Bond. Lame Bond.
Chrysler's bondholders are whining about Obama's deal. Don't listen to them.
By Daniel Gross
Posted Monday, May 4, 2009, at 6:07 PM ET
Since last week's announcement of the deal to put Chrysler into bankruptcy and give a chunk of equity to the government and a majority of it to the United Auto Workers, some investors have cried bloody murder. Chrysler's secured bank debt was held by large banks that have been the recipients of federal bailout funds and by smaller investment firms, many of which bought the debt at a discount. It was these smaller firms that President Obama lacerated last week, blaming them for greediness that prevented a better deal. In a normal Chapter 11 filing, their claims on a failed company's assets would be paramount, above the claims of unsecured creditors such as, say, the union health care fund or employee pension fund. But the smaller investment firms say the government tried to strong-arm them into accepting a debt-for-stock swap that would have shortchanged them.
I'm empathetic but not sympathetic to these smaller investment firms. The Chrysler deal, midwifed and financed by the government, does upend the traditional order and sets a precedent that, were it to be repeated, would be dangerous. In ordinary times and circumstances, there's no justification for the government to intervene in a way that privileges unsecured lenders over secured lenders. But the times and circumstances surrounding Chrysler aren't ordinary.
Why give a union pension and health care fund—or any unsecured creditor—better terms than secured bondholders? There are a few reasons
http://www.slate.com/id/2217653/?from=rss*ahem* you might your facts straight next time.
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