Hopenchange™

[Haggis@wk]

Gov’t pressuring Bank of America board change.

“A report Friday said federal officials are pressuring Bank of America Corp. to revamp its board and bring in directors with more banking experience. The story in The Wall Street Journal called the regulators’ move ‘unusual’ as the government does not own a stake in the company, and most of the bank’s problems are the result of its purchase of Merrill Lynch & Co., which was advised by regulators.”

[Haggis@wk]

From WIBC in Indianapolis:

Indiana will no longer invest in bonds issued by banks and automakers who receive federal bailout money.

Bondholders are supposed to be at the head of the line for repayment if a company goes bankrupt. But State Treasurer Richard Mourdock says the government rewrote the rulebook for the Chrysler bankruptcy, leaving investors with 29 cents on the dollar. Mourdock says that cost state investment funds $5.6 million.

I expect we will see more of this, I got a broadcast message from one of my Mutual Funds assuring me that none of their funds were invested in Chrysler bonds. When you violate the rule of law one of the unintended consequences is you frighten potential investors.

BTW, I started this thread to highlight actions by the Obama Administration that are illegal and/or unconstitutional and the fallout that results from those illegal action. That these pernicious actions are met with a shrug on the Left is evidence that all their screaming about loss of rights during the past 8 years were pure political stage and nothing else.

[analog]

i didn't understand the significance of that until somebody pointed me here.

http://market-ticker.denninger.net/archives/1011-The-Day-The-Capital-Structure-Died.html

Let's take a hypothetical company "The Widget Co" (TWC) that has $100 billion in outstanding debt. $20 billion of it is senior unsubordinated (the top class for this particular firm) and then there are an assortment of subordinated issues under it containing the other $80 billion.

If TWC goes bankrupt (liabilities > assets), whether Chapter 11 or 7, the senior unsubordinated debt class should get all of their money back so long as the liabilites do not exceed assets by more than $80 billion dollars!

Since a debtholder can force a bankruptcy filing when there is a missed payment or other breach it is extremely unlikely that the firm will get 80 billion underwater before someone notices and nails them with an involuntary bankruptcy filing.

As a direct consequence of this senior debt is considered extraordinarily safe and due to that it is very cheap in terms of interest payments over the reference rate (e.g. 10y swaps if it's a 10 year non-callable bond, etc)

Well, now it isn't so safe any more! In fact there may be no differentiation between debt classes at all, and if the Treasury gets involved, you may find yourself staring at a 90% loss with absolutely nothing you can do about it.

If preferred stock and bonds become no more safe than common stock, who'll buy them?

seems that's likely to make things worse?
Looks like Indiana thinks so.

My hillbilly diversification is looking better every day.



a.

[Haggis@wk]

GOING TO COURT:

“Three of Chrysler’s secured creditors are mounting a fresh attempt to thwart the carmaker’s Chapter 11 reorganisation on the grounds that it violates their legal rights and the US government’s authority under the Troubled asset relief programme.”

Amusingly, they’re pension trusts for unionized state employees. Isn't is curious that any news that might be critical of Obama can only be found in foreign newspapers?

Related: Chrysler’s chickens, coming home to roost.

“Pacific Investment Management Co., Barclays Capital and Fridson Investment Advisors have joined Schultze Asset Management LLC in saying lenders may be unwilling to back unionized companies with underfunded pension and medical obligations, such as airlines and auto-industry suppliers, because Chrysler’s creditors failed to block Obama’s move. The reluctance may put additional pressure on borrowers seeking capital in the worst financial crisis since the Great Depression.”

[Haggis@wk]

Pension “speculators:”

Remember how President Obama blamed Chrysler’s bankruptcy filing last month on “a small group of speculators” who turned down Treasury’s $2 billion final offer for their $6.9 billion in debt? Well, it turns out that hedge funds and other short sellers weren’t the only secured creditors who got a raw deal from Uncle Sam.

Indiana Treasurer Richard Mourdock revealed this week that his state’s police and teacher pension funds have lost millions of dollars in the Chrysler “restructuring.” Indiana’s State Police Fund and Major Moves Construction Fund, which finances roads and bridges, together lost more than $1 million. And the Teacher’s Retirement Fund “suffered, at a minimum, a loss of $4.6 million due to the action of the Federal government,” reports Mr. Mourdock.

Far from being speculators, these funds represent retired public employees, including cops and teachers. The funds paid a premium to buy “secured” status, only to discover that they were politically outranked by the United Auto Workers in the White House hierarchy.

Obviously, they paid their premium to the wrong folks.

[piqaboo]

I am disturbed.
In one sentence Obama talks about rule of law, and then in another he overrides longstanding bankruptcy law to no apparent benefit to the US overall.

[Haggis@wk]

General Motors announced its bondholders had rejected a plan to give almost 40% of a restructured GM to the UAW while they got only 10% for their investment. GM needed 90% of its bondholders to agree to the government-imposed deal for it to win approval and keep the company out of bankruptcy. Instead, GM says they got “substantially less” cooperation from their creditors:

General Motors (GM) said Wednesday that not enough bondholders agreed to an exchange offer, which expired at midnight Tuesday, to make the deal go through. GM’s board of directors will meet shortly to discuss the next step.

The automaker was attempting to persuade bondholders to trade in $27.2 billion in unsecured public debt notes in exchange for a 10% stake in the restructured automaker. GM needed 90% of bondholders to agree to the plan. On Wednesday, the automaker said the amount of notes turned in were “substantially less than the amount required by GM to satisfy the debt reduction requirement” set forth by the U.S. Treasury.

“Since these conditions, as well as certain other conditions, have not been satisfied, the exchange offer will not be consummated,” the company said in a statement released Wednesday morning.

GM needed to get the deal done in order to qualify for more loans from the U.S. government. Now, it is facing filing for bankruptcy any time before June 1, its deadline set by the government to get certain restructuring moves completed.

The creditors want more compensation for a bigger investment, and will rely on the bankruptcy process to secure their rights.

This sets the stage for an important showdown between the Rule of Law and the Banana Republic tactics of the Obama Administration. As the Obama administration demonstrated during the Chrysler liquidation, they’re not terribly concerned about staying within the lines of bankruptcy law, especially when they can pressure creditors to cough up assets to the unions. How long will it be before these bondholders get seminars from Steve Rattner and the auto industry task force on the “madman theory of the Presidency” and its implications for heartless “speculators” such as themselves?

[piqaboo]

How long ago did the Obama's sell any automaker stocks they might have owned?

[Haggis@wk]

WASHINGTON EXAMINER: Furor grows over partisan car dealer closings.

Evidence appears to be mounting that the Obama administration has systematically targeted for closing Chrysler dealers who contributed to Repubicans. What started earlier this week as mainly a rumbling on the Right side of the Blogosphere has gathered some steam today with revelations that among the dealers being shut down are a GOP congressman and closing of competitors to a dealership chain partly owned by former Clinton White House chief of staff Mack McLarty.

The basic issue raised here is this: How do we account for the fact millions of dollars were contributed to GOP candidates by Chrysler who are being closed by the government, but only one has been found so far that is being closed that contributed to the Obama campaign in 2008?

Hopenchange™

[piqaboo]

Hmmm -check the control group.
Auto Dealers as a group trend greatly republican:
http://www.fivethirtyeight.com/2009/05/news-flash-car-dealers-are-republicans.html

[jamiebk]

WASHINGTON EXAMINER: Furor grows over partisan car dealer closings.

Evidence appears to be mounting that the Obama administration has systematically targeted for closing Chrysler dealers who contributed to Repubicans. What started earlier this week as mainly a rumbling on the Right side of the Blogosphere has gathered some steam today with revelations that among the dealers being shut down are a GOP congressman and closing of competitors to a dealership chain partly owned by former Clinton White House chief of staff Mack McLarty.

The basic issue raised here is this: How do we account for the fact millions of dollars were contributed to GOP candidates by Chrysler who are being closed by the government, but only one has been found so far that is being closed that contributed to the Obama campaign in 2008?

Hopenchange™

Non Sequitur.....................

[Selma in Sandy Eggo]

I asked, and didnt notice a reply - short of an impeachement, is there such a thing as a presidential recall election?

I don't think so.

Is the man totally drunk on the high of being president?

He has a personal agenda and I suppose it might be explained in his various books. I haven't read them. And I don't particularly like the revival of traditional Chicago machine politics.

[piqaboo]

Still, car dealer types self identify as republican ~ 9x more than as democrat.

so, most of the closures will be republican owned.

[Haggis@wk]

Still, car dealer types self identify as republican ~ 9x more than as democrat.

so, most of the closures will be republican owned.

There's probably not much to this, but to pretend that a government owned company won't make decisions based on political expediency is just naive. We already have seen Obama fire a CEO unpopular with the unions. And tell me once again what business the president has in overruling Bankrupcy laws and threatening bondholders?

It's an easy prediction, just google "British Leyland." Britain almost went broke propping up British Leyland and the cars were crap. Also look up "I'm all right, Jack"" in connections with the unions attitudes towards the British ratepayers.

This company will never be profitable until the government gets out of the car business; and probably, not even then, no one wants to buy a government designed car.

[Haggis@wk]

THE COUNTRY’S IN THE VERY BEST OF HANDS: Court Docs Reveal Govt. Likely Forced Chrysler Deal With Minimal Knowledge of Fiat. Plus, government lawyers call Tom Lauria a “terrorist.”

[analog]

You recall in the early seventies Russia pleaded with Nixon for a US company to come show them how to build trucks. They specifically asked for Ford.
Well, Nixon turned them down so they got Fiat to come instead. I will always believe that is what caused their downfall fifteen years later.

In my circles Fiat is an acronym for "Fix It Again, Tony". And they're buying Chrysler?
This is what happens when you get ivy league eggheads running things.


Does anybody recall, around 1994, Michael Moore challenging the Big 3 automaker CEO's to change his oil?
Ford's then CEO Alex Trotman donned coveralls and did it.

We need leaders who can change a sparkplug.

The chances are that should an advanced country come into the keeping of the intellectual it would begin to show many of the hectic traits which seem to us characteristic of a backward country in the throes of awakening. eric hoffer

a.

[Haggis@wk]

In my circles Fiat is an acronym for "Fix It Again, Tony". And they're buying Chrysler?

Chrysler can learn from its new partner: Chrysler scored second to last in customer satisfaction in this 2009 survey of "vehicle ownership satisfaction" in the U.K. Only one company did worse!

... That company? FIAT. ...

[dai bread]

Whenever people talk of European cars, generally in glowing terms, I think of a review I read of a BMW a few years ago.

The review started by asking "Are European cars now as reliable as Japanese ones?"

At the time I had a Japanese car (I still do), and was sceptical about up-market European cars as I'd ridden in some and didn't think they were any better than my far cheaper car. This review confirmed my doubts.

BTW, a dealer in what is now my local city picked up a shipment of 88 Cadillacs for what must have been a song. They're on sale now for about $40 000 less than list price. They were destined for Australia, but GM's woes saw them auctioned off and the NZ dealer got them.

[BigJon@Work]

Does anyone remember when GM paid FIAT $5 billion to go away? It wasn't that many years ago. GM had an option to buy a portion of FIAT, but thought the company had dim prospects. So they paid the option's $5-billion good-bye clause instead. So FIAT is using GM money to buy Chrysler.

GM has so consistenly made the major decisions wrong over the years, you can bet on it.

[Haggis@wk]

So FIAT is using GM money to buy Chrysler.

Nope, FIAT is not putting up a penny for this deal. Obama's basically giving Chrysler away for free plus if FIAT meets goals set by the Obama Administration it will receive another 15% of the stock the government holds. the UAW now owns 55% of the combined company. I can reliable predict that 1. FIAT will eventually pull out of this deal within a few years and 2. you and I will be propping up Chrysler for the remainder of our lives.