Friday, May 1, 2009

• Dilettantes At The Chrysler Gate

As Obama forces his personal views on the automotive landscape, his injection into the Chrysler debacle is evidence of the lengths he appears prepared to reach for morphing the Presidency into a willful bully-pulpit. Even the media is using words like “rogue group,” to describe the Chrysler creditors holding out for better treatment from the government.

Obama complained that the small “group of speculators,” rejected the government’s 33 cents on the dollar offer. Speculators? What a peculiar denigration of bankers who didn’t feed at the government bailout trough. This is a very serious misrepresentation of the reality surrounding the mess that has swirled around the government intervention into corporate America.

The “holdout group,” which included approximately 20 debt holders, claim they are being treated unfairly. No kidding. They have no seat at the negotiating table, and are required to be represented by recipients of taxpayer TARP money. Where is the common sense here? Why would the UAW and TARP fund receivers be more capable of representing the interests of the debt holders than they are themselves? These rogue investors, representing pension and retirement plans and school endowments, as well as teachers union, placed senior secured loans into the Chrysler coffers. Now Obama calls them “speculators,” as if the term is a dirty word that middle America and taxpayers should accept as such. Speculators are exactly what America’s business engines urgently need right now. Why disparage them?

This is simply misrepresentation and obfuscation floating from a White House seemingly unafraid of twisting perception of reality into support for a profoundly ideological agenda. The serious concern rests in the possibility that the government will corrupt the longstanding bankruptcy code that has stood the smooth functioning of the capitalist system very well. The bully pulpit in the hands of an effective salesman might well inflict permanent damage on the open and free corporate landscape which has fuelled America’s growth for over a century.

Those financial institutions who profited handsomely from taxpayer philanthropy which financed their bailout cash, distributed by the current and previous administrations, are understandably very solicitous of Obama’s demands. The White House accusing the holdouts of acting against the national interest, is injecting the government directly into the management and decision making process governing the funds. This is a pretense that the activity of bankruptcy is somehow unnatural and un-American.

Leaders of the rogue funds should continue to act and conduct themselves in line with what they believe are their fiduciary responsibilities on behalf of their investors, regardless what others in fear of the bully-pulpit might do to pacify the domineering harassment from the White House. The bankruptcy proceedings should be allowed to play themselves out legitimately under the rules and laws that have long proven effective and cleansing in corporate America, and the Administration novices should refrain from interference with management of corporate America and speculator fund management. America is a country of laws. Government should abide by them.


  1. Well I am glad to see that someone in Washigton is putting it to the banking industry. Its about time. I hope he burns the bankruptcy laws to the ground. sometimes you have to sacrifice a few lambs to make the point. As all of us who are not in the UAW and work in the auto sector are being burnt to the ground because of the pure greed of wall street. Welcome to the nightmare folks. Time to ride the lightning. As long as the investors do not take a hit to their wallets its OK to destroy what is left of this country.

  2. Anonymous,

    Are you kidding?

    The biggest players, those who run the game, were the first at the bailout cash wicket, cap in hand, friends in the White House.

    What are you basing such an observation or commentary on? Obama has completely capitulated to the powers on The Street.

    Your commentary is confusing.

  3. A well-written post about this really bad deal for the bondholders. But the folks that really got a raw deal here are the average US Citizens, who for their $12.1 Billion are getting only 8% of the equity of the 'new' company, while the UAW gets 55% of the equity to cover their $5 Billion VEBA concession. And that just covers today - it won't be until 2011 at the earliest that Fiat "technology" (What a bunch of bull - Fiat has no world-class technology they are bringing to bear here, only a willingness to lend their small and mid car platforms to be rebadged as Chryslers) actually gets to the showroom near you...which simply means the US Taxpayer will undoubtedly be making a few more 'loans' to Chrysler/UAW/Fiat in the next 24 Months - interest-free, and equity-free, of course...

  4. Anonymous said,

    I agree with you comment on the mating with Fiat, forced on Chrysler by Obama the new entrepreneur. It is idiotic on so many levels, but the MSM is fawning all over it because it's "Obama."

    ... there's the Obama protected UAW in a position of power,.... the same guys who helped destroy the whole industry. ... Nice work.

  5. Time for a new car? Buy Mazda. It's one of the few car companies that is not owned by the U.S. Government. If you were excited about the news that the U.S. Government was going to stand behind the warranty on every new GM vehicle, remember, the U.S. Government also stands behind the Dollar that is rapidly losing value and the Social Security Administration which is on the verge of being valueless. I can hardly wait for U.S. Government Healthcare, but then thankfully I won't survive long after that gets in place.

  6. This is an odd article. It reminds me of a small child swinging punches wildly in the air with no real hope of hitting any target.

    Firstly, these bondholders are speculators. The invested in these companies hoping to achieve a financial gain. Perhaps Obama wanted to needle them by using a term like "speculator" that could have a negative connotation. If he did, you bit hook, line and sinker by buying into the concept that it's a derogatory term. However, they are speculators just as I am when I buy stock in my etrade account. Don't loose sleep over it.

    Secondly, these speculators would most definitely factor in that the government is less likely to let someone like Chrysler fail vs another company. So, they'll feel that this high risk investment was less risky precisely because of what is happening now - government intervention to help reduce their risk. To then complain about that same government intervention is clever but somewhat disingenuous.

    Lastly, whatever treatment they're receiving now is likely superior to where they would end up if the government hadn't intervened and they were in bankruptcy court. You need to connect two threads in your thought process that contradict yourself. You want the government to allow the bankruptcy laws to take their course and not interfere in senior management. The administration orchestrated the change at GM precisely because they felt like Wagner was living in a dream world thinking that bankruptcy would never be allowed to happen to GM. The bondholders were using those public and private statements to hold out for unrealistic positions that helped no one move this along.

    As for the UAW there is no doubt that they've helped contribute to the overall problem in many many tangible ways. Their main counter argument of course is mismanagement by senior executives has created problems. Given that Ford finally broke with the Detroit cocoon problem and brought in senior management from outside the auto industry three years ago and is not lining up for a handout and you have to give some credit to their argument. I'm not letting the UAW off the hook - just pointing out that it's too easy to make them the sole scapegoat as some of your commenter's here have.

    I think it's important that bloggers like yourself act as a watchdog in this very uncertain time. Keep up the good work but strive for better balance vs just pandering to the a mindset that got us in this mess after eight years of very little decisive action short of budget draining wars......

  7. Anonymous,

    Thank you for your wonderful note. While you strike out initially, you provide no sustaining argument for doing so. "Perhaps Obama wanted to needle them by using a term like speculator," is a rather pathetic perspective on Presidential policy and is hardly a convincing assertion.

    It is a safe bet that you have never run a corporation, nor provided investment capital, venture or otherwise, to the corporate community. ... And gambling on eTrade isn't what I call investing.

    I don't support the abuse that Wall Street has perpetrated on America, nor do I support what Obama's crowd (Geithner & Co.) is pushing him to implement because his lack of knowledge doesn't know any better.

    Your suggestion that Obama and the government running GM is better than having Wagoner run the show is rather beyond comprehension, and finding a seriously talented CEO to replace Wagoner would not have been difficult. There are a few around.

    The UAW and past management destroyed a great company. There were other strategies that should have been considered....

    ... but it's too late.

  8. I am confused. Did you dedicate an entire post on how to fix GM? Yet you rail against outsiders being arrogant enough to believe that they could run GM better than Wagoner? Hmmmm.

    Wagoner was CEO in 2000 and Chairman in 2003. Don't berate Obama for firing him - wonder why the BOD didn't do it earlier!! He failed.

  9. Anonymous,

    Come on now, how about contributing to the debate. Give me a convincing argument about anything having to do with the subject at hand. Anything.

    For example, perhaps you can provide some facts in support of a persuasive posit on Obama's or anyone in any branch of government's ability to run a large corporation.

    On too many financial fronts, he's getting played, and your grandchildren will forever be grateful for your unquestioning support of bailout / stimulus policies you won't be around to finance. How about a little objectivity?

    I really support two of his objectives - those pertaining to education and healthcare. I support providing an even playing field to the long term building and strengthening of a society.

    Please note:


    Education and Healthcare are programs that will have to be diligently financed, and while right now is not exactly the best time to launch the country into a massive overspending spree, a plan and some increases in financing are required.

    Unfortunately, since most things take money, it perhaps would have been too much to ask to have a President with business, financial or entrepreneurial background this time around. Perhaps even one inquisitive enough to do some serious digging. Obama is out of his depth, IMHO, on the financial front, and hasn't taken the time to seriously educate himself on this most crucial element challenging the country. Unfortunately, he doesn't even know what he doesn't know. Whether that is from arrogance, as some have suggested, or not, doesn't matter. The result will be an Administration that will overwhelm America with a debt that the struggling economy will take over a generation or more to recover from.

    Within one year, year and a half, voters will wish for a return of the likes of Bush or Clinton. Clinton may have been an idiot in his personal moments in the Oval office, but at least he was keenly intellectually interested and stimulated by the country's challenges, and he did his homework 24/7.

    I suspect Obama lies on the insouciant side of that equation and is enjoying travel, very cleverly selling his policies to an adoring Fourth Estate, while he leaves the heavy lifting and details to Pelosi and company.

  10. I admire your passion and obvious patriotism.

    I agree with you on Clinton. I think Obama is a technocrat as where Clinton was a visionary leader. I think both can be effective but their styles are very different. The key thing you need to remember about Obama is that his ego allows him to surround himself with strong players. Clinton is the best example. I think he picks the best and the brightest - which is ultimately what a successful CEO of any large company does as you can't manage it all yourself. YOu can debate his choices individually but conceptually that's where he's at is my point.

    Take GM. As far as I can tell everyone in that industry was acting like an irresponsible child.

    Management: Years of bad choices in product and pricing strategies. Yet Wagoner is not held accountable by his BOD for his performance. Bad message to rest of management

    Unions: Focused on clinging to their unsustainable financial benefits in hard cash terms with little care for the implications on the long term health of the mother ship

    Bondholders: Convinced that Obama and a Democratic government would "blink" before they do and thus holding out trying to optimize their position.

    So what do I do?

    Management: Wagoner's telling anyone who'll listen that bankruptcy is a disaster. Well, that'll help with the debt holders!! In addition, can you commit our tax dollars to a senior management team that clearly doesn't get it? No, someone has to be held accountable so that now EVERYONE knows they're accountable.

    Unions: Instead of bleeding the mothership dry of hard earned $$'s make them directly connected to the long term health of the mothership through a significant equity position. Unions - be careful what you wish for would be my message

    Bondholders: With a new CEO now spouting that bankruptcy might be the best approach (I think you agree there all along) now the leverage changes and you have hope of breaking that internal impasse.

    I don't think Obama wanted this - it was thrust upon him. I think, certainly not perfectly, they did a good job of assessing the root cause of the dysfunction of the major players as to why this issue wasn't fixing itself. I think the only thing they did, which was significant, was tell everyone the old way wasn't working by putting Wagoner on the plank.

    Chrysler also came with a delusional "We can still make it on our plan" and they said "Go marry anyone who will have you as you are basically are a dead man walking" and gave them the wake up call they needed.

    Detroit lived in the past. They could not think outside the box. The only one doing ok is Ford who, guess what, brought in management from outside Detroit! I think the administration is resetting the playing field and then blowing the whistle and letting all the players resume - only with a clear understanding there is a referee and he will blow the whistle if there is dysfunctional play.

    Only time will really tell but I think history will show that Obama came in with soaring visionary rhetoric but his legacy became hands on technocrat management around the economy, healthcare and education. But that's just a guess.