The Hedge Funds Destroy The Economy, Again
Over the last 30 days, Chrysler secured deals with their union. They got the bondholders to take 28 cents on the dollar. They made a deal with Fiat. They lined up pretty much every stakeholder and got them all to share in the pain. And then the hedge funds said no and forced them into bankruptcy.
Chrysler LLC is going to file for bankruptcy, an administration official confirmed to CNN Thursday.
The filing comes after some of the company's smaller lenders refused a Treasury Department demand to reduce the amount of money the troubled automaker owed them.
Chrysler officials had no comment on the bankruptcy report. The company faces a Thursday deadline from the Treasury Department to reach deals with creditors who had loaned the company about $7 billion.
But the filing will not mean the halt of operations or liquidation for the troubled 85-year old automaker. Instead, the administration expects to use the bankruptcy process to join Chrysler with Italian automaker Fiat.
In addition, the United Auto Workers union announced late Wednesday night that its membership at Chrysler had overwhelmingly ratified a concession contract reached between the company and union leadership on Sunday night.
This will be a quick bankruptcy, since most of the deals are in place. But in this case, the hedge funds (they are the "smaller lenders" referenced in the article) are more likely to get a better deal from a bankruptcy judge. And we're certainly going to see if anyone trusts buying a car from a company in bankruptcy. So Chrysler comes out of this, but diminished, because the hedge funds demanded payment.
Now can we tax their income as income instead of capital gains?
...Obama on the hedge funds, just now:
While many stakeholders made sacrifices and worked constructively, I have to tell you, some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them. I stand with Chrysler's employees, its families and communities. I stand with Chrysler's management, its dealers and suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars. I don't stand with those who held out when everybody else is making sacrifices.
Obama had an interesting bit last night where he talked about the enormous scope of the political landscape, and how "I can't get the banks to do what I want them to." It was a telling example.
...By the way, the biggest windfall for the hedge funds is that they bought lots of credit default swaps that they can now cash in on to hedge their investment with Chrysler. They stand to gain much more money with Chrysler in bankruptcy. And ultimately, that was the decision they made. We're talking billions.