President Obama was clearly miffed yesterday. His plan for restructuring Chrysler without a bankruptcy had been blocked by the refusal of some of the firm’s creditors to sign on to the restructuring deal hand-crafted by the White House. He decried their decision, calling them a “small group of speculators.” Later, White House spokesman Robert Gibbs elaborated, saying that the creditors should have given ground “for the greater good.”
Just in case the message was missed, an unnamed Administration official added: “We know who some of them are.”
Despite the fact that Chrysler’s soon-to-be partner Fiat is based in Turin, White House’s attitude sounded more like Palermo. And the recalcitrant creditors had turned down a deal they couldn’t refuse.
Specifically, the creditors refused to settle the debt owed to them by Chrysler for 29 cents on the dollar. The offer was far below what the UAW would get under Obama’s plan, and the creditors thought they could do better, electing to bring the matter up before a bankruptcy judge. Maybe they are right, maybe wrong, but they seem to have a decent argument. They certainly do have a fiduciary duty to represent the interests of those who entrusted them with their savings, not a Greater Good defined by the government.
True, the holdouts represent only a small minority of Chrysler’s creditors. But among those who did agree to the terms, the four biggest – Citi, JPMorgan Chase, Morgan Stanley and Goldman Sachs – are banks which themselves took massive bailout money from the feds, and whose future is largely in the Administration’s hands. Not only does the government own a substantial amount of their stock, but government “stress tests” of their stability are due to come out next week. It’s hardly likely they would want to raise a fuss with the White House over a few bonds right now.
The recalcitrant creditors are well-aware of pressure on TARPed firms, and even label themselves “The Committee of Chrysler Non-Tarp Lenders.” Not all the members are publicly known, but – despite efforts to paint them as rich speculators, they include broad-based investment firms as OppenheimerFunds. Also on the list is a firm called Stairway Capital Management, which provides funds for distressed enterprises, hardly the sort of activity policymakers should be discouraging just now.
Until last night, a third major firm, Perella Weinberg Partners, was also on the “no” list. But soon after the government’s attacks yesterday, they decided to settle. Perella Weinberg, by the way, recently won a major consulting contract with the FDIC.
No doubt just a coincidence. But this is why we have courts, and not just politicians, to decide these things.