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The US Stole Chrysler
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VJ



Joined: 18 Oct 2004
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Location: Easside..

PostPosted: Wed May 13, 2009 10:04 am    Post subject: The US Stole Chrysler Reply with quote

This is a good read..

Quote:
US stole Chrysler: Are we in Russia?
Posted May 12 2009, 11:26 AM by MSN Editors
Rating: [Poor] [Poor] [Fair] [Fair] [Average] [Average] [Good] [Good] [Excellent] [Excellent]
Filed under: investing, Politics, Chrysler

By Vitaliy N. Katsenelson

On May 1, the United States took a drastic step toward becoming Russia. Not Russia at its best, not the motherland of Dostoyevsky, Tolstoy, Rachmaninoff…

Instead, Russia at its worst, the one that in 1917 took from the bourgeois and gave to the working class; the one that signed contracts with Western oil companies in the 1990s when oil prices were low and then -- in 2007 when oil prices skyrocketed -- blatantly and unilaterally “renegotiated” those contracts.

Wielding the public's empathy as a weapon, President Obama took Chrysler from its rightful owners: secured loan holders (a.k.a. TARP-tainted banks, “evil” hedge funds, faceless pension funds). And he gave it to struggling, sympathetic blue-collar workers -- Chrysler’s employees and the United Auto Workers union. Chrysler, simply, was stolen.

Fixed-income investors spend an enormous amount of time studying bond covenants, which spell out how assets are disbursed in the event of a bankruptcy. Secured senior lenders have dibs on the secured assets; unsecured, junior bondholders and loan holders follow (as a part of leveraged buyout, Chrysler had no unsecured outstanding bonds or loans); unions and employees are next in line; and equity investors get whatever is left, which in this case would be almost nothing.

The White House fish-fry
For 200 years, our country has had a well-functioning bankruptcy-court system that was designed to make sure that division of assets is equitable. Now that system is threatened.

The banks, the ones that received billions of federal funds, were forced to give up their legal ownership first. Were they told they would fail the recent stress tests (which they passed) if they didn't give up their rights? Or maybe their CEOs were told they’d be fired if they did not go along?

These days you don’t have to be a conspiracy theorist to entertain such thoughts. After all, then-Treasury Secretary Hank Paulson and Federal Reserve Chairman Benjamin Bernanke used the latter tactic to get Ken Lewis, CEO of Bank of America, to mislead his board and shareholders about the purchase of imploding Merrill Lynch. We may never know what happened, but I’ll promise you this -- the banks did not walk away from billions of dollars of desperately needed money of their own free will.

After the big fish were fried, Obama went after smaller loan holders -- he called these hedge funds and pension funds “speculators” -- who put up a fight. Those institutions were not tainted by TARP money, thus the president had to use populist rhetoric, saying that they “endanger Chrysler's future by refusing to sacrifice like everyone else.”

He turned public opinion against the loan holders, whose only fault was that they financed the dysfunctional automotive sector for too long and maintained fiduciary duty to their investors by attempting to collect what was legally due.

Obama is popular and hedge funds are not. Thus as the financial and political costs became too high, these smaller fish jumped into the frying pan with the banks. The fact that these pension funds and hedge funds invest money for regular folks like you and me is ignored. Average Joes aren't paying close enough attention to catch that little detail; and unlike the UAW, they did not bankroll Obama’s campaign.

Losing the empathy contest
The consequences of what took place May 1 are not immediately apparent, but there are consequences. The rule of law, the bedrock of our system, was chipped. Instead of company ownership being redistributed based on the the capital structure -- as the law requires -- the asset redistribution took place based on a very subjective criterion, empathy. Banks, hedge funds and pension plans don’t win empathy contests these days, especially when competing with down-and-out workers.

Obama’s actions will have a twofold impact:

*
First -- and this is certain -- they impaired auto companies’ ability to borrow from the fixed-income market for at least a generation, and that's regardless of whether they have secured collateral.

A fixed-income investor, when pricing a security, makes certain assumptions of recovery based on the collateral and its place in the capital structure in the event of bankruptcy. The better the collateral and the closer it is to the front of the capital structure, the less money they stand to lose, and thus the lower the interest rate they expect to receive. In the case of Chrysler, loan holders expected to recover around 70-80 cents on the dollar if the letter of law was followed. After the company was given away to UAW, however, that number dropped to 29 cents.

Would you buy an auto company’s bonds in your retirement account if you knew that this industry often flirts with death, the rule of law is suspended and empathetic workers take your money if/when things go wrong?

*
The second impact is more significant to the U.S. economy, but will depend on future government actions. If the empathetic distribution of wealth stops with the auto industry, investors may look at it as a one-off deal, specific to the dysfunctional industry. But if Obama repeats this even once outside of the auto industry -- and he’ll have plenty of chances as we are in a prolonged recession -- the political risk of the U.S. will increase. Lenders, be it bond or loan holders, will lower recovery assumptions for even very secured assets, and the risk premium and thus borrowing costs will rise for all companies.

Empathy is an honorable emotion. We feel bad for people losing jobs. But changing the rules, in this case the law, in the middle of the game would, in most civilized countries, be considered criminal, shortsighted and not good for the system. If you don’t trust the rules, you cannot play the game. I hope our president stops while he is behind.

Vitaliy N. Katsenelson, CFA, is director of research at Investment Management Associates in Denver, Colo., and he teaches a graduate investment class at the University of Colorado at Denver. He is the author of "Active Value Investing: Making Money in Range-Bound Markets" (Wiley 2007).


http://blogs.moneycentral.msn.com/topstocks/archive/2009/05/12/how-stealing-chrysler-threatens-our-markets.aspx
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jkfunkee___



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PostPosted: Wed May 13, 2009 3:08 pm    Post subject: Reply with quote

when obama publicly embraced chavez, all appearance of impropriety went out the window. USSA here we come.
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spunkie



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PostPosted: Thu May 14, 2009 9:15 am    Post subject: Reply with quote

There are a couple things this article fails to mention...

First, the bailouts all started while Bush was in office, so why is it only attacking Obama. Second, these companies are supposed to be entirely returned to the private sector as fast as possible.
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Jason G



Joined: 30 Jun 2004
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PostPosted: Thu May 14, 2009 9:58 am    Post subject: Reply with quote

jkfunkee___ wrote:
when obama publicly embraced chavez, all appearance of impropriety went out the window. USSA here we come.

Please explain what Chavez has to do with Chrysler.
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Thesouphead



Joined: 19 Mar 2003
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PostPosted: Thu May 14, 2009 10:07 am    Post subject: Reply with quote

Jason G wrote:
jkfunkee___ wrote:
when obama publicly embraced chavez, all appearance of impropriety went out the window. USSA here we come.

Please explain what Chavez has to do with Chrysler.




I'd also like to know how a hand shake or the like is an appearance of impropriety.


what would have been proper? A kick to the nutsack?
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VJ



Joined: 18 Oct 2004
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PostPosted: Thu May 14, 2009 10:37 am    Post subject: Reply with quote

Thesouphead wrote:


what would have been proper? A kick to the nutsack?


For many world leaders I would approve of that. Twisted Evil

I'm Indian, we never learned to play nice. Wink
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jkfunkee___



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PostPosted: Thu May 14, 2009 10:44 am    Post subject: Reply with quote

Jason G wrote:
jkfunkee___ wrote:
when obama publicly embraced chavez, all appearance of impropriety went out the window. USSA here we come.

Please explain what Chavez has to do with Chrysler.


how bout chavez nationalizing private biz, which is what obama is doing. they are on the same page, clearly.
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Jason G



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PostPosted: Thu May 14, 2009 11:46 am    Post subject: Reply with quote

That's sensationalist crap and you know it.

In two years, the government will not own any of Chrysler or be messing with Chrysler. By that time, the only involvement the government will have is waiting around for the loans to be paid back.
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Jason G



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PostPosted: Thu May 14, 2009 11:53 am    Post subject: Reply with quote

Also:

With Obama pushing (rightly or wrongly) for the unions to own more than 50% of Chrysler, isn't that the exact OPPOSITE of Socialism?
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jkfunkee___



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PostPosted: Thu May 14, 2009 11:57 am    Post subject: Reply with quote

Jason G wrote:
Also:

With Obama pushing (rightly or wrongly) for the unions to own more than 50% of Chrysler, isn't that the exact OPPOSITE of Socialism?


its communism
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jkfunkee___



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PostPosted: Thu May 14, 2009 11:59 am    Post subject: Reply with quote

Jason G wrote:
That's sensationalist crap and you know it.

In two years, the government will not own any of Chrysler or be messing with Chrysler. By that time, the only involvement the government will have is waiting around for the loans to be paid back.


how can you say that? with your liberal crystal ball?
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jkfunkee___



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PostPosted: Thu May 14, 2009 12:00 pm    Post subject: Reply with quote

Thesouphead wrote:

I'd also like to know how a hand shake or the like is an appearance of impropriety.


what would have been proper? A kick to the nutsack?

he is a stated sworn enemy of US...should have never been in the same room with him
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VJ



Joined: 18 Oct 2004
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PostPosted: Thu May 14, 2009 12:06 pm    Post subject: Reply with quote

On chavez : no need to be more than just courteous to him. Same with Ahmedinejad and Kim.

You creep towards a fascist society as the government allows private business to be owned by shareholders yet regulates them to the hilt.

However, the american people are so largely STUPID and vapid that anything that stops someone else "from having stuff I dont" is an easy method for gaining power over them. I disagree with the dismantling and monkeying of capitalism here, but it was done before, and will continue. That said, the people largely do want this. Its an envy issue from the lazy.

I don't really want to live amongst these people who are largely lazy, vapid, stupid, and need and want to be controlled.

And yes, I do feel this way and have this contempt with most people I run into out in public. Save your insults for someone else, you won't change my mind or make me feel bad.
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Jason G



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PostPosted: Thu May 14, 2009 12:29 pm    Post subject: Reply with quote

jkfunkee___ wrote:
Jason G wrote:
Also:

With Obama pushing (rightly or wrongly) for the unions to own more than 50% of Chrysler, isn't that the exact OPPOSITE of Socialism?


its communism

No it's not, and you have to know it's not. Nobody is that ignorant. This isn't the "worker's paradise" bullshit. The workers will own actual stock, to be traded at will. Did any worker under communism every get to own or trade stock?
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Jason G



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PostPosted: Thu May 14, 2009 12:30 pm    Post subject: Reply with quote

jkfunkee___ wrote:
he is a stated sworn enemy of US...should have never been in the same room with him

You guys on the right and your playground bullshit. "LALALALALALALALA I'M PRETENDINGYOU'RENOTHERE LALALALALALALALALALALALA"

Very effective foreign policy.
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