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I'm having a hard time keeping this straight:

Apparently, many of the same folks who just months ago were telling us that "dissent is the highest form of patriotism" think just dandy for the president to brand bondholders as "speculators" who are "refusing to sacrifice like everyone else" when they refuse to go along with a corrupt giveaway to a core Democratic constituency, the UAW, at their expense.

UPDATE: Oh, but I forgot, criticism of Bush was justified because his administration was asserting unprecedented executive powers and trampling the rule of law because of a phony "emergency" that was really a cover for both ideology and political partisanship, while the Obama Administration is, um, well, ...

And, courtesy of Instapundit: "Business Insider reports that more than one Chrysler senior creditor has corroborated Thomas Lauria's allegation that the Obama administration threatened them with public attacks if they didn't surrender their contractual rights." Maybe Truman should have just threatened to use the Treasury's power to shut down credit to U.S. Steel.

11:00 PM: Comments are now closed.

Steve:
And I'm having a hard time figuring out how some other folks suddenly saw the light regarding the patriotic virtues of dissent. Yawn.

I hardly think these bondholders are evil just because they want to maximize the value of their investment, but they're not exactly speaking truth to power, either. They're just people who want more money.
5.5.2009 7:03pm
Brian G (mail) (www):
The days of Bush questioning the patriotism of dissenters and the days of Karl Rove smear tactics are long gone. America is a great country again where such tactics no longer have a place in civilized society, so stop criticizing Obama you right-wing fascist Nazi homophobe misongynist pig.
5.5.2009 7:04pm
AF:
I'm having a hard time seeing the connection.
5.5.2009 7:05pm
Vermando (mail) (www):
Devastating insight, and timely. Keep up the good work Professor!
5.5.2009 7:09pm
jalrin (mail):
To be fair, that is not exactly what the Administration is saying. The Obama adminsitration is unhappy that a group of bondholders is, in their view, attempting to hold hostage an entire sector of the economy to get additional monies that they cannot get outside of goverment assistance and that the adminstration regards as unreasonable. disliking such tactics is different from saying that it is unpatriotic to oppose what you believe to be an unjust and disasterous war.

While one can quite plausibly disagree with the merits of the arguments of the Obama Adminstration and the war protesters, it is not fair to say that only one position can be correct.
5.5.2009 7:09pm
ERH:
Wow did Bernstein leave his computer unattended at a redstate gathering because this is the stupidest post the VC has had since Cassell posted the Stella awards.
5.5.2009 7:15pm
Volokh Groupie:
The more disturbing precedent is the government arbitrarily breaking contracts in this case. Government pressure on private companies to act in a way they like is a pretty long standing practice.

With respect to UAW, both sides have to keep their base happy.
5.5.2009 7:17pm
Andrew J. Lazarus (mail):
The "at their expense" part seems dubious. Are you so sure the bondholders would get more pennies on the dollar if Chrysler were dissolved, or are they just trying to get a better deal from the government, basically playing chicken?

I have a hard time understanding where libertarian principles enter into bankruptcy proceedings, anyway. Bankruptcy is interference in the free market. Debtors' prisons are the way to go.
5.5.2009 7:17pm
Penn0L:
I'm having a hard time seeing the connection, too.
5.5.2009 7:19pm
giovanni da procida (mail):
Oh no! Obama said something mean about the bondholders! His words are the Burma Shave signs on the Road to Serfdom!

I guess I don't see where Obama called them unpatriotic. He called them selfish, but that isn't the same thing.

Look, I think it's great that people who disagree with the Administration are speaking up. This country functions best when we have oppositional politics. If the administration starts spying on hedge funds, or wiretapping them without warrant, or putting them on no fly lists, or what have you, then the people in the administration who authorize that should be arrested and prosecuted. Full stop. Otherwise, the hedge fund community can and should argue their case in the press, in the courts, and should bring this up as an issue in the next election. Which they are doing.
5.5.2009 7:20pm
DavidBernstein (mail):
The Obama adminsitration is unhappy that a group of bondholders is, in their view, attempting to hold hostage an entire sector of the economy to get additional monies that they cannot get outside of government assistance and that the adminstration regards as unreasonable.
Then call their bluff and let Chrysler go into bankruptcy. Anyway, bondholders are, in effect, the owners of the company, and it's rather odd to attack them for acting exactly as you would expect (and, generally, want) owners to act--to maximize returns.


If the administration starts spying on hedge funds,
How about just threatening to ruin their reputations, as has been alleged?
5.5.2009 7:24pm
Real American (mail):
Left-wing Democrats are hypocrites and fascists. that's not news.
5.5.2009 7:26pm
dmv (mail):

Wow did Bernstein leave his computer unattended at a redstate gathering because this is the stupidest post the VC has had since Cassell posted the Stella awards.

I laughed. It's funny because it's true.


I'm having a hard time keeping this straight:

Try harder.
5.5.2009 7:28pm
anonoprof (mail):
I think the "connection" Bernstein is making is that the President's criticizing bondholders is kind of like Bush-backers' criticisms of war protestors. That Obama is saying the bondholders are not helping the economic situation and holding out for a bail-out is, in Bernstein's mind, similar to the prior administration's suggestion that war protestors were giving aid and comfort to the enemy. I suppose, to be charitable, the rhetoric in both cases is meant to achieve a result by pointing to the unreasonableness of administration critics. Surely the suggestion here is not that an administration can never say it's critics are unreasonable or advocating policies or engagig in practices that would produce worse results than the administration's.

Upshot is that the post makes an utterly bizarre point, made all the more bizarre by the fact that the protestors turned out to be essentially correct as to the central justification and likely consequences of war... but one doesn't need to agree with that to appreciate just how odd the analogy is here. The difference between the rhetoric in these two cases is obvious.
5.5.2009 7:30pm
David Welker (www):
I think it obvious the term "dissent is the highest form of patriotism" has to be considered in a very context specific way. It certainly cannot be taken literally.

I mean, clearly this phrase could not mean that just any form of dissent is patriotic. What if someone dissents from patriotism itself? What if they dissent from laws criminalizing human sacrifice in religious ceremonies or sexual relations with minors? Surely, this sort of selfish and immoral dissent is not the highest form of patriotism. Such dissent has nothing to do with advancing the interests of the country nor making real personal sacrifices for the good of the country.

Also, I think it should be taken into consideration that the phrase is also a slogan. Really, a form of propaganda.

Is dissent really more patriotic than fighting for your country in a war of self-defense? Even if the sacrifices associated with dissent are trivial, while the sacrifices of fighting for your country are great? Even if the motivations behind dissent are purely selfish while the motivations behind fighting for your country is love of country itself?

If you think about it, this slogan is really inaccurate, even if it sounds like there is an interesting thought behind it at first.

Overall, I am no fan of slogans, including this one.

But I am not sure what your objective is here. Is your objective to criticize this slogan (and perhaps all propagandist slogans by implication) with this specific example? Or is your objective to suggest that holdouts in the negotiations over Chrysler are practicing the "highest form of patriotism?"

By the way, I am not saying that speculators who are trying to make a windfall profit as holdouts in negotiations are necessarily unpatriotic (although they might be). But, such behavior (which is one of pure self-interest) is also surely not patriotic. Such behavior is motivated purely by self-interest, not out of a desire to advance the interests of the country. Patriotic actions are those taken to advance the interests of the country, even if that involves some sacrifice of self-interest.

The phrase "dissent is the highest form of patriotism" is pretty inaccurate, because dissent is neither a necessary nor sufficient condition for patriotism. But, one can imagine where dissent is a patriotic act. That is when it is motivated by a love of country and where one would be willing to undergo some real personal sacrifice if that were necessary.

In contrast, actions taken purely out of self-interest can never be said to be patriotic. (Which doesn't mean that people acting in their own self-interest is unpatriotic.)

Anyway, to the extent that you are trying to defend bondholders by use of this phrase, then it seems to me that you are (unintentionally) making a mockery of the concept of patriotism. Similarly, anyone who thinks that all dissent, including dissent motivated purely by self-interest, is patriotic would also be making a mockery of that concept.

Overall, I am inclined to interpret your latest post more charitably as a mockery of the slogan that all dissent is patriotic rather than a claim that holding out in negotiations is somehow patriotic (when, without further information concerning motivations, such an action is neither patriotic nor unpatriotic but instead likely motivated purely out of self-interest.)
5.5.2009 7:31pm
Desiderius:
gdp,

"His words are the Burma Shave signs on the Road to Serfdom!"

I may not agree with what you say, but I will defend to the death your right to make my coffee come out my nose when reading it.
5.5.2009 7:32pm
Mark Wilcox:
Bankruptcy is the process by which debtors can renegotiate their debts. It is clearly within free-markets because it allows for the re-allocation of capital (whether that's money or employees or even the physical components) to better uses.

Investors will want the business to continue to operate if possible because that's the best way to benefit from their investment. However, if the business is no longer able to function - then it would be dissolved.

What has happened here is that the government was attempting to give a large chunk of ownership(55%) (and thus greater benefits if Chrysler turned around) to one group effectively for free.

Since it's widely known that Fiat wants to buy into Chrysler plus there is other options to possibly turn it around via other ways (in particular if union contracts can be reworked) - the bond holders want a shot at profiting as much as possible too.

And since in bankruptcy court the decisions will be based on legal reasoning - not political whims, it's more fair. Not perfect. Just more fair.

If this had been done 6 months ago - it would have cost us a lot less money and they might have even been proceeding with their turn-around.
5.5.2009 7:33pm
giovanni da procida (mail):

How about just threatening to ruin their reputations, as has been alleged?


I guess I hadn't heard about that. How is Obama going to ruin the reputation of the hedge funds? If he says things about hedge funds, in general or specifically, that are actionable, they should sue him for slander.*

But calling a hedge fund "greedy" isn't ruining their reputation. Hedge funds are supposed to be greedy. That's their raison d'etre, no?

*I am not a lawyer, nor am I particularly knowledgeable about the law.
5.5.2009 7:37pm
David Welker (www):

Anyway, bondholders are, in effect, the owners of the company, and it's rather odd to attack them for acting exactly as you would expect (and, generally, want) owners to act--to maximize returns.


Do we really want owners to maximize returns? I think you are assuming a world of no negative externalities, which does not exist.

Also, I don't think we really want people to maximize "returns" in any simplistic conception of that word. Would we want to live in a world where most or all people totally neglected family life and other aspects of life in order to maximize their salaries and profits? Clearly not. There are trade-offs associated with any decisions we make. (There is no free lunch -- except increasing efficiency -- including the decision to convert your time into money.)

I suppose we do want people to make decisions that maximize their individual and social well-being. That is a much more complicated calculus and reasonable people can disagree about what such maximization entails.
5.5.2009 7:39pm
Volokh Groupie:
@Andrew Lazarus

It's pretty clear that the better deal that UAW will be getting under the government plans is coming directly at the expense of creditors. Not only is it bad policy to use the capital markets to help out your political allies, but it's something that at least some important creditors will remember when they have empty hands asking for loans again.

I would assume the problems libertarians have with the current bankruptcy proceedings revolve around the fact the government is at the table during the proceeding defending their friend the UAW and are using the support of banks that they all control by virtue of the TARP. Then again supporting bailouts and losing elections has consequences. Maybe the hedge funds will bet on the political motives of this administration more prudently the next time an organization 'vital' to this nation's economy needs them to buy their debts.
5.5.2009 7:40pm
A.S.:
Apparently, many of the same folks who just months ago were telling us that "dissent is the highest form of patriotism" think


No, no, no. You didn't understand what those folks were saying. They were saying "Dissent FROM BUSH is the highest form of patriotism."

Dissent from Obama is obviously treasonous. You know, because Obama represents all that is good and pure in this country.
5.5.2009 7:40pm
giovanni da procida (mail):

I may not agree with what you say, but I will defend to the death your right to make my coffee come out my nose when reading it.


Thanks. I've always felt that right should be explicitly covered in the First Amendment.
5.5.2009 7:42pm
Toby:
So, reducing the income that supports pension plans, in one named case, primarily of police, firemen, and teachers to benfit the politically weel comnnected UAW is good.

Great. Please repeat that thought during the next election cyle. Loudly.
5.5.2009 7:45pm
roy:
Maybe I've missed something, but as I understand it bondholders don't typically make any profit when the bond issuer goes through bankruptcy, let alone a windfall. They only lose -- sacrifice -- more or less. It's a rare bond that pays enough interest to make up for not paying on maturity.

One can resell a bond, and if somebody sold you their bond fearing they'd get only 10% of the face value and you get 20% you could make a profit that way. But Obama's plan and comments don't seem to distinguish between the two types of bondholders.
5.5.2009 7:46pm
David Welker (www):
Well, I think people who were saying that "dissent" from war can be a form of patriotism could actually make a reasonable case. To the extent that one believes that a particular war is not in the best interests of the country, it seems that one could be motivated to dissent out of patriotism. One could even be willing to make personal sacrifices for that dissent.

For the most part, even if dissent in that particular context is a form of patriotism, it is arrogant to say that such "dissent" is the "highest" form of patriotism when others are sacrificing their lives based on a different view of what is best for the country.

Overall, I don't find the slogan to be accurate. But, at least in that context, it is reasonable to assert that "dissent" (meaning dissent from a particular war) is patriotic whereas it is very difficult to say the same about bondholders (especially bondholders who are speculators and trying to get a windfall profit and have no long-term interest) who are merely holding out to maximize the benefits that flow to themselves.
5.5.2009 7:47pm
Andrew J. Lazarus (mail):
What has happened here is that the government was attempting to give a large chunk of ownership(55%) (and thus greater benefits if Chrysler turned around) to one group effectively for free.
The "for free" part has me confused. I thought the UAW would, in return, forsake billions of dollars in Chrysler's arrears to the retiree health fund. One could argue that these payments are legally junior to the obligation to bondholders—IANAL—but that isn't for free in any sense I recognize. Those benefits were a contractual obligation, too.

If Chrysler's senior secured debts were so massive that the bondholders would get nothing in bankruptcy, but the creditors agreed to a reorg in which bondholders get an equity stake, no one would say that stake was a corrupt gift "for free". I think a smell a certain class-supremacist assumption here about who is really
5.5.2009 7:47pm
cognitis:
In essence, Obama corroborates "stakeholders'" vitality with the blood of parasitic speculators like Perella Weinberg LLC. Let taxpayer funds be used to invigorate US' economy rather than satisfy the cupidity of speculators.
5.5.2009 7:47pm
Bruce Hayden (mail):
I think that you need to add:
It's pretty clear that the better deal that UAW will be getting under the government plans is coming directly at the expense of secured creditors. Not only is it bad policy to use the capital markets to help out your political allies, but it's something that at least some important creditors will remember when they have empty hands asking for loans again.
The UAW members and the government are unsecured creditors, and the secured creditors are being forced to take some $.35 or so on their secured debt so that these political allies (the UAW) can get paid in full. Normally, it works the other way around in bankruptcy - the secured creditors get paid first, to the extent of their collateral.
5.5.2009 7:49pm
CJ2:
Today was the first time in weeks that I read VC; now I remember why I left after regularly visiting for years.
5.5.2009 7:53pm
Volokh Groupie:
@giovanni

this was discussed in a previous post

its a common tactic of AG's to go to a press conference and tear into a company and essentially try to increase scrutiny of companies through the press

in President Obama's case considering the sympathetic nature of the press towards his administration that really isn't a far leap

It's the type of tactic that resulted in death threats made to AIG execs and which prompted this attempt to make the identity of some of the lenders in this case secret
Citing threats, some Chrysler lenders ask secrecy

@david welker

I don't think the dissent is patriotic bit here applies that well (maybe in an unlikely and convoluted way about government influence on bankruptcy proceedings with respect to involvement of politics)

that said, the 'do we really want owners to maximize returns' is a joke, the externalities you mention don't really apply to the hedge funds we're talking about here

Clifford S. Asness response to Hedge Fund sacrifice

Let's be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable with their own money, and many are spectacularly so, but if they give away their clients' money to share in the "sacrifice", they are stealing. Clients of hedge funds include, among others, pension funds of all kinds of workers, unionized and not. 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.
5.5.2009 7:54pm
PC:
Then call their bluff and let Chrysler go into bankruptcy.

Good news, they are!

How about just threatening to ruin their reputations, as has been alleged?

A client's lawyer alleges something to the media and this is now gospel? :sigh:

If you can tie ACORN into this we can get the full wingnut.
5.5.2009 7:55pm
Splunge:
Goodness, DB, you can't really be surprised that the amoral Left indulges in cynical hypocrisy as suits its purposes, can you? I mean, when in the past century has that not been standard operating procedure?

Keep in mind a leftist doesn't mind being called ethically slippery; indeed, he often views it as a compliment, since it suggests cleverness, and your generic rising young leftist would sell his very soul to be thought 1% smarter than the next guy.
5.5.2009 7:55pm
Andrew J. Lazarus (mail):
so that these political allies (the UAW) can get paid in full.
I missed the in full part. The UAW has already announced severe reduction in benefits with the expectation of more to come. Can you explain your calculation?

As I said before, it's not clear that the bondholders would come out better if Chrysler were dissolved. Maybe they just thought that for political reasons they could get more than was offered by withholding approval. They thought they had Obama by the balls and he cut their hand off.
5.5.2009 7:56pm
roy:
I've actually heard some reasonable (though not entirely convincing) arguments that obligations such as those toward the UAW's should take precedence over even secured bonds. Even accepting that, it doesn't follow that the change should be make retroactive to debts incurred under the old rules. Doing so probably isn't an unconstitutional ex post facto law, but it's unjust for the same reason.

Obama has a sympathetic congress. He can ask them to change the law, and he can enforce that changed law after it comes into effect. The market can adapt and investors can reallocate appropriately.
5.5.2009 8:01pm
RPT (mail):
"David Bernstein:

How about just threatening to ruin their reputations, as has been alleged?"

They do not have good reputations to be ruined. You need to block comments again when you venture into Lindgren-land like this.
5.5.2009 8:04pm
David Welker (www):

that said, the 'do we really want owners to maximize returns' is a joke, the externalities you mention don't really apply to the hedge funds we're talking about here


To the extent that bondholders delay a resolution of this matter and such a delay harms the larger economy or contributes to a delay in economic recovery and not just parties to the negotiations, I would suggest that there are in fact negative externalities here.
5.5.2009 8:06pm
Herbert Lawrence:
Dissent vis-a-vis President Obama should be rightly condemned as hate speech.

A new day has dawned. Now the people are in charge.
5.5.2009 8:08pm
RPT (mail):
Would the critics object if it was the UAW who was on the receiving end? Does this question answer itself?
5.5.2009 8:09pm
cognitis:
I think you need to add:
DJ 11:56 a.m.
Chrysler gets interim OK for $4.1 bln financing
Had not US injected billions into Chrysler, the secured creditors couldn't sell their junk for even $.29. Obama's using virtuously taxpayer funds to provide for taxpayers' families and invigorate an economy and not to further satisfy the cupidity of the very pests who consumed all the seed corn. Perella Weinberg bought the debt well below par estimating as a speculator it's expert cognition of statutes and regulations to effect an advantage; it clearly estimated recklessly under the US' depressed economy, and it has thus incurred losses; evidently, whoever sold these distressed bonds to it estimated more accurately and presciently than it, and he certainly assumed it's money. Rookie traders catch falling knives; and, as Gordon Gekko famously said: "a fool and his money are lucky enough to get together in the first place." Perella Weinberg was a fool, and it's diminished it's OPM and borrowed funds.
5.5.2009 8:12pm
Tom Perkins (mail):

While one can quite plausibly disagree with the merits of the arguments of the Obama Adminstration and the war protesters, it is not fair to say that only one position can be correct.


Oh both sides hold their position honestly from the context of their own points of view, but only one is correct--the bondholders, who are just doing their job. Owning car companies is not the government's job, Obama is legally and practically wrong to attempt it, and it is an abuse of power to threaten "political" consequences to the bondholders because they are doing their job. Evidently, their doing their job is passe.


"The Obama adminsitration is unhappy that a group of bondholders is, in their view, attempting to hold hostage an entire sector of the economy to get additional monies that they cannot get outside of goverment assistance and that the adminstration regards as unreasonable."


Why must you be reminded the Obama administration inserted itself into this situation--which it cannot legally be in--only to pay off it's political allies at our expense? The car industry in the US does not hang in the balance--it's the Detroit model of it that does. The Detroit model doesn't work as well as the others and should be let to fail, and cars will still be made in non-union plants all over this country if the chopping block is where all the big three end up.

Yours, TDP, ml, msl, &pfpp
5.5.2009 8:13pm
levisbaby:
You're not really making any sense, Mr. Bernstein?

What does dissent and patriotism have to do with calling the bondholders "speculators?"
5.5.2009 8:18pm
Volokh Groupie:
@PC

Indeed, we should always just believe what Gibbs always tells us. One would hope that the press already has a number of investigations looking into the matter. Nice use of the term 'wingnut' though, really drove home your superior intelligence.

@davidwelker

I was referring to the externality of the decision from the perspective of the business. In the 'Oh no, if Chrylser goes the down the economy is screwed!' world sure you can argue in the larger picture we might want to support the current actions you're seeing. Of course your scenario has a couple equally compelling competing ones (including one where there is no bankruptcy, Chrylser is bought out and we never have this issue--something which was rejected by the administration) including most notably the idea that postponing the inevitable deaths of companies like GM and others only leads to an inevitable and far worse collapse later.

In any event from the perspective of externalities the business would exact through such a decision, your point doesn't apply to these hedge funds for the reason that manager stated.
5.5.2009 8:21pm
Andrew J. Lazarus (mail):
I'm still waiting for a calculation that the bondholders would get more from a fire sale than they were offered by the Administration.

Behind many comments here is a presumption that hedge fund managers are smart and their plans are sure-fire unless Big Bad Government interferes. (Blue-collar workers, OTOH, are bozos, and whatever they get they didn't really deserve, especially if they are in a union.)
5.5.2009 8:24pm
Recovering Law Grad:
And with this post, the quality of the blog sinks further to that of Fox News.

"...a corrupt giveaway..." Please. You may disagree with the administration's handling of the situation, but do at least try to employ neutral language - it won't turn so many people off and might actually engender some real debate. Unfortunately, given the tone of the post and Mr. Bernstein's comments above, the goal here doesn't seem to be debate but rather to toss more anti-Obama porn out to the addicts.
5.5.2009 8:25pm
Recovering Law Grad:
I just realized that David Bernstein is, apparently, a tenured professor. Wow.
5.5.2009 8:28pm
JP22 (mail) (www):
I thought David's post was pretty clever. Sure, it's not a law review article; it's obviously not meant to be. He's simply found a dramatic way of making the point that Obama's rhetoric demonizing the bondholders was just as silly and cynical as Bush's rhetoric demonizing anti-war protesters.
5.5.2009 8:28pm
OrinKerr:
I haven;t followed this or the thread closely, but am I right that Obama referred to a specific group of actors in a specific deal (who happened to be bondholders) as speculators, rather than suggested that all bondholders are speculators? The passage seems to be this:
I know that there are some who will insist that bankruptcy, even for these limited purposes, is a step that should not have been taken. But it was unsustainable to let enormous liabilities remain on Chrysler's books, and it was unacceptable to let a small group of speculators endanger Chrysler's future by refusing to sacrifice like everyone else. So I recognize that the path we're taking is hard. But as is often the case, the hard path is the right one.
Is that it, or was there some other reference?
rospect of an unjustified taxpayer-funded bailout."
5.5.2009 8:31pm
Volokh Groupie:
@andrew

sorry andrew, but nobody is privy to all the information to that both sides have in terms of expected returns

you're baiting on something which isn't really important to the issue anymore (there doesn't have to definite proof that creditors will definitely be injured), and being pretty silly about it

additionally your second point is nonsensical, there's pretty wide recognition that hedge fund managers do make bad decisions (its why so many of us have said that they'll be less likely to lend the next time we come out w/our palms open) and that generally has nothing to do with some of the responses to your comments

you also amazingly never apply the same scrutiny to (ostensibly) the political/private group you seem to favor, unions clearly just continuously make the correct business calculations that lead to the government favoring them the most in cases like this--its obviously solely due to their brilliant leadership that when they are in such situations (clearly though no fault of their own) they are the most protected
5.5.2009 8:33pm
Volokh Groupie:
@recovering law grad

i agree Bernstein ought to use more neutral language

its hilarious to see you complain however when its clear your discourse is more suited to the 'teabagging' mockery of msnbc or kos
5.5.2009 8:35pm
PC:
Volokh Groupie: Nice use of the term 'wingnut' though, really drove home your superior intelligence.

I try to rise to the level of the argument presented.

Does anyone know what price(s) Perella Weinberg got in at? That would certainly be interesting information.
5.5.2009 8:35pm
David Welker (www):
Volokh Groupie,

Of course the point is still applicable. A speculator with no long-term investment or interest in the situations holds out for a bigger piece of the pie, which delays resolution of the matter and limits the policy choices available for dealing with the situation.

Obviously, an unelected hedge fund is not supposed to make policy for the United States. We can argue about what policy would be optimal and reasonably disagree. But, given the decisions of our politically accountable executive branch (including both Bush and Obama) and legislative branch to proceed on a particular course of action because they thought a particular policy was better for the country and economy as a whole, there is no doubt that actions by speculators which damage the economy by delaying the resolution of the particular policy democratically chosen would count as an externality.

A couple more points:

(1) The argument that there are better policy choices out there is entirely speculative. (2) It is not objective of the speculator holdouts to change the policy that has been democratically selected, but instead to exploit the situation to gain windfall profits for themselves. That is, they are doing nothing to lead us to change our course to a better policy, but instead are merely imposing costs on the country and the economy in order to extract a windfall profit. (3) Even if it were the goal of the speculators to actually change policy because they thought they knew better than everyone else, that is not an appropriate role for an unelected hedge fund to play.

The concept of externalities is fully applicable to this situation.
5.5.2009 8:37pm
PC:
He's simply found a dramatic way of making the point that Obama's rhetoric demonizing the bondholders was just as silly and cynical as Bush's rhetoric demonizing anti-war protesters.

It's the difference between accusing a tiny group of bondholders of holding out for more money to accusing a large percentage of the populace of being unpatriotic. Yeah, the exact same thing.
5.5.2009 8:40pm
Recovering Law Grad:
Sorrr you saw it that way, Volokh Groupie.

My point is simply that Bernstein is making what appears to be a substanceless, partisan attack. I think someone truly interested in the substance would have adopted a more critical stance, rather than simply stating (as fact) that one group was pursuing "corrupt" ends and then later citing a partisan-driven story about the process. As it stands, Bernstein's post and subsequent comments echo the sort of hyper-partisan attacks that do nothing but simultaneously inflame and satisfy the desires of those who hate Obama and are determined to do so at all costs.

(I don't disagree that there were similar folks at work during Bush's tenure - it's a bad practice all the way around.)
5.5.2009 8:43pm
rosetta's stones:

Andrew J. Lazarus:
The UAW has already announced severe reduction in benefits with the expectation of more to come.


No, they haven't. Their contract survives basically intact in the deal currently on the table. Nothing "severe" has taken place, not in the agreement they recently signed, and not in this latest proposal. Check the other discussion topic for additional detail from bankruptcy lawyers, seemingly knowledgeable on the proposal.

Or you can check with my next door neighbor, who votes on these contracts. Or a few dozen of my friends and family around here.
5.5.2009 8:43pm
roy:
It's worth remembering that bond speculators provide a significant benefit to companies who issue bonds, especially companies in trouble. Companies can issue bonds at lower interest rates because bondholders know they have the option of selling the bond to a speculator for a partial loss if they become uncomfortable with the possibility of an even bigger loss. This is true whether selling at 98% on news of a remote risk of bankruptcy, or selling at 25% or less on news of a near-certain bankruptcy.

So while hedge funds may not have loaned money directly to Chrysler, they made it more appealing for others to do so, thus giving the company a better (though ultimately inadequate) chance to recover.
5.5.2009 8:48pm
Benjamin Davis (mail):
Bondholders are being bondholders. They are betting on a government bailout for them with the assistance of their high powered expenses lobbyists. It's just business. They ran their numbers and probabilities and this looked to them like their best strategy. The "hold out" in a negotiation is a pretty old tactic.
Best,
Ben
5.5.2009 8:49pm
cognitis:
Orin:

Thanks for the link. I hadn't heard or read Obama's speech, but it's similarity to my recent post on this blog confirms my comprehension of the pertinent arguments on this matter. I consent totally with Obama's description of PE firms like Perella Weinberg pursuant:

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
Obama next describes his virtuous rather than vicious use of taxpayer funds pursuant:
I stand with Chrysler's employees and their families and communities. I stand with Chrysler's management, its dealers, and its 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. And that's why I'm supporting Chrysler's plans to use our bankruptcy laws to clear away its remaining obligations so the company can get back on its feet and onto a path of success.
Brilliant speech that demonstrates a Ciceronian use of meter and the tropes antithesis, gradation, expolition. Great speech, and I consent with all Obama's primary matters.
5.5.2009 8:50pm
Sarcastro (www):
I often mix up harshly characterizing the actions of parties opposed to you with calling people who say you are wrong traitors!

Speech and action are really the same thing, just like calling someone a "speculator" and calling them unamerican! Totally the same thing!

I plan to call Obama a hypocrite whenever he argues with anyone who disagrees with him. That is a totally realistic standard. A hermit President can only help America!
5.5.2009 8:54pm
Michael Edward McNeil (mail) (www):
“How about just threatening to ruin their reputations, as has been alleged?”

A client's lawyer alleges something to the media and this is now gospel?


It's more than just a single client's lawyer alleging this.
5.5.2009 8:55pm
Tom Perkins (mail):
Does it mean anything to the leftists it Lauria is not even exaggerating?

Yours, TDP, ml, msl, &pfpp
5.5.2009 8:56pm
Andrew J. Lazarus (mail):
The UAW has already announced severe reduction in benefits
Dental and vision coverage are, I believe, eliminated. (Judging from my family's coverage, that's probably close to $3000 per retiree.) More changes are planned for 2010.

I think Ben Davis has it right. The dissident bondholders thought, I guess, that Uncle Sam would pony up more money if they held out. It isn't really about the UAW, except in the minds of those conservatives who despise unions and the Americans who belong to them.
5.5.2009 8:59pm
Michael Edward McNeil (mail) (www):
As that Business Insider piece notes:
The sources, who represent creditors to Chrysler, say they were taken aback by the hardball tactics that the Obama administration employed to cajole them into acquiescing to plans to restructure Chrysler. One person described the administration as the most shocking “end justifies the means” group they have ever encountered. Another characterized Obama was “the most dangerous smooth talker on the planet — and I knew Kissinger.” Both were voters for Obama in the last election.

One participant in negotiations said that the administration's tactic was to present what one described as a “madman theory of the presidency” in which the President is someone to be feared because he was willing to do anything to get his way. The person said this threat was taken very seriously by his firm.
5.5.2009 8:59pm
Strict:

Anyway, bondholders are, in effect, the owners of the company


Wow...
5.5.2009 9:00pm
Vermando (mail) (www):

Then call their bluff and let Chrysler go into bankruptcy.

Saying that is like saying that companies threatened with strike suits should just call the plaintiffs bluffs and litigate the cases. They can't do this - they aren't just "bluffs" - because litigating the suits is costly in and of itself. So, the plaintiff can attempt to extract some settlement value even though his claim is baseless.

Similarly, here the bondholders are threatening something that is costly in and of itself - even if the debtor trustee could win approval for its plan in the end, the process would be extremely long and uncertain and could ultimately result in a much less valuable or even worthless company. Yes, forcing them into bankruptcy would demonstrate that the creditors are wrong (assuming arguendo that they are) but it would also cost the company a lot. So, "just call their bluff" is not even close to a complete solution.
5.5.2009 9:00pm
Volokh Groupie:
@DavidWelker

Argument over the best policy choice is clearly speculative. That was my point. I made it to point out your externality scenario for the larger picture of the economy wasn't necessarily the optimal scenario (it might be in your opinion) as there are competing one which may be optimal (and is some cases they may be optimal for both the secured creditor AND the economy).

Otherwise, you're missing the distinction between externalities for the economy (which also turn upon the policy for bankruptcies, etc) and the ones for the fund. Clearly there are externalities for the economy based upon the individual case and based upon the effect on policy (and by the way, in no way are the hedge funds 'driving' the policy here...there was already an established law and they simply forced the government to go through bankruptcy proceedings by rejecting their settlement...the wrench has been the administrations alleged attempts to coerce the to accept the package and unusual control the government wields over other creditors as the case goes to court). The delay they engage in (in fact the administration is the one that sought to speed up the auspices under the auspices of urgency to protect the economy) has no effect on the way they do their business and serve their clients in this particular case with respect to the intial post you had on externalities. The only externality the business is exacting that is going to come back to them is if congress decides to adopt new law proposed by the administration. Even then its not obvious that not holding out from the offered deal would have changed the outcome for the business.
5.5.2009 9:00pm
bikeguy (mail):
I expect when the Obama administration starts calling for waterboarding investors and corporate managers, his apologists will be just as strident in his defense as they are here.
5.5.2009 9:03pm
trad and anon (mail):
Wow, this post is nearly as insightful and well-argued as Zywicki's critique of Justice Souter.
5.5.2009 9:06pm
PC:
Michael Edward McNeil, thanks. I missed that article today. If the allegations are true then that behavior is deplorable.
5.5.2009 9:08pm
Volokh Groupie:
@Recovering Law Grad

I can agree with most of your latest post---when broaching a politically sensitive topic like this I do wish the VC contributers would try to be more critical about the points laid out and would use more neutral language (unless they're willing to make a strongly backed case as to why it isn't necessary). At the very least, using reckless language like that tends to drive down the quality of the comments.

I can appreciate that they're humans to and that you can be charged up about a particularly contentious issue but there's a reason why many people come to this blog versus going to say a thinkprogress, red state, tpm or ace of spades.
5.5.2009 9:09pm
K. Dackson (mail):
Sorry guys, you are missing a larger point.

How can anyone who invests in the market via mutual funds or hedge funds be able to trust the government to enforce the established contract law when some inferior (unsecured creditors) get in line before the secured dreditors?

You people are lawyers, for chrissake. Some of you are actually arguing to gut bankruptcy law and procedures to favor the supporters of the party in power? Just take a deep breath and think what your response would be if 6 months ago Bush and Co tried the same grab. If you would still be arguing that it would have been OK, you are either stupid or a liar. There is no third option.

Not that Bush and Co are clean by any stretch. The Bank of America/Merrell Lynch deal where the SecTreas and the Fed Chair forced BoA to withhold material information from shareholders so that the merger would close is simply CRIMINAL. Where the hell was the SEC? Why are their no complaints against the government on this fiasco?

The overall effect is that this is ruining small investor's confidence in the markets. Remember that hedge funds have clients and they have a fiduciary responsibility to ge tthe best deal for their clients. Or are you arguing that fiduciary responsibility is such a 20th century concept that it should be tossed in the trash as well.

The potential damage episodes like this do to the financial system will take decades to correct, if it ever does.
5.5.2009 9:09pm
K. Dackson (mail):
What good is secured credit when the security can be wiped away at the whim of a government official?

At least the secured creditors sould get at least a larger stake int he new company than the unsecured ones.

After all, they took the risk that the unsecured creditors did not.

But I guess that property rights are truly dead in Obama's America.
5.5.2009 9:14pm
cognitis:
roy:

You've described market makers, and I consent with your description of them as liquidity providers. Market makers--unlike Perella Weinberg--don't accept taxpayer funds, when they incur losses on unhedged positions or on speculative directional trades. Perella Weinberg estimated recklessly the value of Chrysler's bonds cognizant of the depressed US economy, and the firm incurred losses. Too bad. Better do your homework next time rather than expect regulator or judge buddies to absolve your losses.

Tangential to this matter, Perella Weinberg had bought a hedge fund run by a former White and Case partner; this guy undoubtedly was a collegue of this Lauria agent. I'm not yet certain of any regulators who also are collegues of Lauria, but certainly White and Case talks to regulators and judges.
5.5.2009 9:14pm
Vermando (mail) (www):
It's pretty clear that the better deal that UAW will be getting under the government plans is coming directly at the expense of creditors.

No it's not. Fiat is not putting up a dime in this deal. The only new money is coming from the government. Would the government be willing to pay as much if the money was going to the more senior creditors? Of course not. Is any other bidder willing to put up equivalent money? Again, of course not.

The money going to the UAW did not come at the expense of the other creditors. Rather, the government is overpaying for what it's getting so that it can take care of the UAW. It added money to the deal to take care of the UAW, it didn't just shift money from one creditor to the next.

Are the senior creditors adequately compensated for their loss? I'm not sure. The government is only a buyer because of collateral, non-economic interests. If it can't fulfill those interests then it withdraws. Maybe, though, the secure creditors could have gotten a better deal from the private sector and the government has preempted those deals with its interest, I don't know. So, I'm glad that the senior creditors will have a chance to make their case.
5.5.2009 9:15pm
Bob from Ohio (mail):

Bush's rhetoric demonizing anti-war protesters


When did President Bush personally demonize any American?
5.5.2009 9:16pm
http://volokh.com/?exclude=davidb :

I think the "connection" Bernstein is making is that the President's criticizing bondholders is kind of like Bush-backers' criticisms of war protestors.

"kind of like" covers a lot of ground in that sentence.
5.5.2009 9:25pm
Brian K (mail):
this post reminds me an awful lot of this comic about the rightwingoverse

(link is completely safe for work)
5.5.2009 9:26pm
pmorem (mail):
This isn't about the actions of bondholders.

It's about the actions of the President.

This situation has all the elements of corruption from government and business. It will only get worse as the government gets more entangled with business.
5.5.2009 9:33pm
RPT (mail):
Conservatives are complaining that the President is "playing hardball" with $900/hour lawyers who are still on the hourly system? They are playing the same game. Lauria has backed off on his allegations and all that remains are anonymous sources with a political interest in heightening the drama? When are they coming to put the speculators in reeducation camps? When the government does something more than jaw-boning, which is not really new, then these current complaints may have some credibility.
5.5.2009 9:34pm
Andy Bolen (mail):
I don't understand a lot of the discussion in this thread. My understanding is that Obama offered Chrystler's bondholders a worse deal than they would get from going to bankruptcy court. If that's right, they weren't just threatening bankruptcy to convince him to give them more money. They were saying they'd rather get fair treatment in bankruptcy courts than be robbed to pay the UAW...
5.5.2009 9:42pm
bluecollarguy:
Empathy first, law second.

Secured creditors to the back of the bus, political cronies to the front.

Hope and change, hope and change, hope and change.........
5.5.2009 9:51pm
second history:
Obama's comments are nothing more than presidential jawboning (I didn't know hedge funds had good enough reputations to ruin.)
5.5.2009 9:54pm
rosetta's stones:
Lazarus,

Rather than speculating about these "severe" concessions the UAW is making, maybe you should read what it is the negotiators actually agreed upon as of the last couple weeks or so.

Some minor changes, the current workforce keeps about all of what they got, some changes to retiree vision and dental, and no, complete coverage for both of those isn't $3,000 per year, despite your claim (and I note that the current membership are the ones screwing their brothers here, not the evil hedge funds).

Based upon my quick scan, and my UAW buddies' hearsay, the only real significant change to the current workforce is a reduction in job classifications, which we've been screaming about for decades now. You can't imagine what it's been like on the plant floor dealing with the job classifications kabuki dance, no wait, you litigators probably can imagine...
5.5.2009 9:58pm
EverydayLiberal (mail):
There are still leftists in the United States who refuse to condemn Venezuela's economic policy of Chavismo. They call libertarians heartless, but their political philosophy encapsulates the most vulgar and amoral utilitarianism towards achieving the ends they deem necessary.

Now, will any of them admit that Obama's actions are at the very least dubious? No, now's the time for tendentious "discussions" replete with "nuance", where we collectively need to labor over Obama's intentions, which just might excuse his actions. But when torture memos from the clearly evil Bush Administration surface, ah, then, they can have their Two-minute Hate on how that is "totally unacceptable" and self-righteously exclaim how they don't brook people who "compromise" on torture, in any situation.

I don't know the factual details of the Guantanamo stuff. In all honesty, it's not that important to me. But it's seriously enrages to me to hear the average leftist scoff at economic rights as if they were completely illegitimate, when they'd be up in arms if this were a partisan attack on other liberties. Look, I emigrated from a "Third World" country, so I realize, despite the constant moaning from those in the cushiest positions who try to tell me how bad I have [had] it here, that I'm not going to idly sit by while this arrogant president assaults the legal foundations of our economic system, which is much more special and worthy of defense than anything else the United States has to offer.

While the comfortable leftist can hop over to any EU nation and abide by hypocritical documents like the "Declaration on Human Rights", I am truly at a loss to think of another nation with reasonable immigration policy that has markets as free as ours. The truly disgusting partisanship on display within this thread only reinforces my disdain for any political philosophy that doesn't refer to itself as fundamentally libertarian.
5.5.2009 10:03pm
Mr L (mail):
Dental and vision coverage are, I believe, eliminated. (Judging from my family's coverage, that's probably close to $3000 per retiree.)

If that's true, you're getting robbed. These benefits are hilariously cheap; the National Survey put good vision + dental coverage at around $500 a year, or less than 1% of the average UAW autoworker's salary. Some concession.
5.5.2009 10:10pm
SP:
The issue is that the purported crimes of the Bush administration - looking at what we were checking out of the library and such - were picayune, and, as it turned out, didn't actually happen.

Whereas Obama, in front of us all, is asserting absurd amounts of executive power, in the process making decisions that will end businesses and cost people their livelihoods.

But that's ok.
5.5.2009 10:14pm
sputnik (mail):
Posts like that, dear professor , make me absolutely confident that RW ideological crap which had dominated the political life in USA for so long is bankrupt and dead.
And it will take even more time for a new generation of retrogrades (conservatives) to achieve any sort of influence in American political system.
5.5.2009 10:17pm
DiversityHire:
Swap Obama for Bush, Emmanuel for Cheney, UAW for Haliburton and everyone else has to swap their lines, too. Scratch the surface and they're all the same kind of scumbag underneath. Kind of reassuring.
5.5.2009 10:19pm
DavidBernstein (mail):
I'm going to close comments soon, but I'm waiting for a knee-jerk Obama defender to actually explain why they think it's appropriate for a president to interfere with the normal bankruptcy process to help out a favored constituency.
5.5.2009 10:23pm
pmorem (mail):
What really amazes me is the level of vitriol directed at Bernstein over this post.

Kinda like he hit a nerve or something.

It seems to me that Obama accused people of putting their own interests ahead of the country. That sounds a lot like questioning their patriotism.

Nya, nya, I said it, Obama questioned people's patriotism.
5.5.2009 10:24pm
giovanni da procida (mail):

Now, will any of them admit that Obama's actions are at the very least dubious?


Sure. But I don't think that his calling the bondholders names is what is dubious. I think parts of the economic policy that the administration has been following are highly dubious. I'll go farther and say some of it has been downright stupid.

But I'm still not convinced his actions are illegal. That said, I'm neither a lawyer, nor an economist. If he does something illegal, then he ought to be impeached for it.

I've read the links in this thread and seen anonymous allegations of threats made by the administration and Obama towards the bondholders. But I don't know what the threats being made actually are.

"I'm going to ruin your reputation" is kind of a silly threat.

"I'm going to wiretap you and have you audited" is illegal, and if that was the threat, they should go to the FBI and the local district attorney.

"We are going to make things very uncomfortable for you" seems like an empty threat. Are legions of Obamabots going to boycott the hedge funds and law firms involved?
5.5.2009 10:25pm
EverydayLiberal (mail):
Jaw-boning only, huh. So the government trying to rush a sub-rosa re-organization through to benefit political contributors who gave up peanuts in concessions isn't a conflict of interest. Nope, nothing to see here.

So the continual deception by Obama that Fiat is actually putting anything tangible into this deal in his press-conference representations to the public isn't important enough to criticize him. Keep on truckin', people!

And then there's also the fact that the Federal Government just forgave Chrysler $8 billion dollars worth of loans and DIP financing; I guess that isn't worth kvetching over either.

And still yet there's the fact that TARP money, which was sold to the public as fulfilling the very specific purpose of buying "depressed" financial assets, is now being used in some sense as a political giveaway - well, hey, what's a couple of billion dollars between corrupt friends?

And finally there's fundamental question, that even if all of these shenanigans are legal, do these actions suggest that Obama has the needed financial acumen necessary to succeed at his stated goals, that he actually knows what the hell he's doing?

Do hedge fund managers strike any of you as the wild type, the type to just make up threats out of thin air, like those being reported in the media? I mean, aren't these people who used to be steady and stalwart Democratic contributors, who shook at the knees and capitulated whenever Eliot Spitzer even hinted at the threat of a subpoena? Nah, just more of your typical "wing-nuts" (what a juvenile term) who have nothing better to do with their capital than arouse the political ire of the Federal Executive branch.
5.5.2009 10:25pm
Jagermeister:
Don't hold your breath professor. When people have an emotional attachment to their views, they are quite capable of editing their memories and thought processes to support them. Such as asserting that the bondholders "were holding out for a government bailout" and other falsehoods. None are so blind as hypocrits asked to confront their hypocrisy. I wouldn't expect any less from one-half of this crowd.
5.5.2009 10:28pm
rosetta's stones:
State of Michigan says gimme summa dat Beltway-Chrysler lovin'.

Good article. Chrysler has 100,000 unsecured creditors. I'm surprised it isn't more. We might as well bring Ford and GM into this proceeding, because it's all the same people involved anyway. Save time and money.

Also, the judge says that the secured creditors' names are gonna be published, and what they paid for the debt, which is currently trading for 15 cents on the dollar. Obama offered them 29 cents, so he offered them double street value allegedly.
5.5.2009 10:29pm
cognitis:
Bernstein:

See Lindgren's blog above and explain how any corporation involved in accepting free $7 billion from taxpayers is "normal".
5.5.2009 10:31pm
Glen Alexander (mail):
Andy Bolen said:

I don't understand a lot of the discussion in this thread. My understanding is that Obama offered Chrystler's bondholders a worse deal than they would get from going to bankruptcy court. If that's right, they weren't just threatening bankruptcy to convince him to give them more money. They were saying they'd rather get fair treatment in bankruptcy courts than be robbed to pay the UAW...
You've got it exactly right. The secured creditors should get a much better deal in bankruptcy, probably though a liquidation of Chrysler.

Now, as for a lot of the discussion in this thread, most of it is crap.
5.5.2009 10:31pm
DiversityHire:
why they think it's appropriate for a president to interfere with the normal bankruptcy process

Puhleeze, he's just dealing with the ethical deficit he inherited from the previous administration. Once the crisis has passed, this administration will cut the amount of extra-legal government strong-arming in half!
5.5.2009 10:33pm
Jagermeister:
Commenting on the article referenced above:
Warning that the state workers compensation fund could be forced to assume the automaker's obligation of more than $140 million -- a move that would bankrupt the fund.
How exactly does a company manage to underfund its compensation fund? Isn't that supposed to be somthing that is kept current? I'd just like to know how this kind of thing happens.
5.5.2009 10:34pm
rosetta's stones:
A short while ago, you coulda bought GM, Ford and Chrysler for the total cap value of about $10-20B as I recall. We will spend FAR more than that to do what we're doing... and they may still be zombie companies.
5.5.2009 10:34pm
cognitis:
rosetta:

Evidently you'd prefer Obama to immediately extract the $7 billion in taxpayer money from Chrysler and precipitate hundreds of supplier bankruptcies, tens of thousands of layoffs, tens of thousands of evictions, and also totally wipe out the secured creditors.
5.5.2009 10:36pm
rosetta's stones:
That discussion topic the other blogger posted above this one is an oldie but a goodie. The historical capital destruction in the automotive industry will have the destructors burning in Hades for all eternity, if you believe the old testament. It's worse than the steel industry ever did, and that's saying something.
5.5.2009 10:38pm
EverydayLiberal (mail):
Cognitis,

You know, you're expressing the exact same sort of considerations those egg-headed libertarians were suggesting needed to be made before deciding to extend federal loans to any private entity in the first place!

Those old-fashioned fogeys, perpetually standing in the way of hope and change and PROGRESS.
5.5.2009 10:41pm
rosetta's stones:

Evidently you'd prefer Obama to immediately extract the $7 billion in taxpayer money from Chrysler and precipitate hundreds of supplier bankruptcies, tens of thousands of layoffs, tens of thousands of evictions, and also totally wipe out the secured creditors.


There will be hundreds of supplier bankruptcies anyways, and tens of thousands of layoffs, evictions aplenty, and hindered secured creditors.

40% drops in sales tend to do all that.

The only difference between you and I is that you want to indebt children yet unborn, to benefit existing Chrysler UAW employees, and the politicians backstopping their greed. For shame.

Chuck that contract, and we can talk.
5.5.2009 10:42pm
Volokh Groupie:
@cognitious

no, they were a secured creditor and have guarantees under bankruptcy law

while they did make bad bets, those bad bets were about politics, namely how the government would try to use political influence and possibly threats to undermine the typical liquidation rules under bankruptcy and favor groups they chose

@giovanni

we'd have to know the specifics of the 'threats' before we can say anything about legality

@RPT

Please, the fact that Lauria has backed away from the comments after affirming them supposedly proves something? Considering the tone of the administration on AIG and against hedge funds, its very naive to assume that Lauria just decided to stop lying about the administration's virtuous practices. And anonymous sources seem to have varying mileage to different people depending on the issue and who they tend to hurt. Most of the intelligence leaks we've seen on torture, etc are from anonymous sources adn they're a staple of the reporting done by the mainstream media so they can't just be immediately panned. If what you're saying is that they're only anonymous sources and there should be a more thorough investigation by the media then I'd absolutely agree, but from the tenor of your comment it seems more like a dismissal of the new report as part of apologism

@several poster

Where is this mythical good dental+vision plan for $500 dollars yearly? I don't know anything about the exact nature of concessions UAW made but that number seems about 100% too low even just for one person, and I imagine most workers covered by the UAW are supporting others.
5.5.2009 10:43pm
Cornellian (mail):
The more disturbing precedent is the government arbitrarily breaking contracts in this case. Government pressure on private companies to act in a way they like is a pretty long standing practice.


Breaking contracts is pretty much the whole point of bankruptcy law.
5.5.2009 10:48pm
Maria S (mail):
5.5.2009 10:49pm
Volokh Groupie:
@cognitis

You're right. At this point extracting the 7 billion probably wouldn't be prudent. Neither will taking similar steps in future situations with distressed companies that would present similar situations. And its important to keep track of how TARP is doing. Remember the 'we could make money on this' lines? And before you get that visceral urge to respond along party lines remember that TARP was engineered by both parties and the way in which funds were approved carries the stamps of those from both parties.

@David

You only need to go to a little further in US History to see one of more prominent examples of government coercion of private entities in the name of the good of the nation

JFK and Steel prices
5.5.2009 10:50pm
Volokh Groupie:
@Cornellian

I'm guessing 'arbitrarily' is the key word in that comment.

@Maria S

Thanks for the link, now which VC contributor specializes in bankruptcy law?
5.5.2009 10:52pm