Gangster Government and the Chrysler Fix
The Obama administration runs roughshod over bankruptcy law and bullies investors.
Nevertheless, the administration's bullying tactics reverberated through the investment world. Cliff Asness, a managing partner at AQR Capital Management, wrote in a memo that "Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power."
On May 8, Obama's tactics got their desired result. After two more institutions, OppenheimerFunds and Stairway Capital, withdrew under political duress, the remaining debtholders dropped their opposition.
"Chrysler's non-TARP lenders concluded they just don't have the critical mass to withstand the enormous pressure and machinery of the U.S. government," lawyer Lauria said.
The Obama administration's scorched-earth tactics have won the UAW its prize, but at what cost?
"When the rules are changed in the middle of the game, the degree of risk changes, burning lenders who relied on the old rules," says bankruptcy expert Michael E. Levine at the NYU School of Law. "If this were a one-time game, you could just decide who you want to burn. The problem emerges when you ask suppliers of capital to step up for the next round."
The administration's drop-dead message to investors will complicate Chrysler's challenge to survive under new Italian and UAW ownership.
Henry Payne is a writer and editorial cartoonist for The Detroit News, and Richard Burr is associate editor of the editorial page for The News.