees and some other bondholders. But this is a most disingenuous statement.

First of all, how the employees getting an ownership stake and keeping their jobs equates with bondholders (many of them pensions and retirement plan owners – not that that should matter in an honest America) losing 78% of their principal is beyond me. The way that company was run, they should have been gone 5 years ago – the employees should have been thankful to have had a job there for the last 5 years. If they couldn’t save money during an economic upswing, why bail them out in a downswing?

Bondholders have a legal right to protection of their assets via the bankruptcy code and provisions. They are first in line in a bankruptcy proceeding (depending on the type of bond and structure of the company). To deny this is to simply ignore our laws – in that case, what other laws are flexible? It seems in the view of the White House, the retirement stability of Chrysler workers is more important than the retirement stability of the pension beneficiaries and investors in the funds of the plans that hold these Chrysler bonds – hmm, seems political doesn’t it?

Secondly, why is this not in the best interest of our country? It is precisely in the roughest times that we must respect our rules and laws the most diligently because it’s in times of stress that things become “flexible.” This is most obvious in times of war (suspension of habeus corpus has occurred more than once in OUR history) but happens in lesser degrees in mere times of stress (like now). For what it’s worth, Chrysler would never have gotten those bond investors (which kept them afloat) in the first place if there wasn’t that bond security – and now they want to say they shouldn’t have to pay them back first? And no Chrysler didn’t issue a statement similar to the White House but they did not attempt to correct the wording of the White House so in my opinion, they share the same feelings.

(Interesting article here – were the bondholders bullied by the White House? Maybe, we all know Chicago politics)

Read the article for more complete thoughts on this matter but I thought I would share some outrage. The president has no business telling someone they should lose so that he can score political points. It is insulting to people who think for themselves that he would use this tact – the problem is, with most people it works and I’m sure most people (who don’t research much) would side with the president on this, so unfortunately, it works politically.  In my evolving thoughts, I have felt more and more that Obama is the mirror of Bush Jr. I’ll expand this thought some other time.

Chris Grande