Yesterday, Chrysler became the first major American automaker to file for bankruptcy, after eleventh-hour negotiations between the Treasury Department and some of Chrysler’s creditors fell apart. President Barack Obama promptly criticized this “small group of speculators” for forcing the automaker into bankruptcy. “A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout,” Obama said.
As Bloomberg reported, “Obama’s team had first offered secured lenders $2 billion for their $6.9 billion in loans, and then raised the offer to $2.25 billion. In a game of chicken, the holdouts asked for $2.5 billion, and Obama’s patience ran out.” Steven Pearlstein put these numbers into perspective:
What you need to know about these vultures is that their idea of fairness is throwing 100,000 people out of work and denying retirees their pensions and their health benefits just so they can liquidate the company and maybe squeeze an extra 15 cents on the dollar from their Chrysler debt. Of course, to get that extra 15 cents, the hedge funds would probably have to fork over a penny or two to pay the army of $700-an-hour lawyers needed to spend two years working it through the bankruptcy process.
The greed factor here is really appalling, but bad intentions can sometimes produce a good result. Chrysler has been headed toward a pre-packaged bankruptcy for a while, and repeated infusions of cash was simply punting the inevitable down the road. And handing these companies billions while they shed jobs was, as Robert Reich wrote, the equivalent of “‘saving’ Vietnam by bombing it to smithereens.”
Now it will be up the bankruptcy court to figure out how best to handle the various Chrysler creditors. Felix Salmon conveys the appropriate sentiments:
As for the smaller creditors who stood in the way of a deal which would have avoided bankruptcy, I have very little time for their plaints. They’re offering nothing which will help Chrysler in the future: they just want to get the maximum return on selling the bonds they picked up for pennies on the dollar. I hope and trust that the bankruptcy judge will give them short shrift.