April 30, 2009

Press Release From Chrysler’s Non-TARP Lenders: The Day the Rule of Contract Law Died?

Since it’s a press release, there’s no harm in posting this in full, especially since Barack Obama is using the appropriately named bully pulpit to demonize those who released it for merely representing the interests of those whose money they have invested.

And it needs to be (bolds are mine):

Statement From Non-Tarp Lenders To Chrysler

Last update: 10:47 a.m. EDT April 30, 2009

NEW YORK, Apr 30, 2009 (BUSINESS WIRE) — As of last night’s deadline, we were part of a group of approximately 20 relatively small organizations; we represent many of the country’s teachers unions, major pension and retirement plans and school endowments who have invested through us in senior secured loans to Chrysler. Combined, these loans total about $1 billion. None of us have taken a dime in TARP money.

As much as anyone, we want to see Chrysler emerge from its current situation as a viable American company, and we are committed to doing what we can to help. Indeed, we have made significant concessions toward this end – although we have been systematically precluded from engaging in direct discussions or negotiations with the government; instead, we have been forced to communicate through an obviously conflicted intermediary: a group of banks that have received billions of TARP funds.

What created this much-publicized impasse? Under long recognized legal and business principles, junior creditors are ordinarily not entitled to anything until senior secured creditors like our investors are repaid in full. Nevertheless, to facilitate Chrysler’s rehabilitation, we offered to take a 40% haircut even though some groups lower down in the legal priority chain in Chrysler debt were being given recoveries of up to 50% or more and being allowed to take out billions of dollars. In contrast, over at General Motors, senior secured lenders are being left unimpaired with 100% recoveries, while even GM’s unsecured bondholders are receiving a far better recovery than we are as Chrysler’s first lien secured lenders.

Our offer has been flatly rejected or ignored. The fact is, in this process and in its earnest effort to ensure the survival of Chrysler and the well being of the company’s employees, the government has risked overturning the rule of law and practices that have governed our world-leading bankruptcy code for decades.

We have a fiduciary responsibility to all those teachers, pensioners, retirees and others who have entrusted their money to us. We are legally bound to protect their interests. Much as we empathize with Chrysler’s other stakeholders, the capital is just not ours to contribute to their cause by accepting a deal that is outside the well established legal framework and cannot be rationalized as being commercially reasonable.

We are continuing to discuss our position with the United States Treasury. We have made a proposal which we earnestly believe is fair and would appropriately recognize our legal position.

As President Obama implied yesterday, it is likely that Chrysler will have to file Chapter 11 whether or not all lenders agree to any particular proposal. Chapter 11 is often used to help implement an agreed deal and dispose of unwanted legacy liabilities. We are hopeful and optimistic that we will reach a positive resolution of our issues so that all stakeholders will move forward together to implement Chrysler’s “quick trip” restructuring in an un-contested proceeding. Our Group will never initiate a bankruptcy filing on Chrysler – that is a decision for the Company and the Administration to make.

As we all appreciate, laws are the foundation of our economy and society. Despite recent travails, our country remains the economic envy of the world and the United States remains a vital engine of global growth. The rule of law made it that way. We urge that people remember this and not succumb to unproductive and unwarranted finger pointing.

The Committee of Chrysler Non-Tarp Lenders
SOURCE: The Committee of Chrysler Non-Tarp Lenders

Legally, if such things matter anymore, the bankruptcy filing takes the secured non-TARP lenders back up to presumptive 100% recovery of whatever is available, with senior priority. If I were with the non-TARP lenders, I’d say “bring it on” in a normal bankruptcy proceeding. In fact, they would appear to have a fiduciary duty, if such things matter any more, to do just that.

The government can’t force them down (yet), the UAW can’t force them down, and the TARP-handicapped banks can’t force them down. Only a bankruptcy judge can. Will he or she follow his or her oath to uphold the Constitution and the rule of law, or give in to a budding authoritarian enterprise?

April 30, 2009, may indeed go down as the day the Rule of Contract Law died.


UPDATE: A Jessica Pressler at nymag.com calls the above statement in which the lenders assert their rights and invoke the rule of law “push(ing) the Obama-is-a-Communist button.” Bleep you, Jessica. Bleeeeeeep you.

UPDATE 2: Obama’s demonization includes a heavy dose of cowardice –

With a flash of anger Thursday morning, President Barack Obama offered a blistering critique of “a small group of speculators” who refused to go along with the government’s plan to keep Chrysler out of bankruptcy.

But in a background briefing with reporters at the White House later, senior administration officials would not say exactly who the speculators are that have angered the president.

“We know who some of them are,” said an administration official. But asked if he would name them, the official said, “no.”

The White House is somewhat hamstrung because it is not dealing with the lenders directly. Instead, Obama’s auto task force is negotiating with J.P. Morgan, which is serving as the lenders’ agent. J.P. Morgan represented lenders that agreed to take the deal as well as those that rejected it.

Even as lawmakers on Capitol Hill were blaming at least three funds – Oppenheimer Funds, Perella Weinberg Partners and Stairway Capital – White House officials are declining to name names. Still, the administration official insisted, “we’re not trying to hide them or protect them.”

No, they want to ward off a backlash from those noted in the first paragraph of the release whose investments the funds have been trying to salvage.

Obama was invoking the ghost of FDR, who frequently demonized stock and other speculators during the Great Depression he singlehandedly lengthened to over a decade, and directing his wrath at lenders. These aren’t “speculators”; they are entities that rent out capital in return for (hopefully) being repaid.

This actually explains the mortgage-lending mess. Our President apparently believes that anyone who lends money, expects it back, and negotiates aggressively to protect their interests when they’re not getting paid is a “speculator” — and “speculators” can apparently be screwed without remorse or regret.

Someone will probably try to play the “coward” card with the following, so let’s head it off at the pass:

The group – which refuses to list its members – claims to represent about $1 billion in loans to Chrysler, and says its members have not taken any government TARP bailout money.

What, they’re supposed to volunteer to have Obama’s hired goons known as ACORN and others harass their execs, their families, and their neighbors? I don’t think so.

UPDATE 3: Well, I now see that Matthew Goldstein at Biz Weak played the “coward” card earlier today. See above, Matt.



  1. So if the non TARP lenders post huge losses due to giving in to demands to give up 70% of their investment in Chrysler, TARP money will be offered to them as well. Then the government turns around and says, now that you have accepted TARP money you are now under our control…

    It’s a pretty sleazy game Obama is playing. The TARP lenders are being manipulated to lose their investment and so their losses increase which means they aren’t allowed to pay back the TARP money, thus they stay under the control of the government.

    The illegality of these moves is mounting.

    Let’s recount:

    CRA mandates unsound mortgages based on social engineering policy, act supercharged under Clinton.

    Housing bubble results and peaks in 2005. Prices are too expensive, limiting number of buyers into the market, market levels off and starts to decline.

    FASB in 2007 changes the accounting rules to mark to market which really puts the banks into a bind forcing them to increase reserves and thus make less loans, housing market accelerates it’s decline.

    In 2008, the bottom completely drops out of the real estate market and gasoline goes to $4/gallon. Those at the lower end of the economic scale who barely could afford those CRA mandated loans start defaulting because they can’t sell because banks aren’t lending for mortgages for buyers because they have to maintain their reserves because of the FASB mark to market rule.

    FDIC starts shotgun marriages of banks that have insufficient reserves due to mark to market rules, folding one bank into another, all of whom are screwed by the same rules.

    Congress rushes to pass legislation to head off financial disaster to save campaign contributors at big financial institutions. TARP was supposed to be money used to buy bad loans from the banks, It wasn’t used that way at all – illegal. Government gets effective control of few remaining major banks including brokerage firms who become banks.

    The economy tanks and car companies are ready to declare chapter 11, Congress rushes to save unions and campaign contributors, loans them billions of dollars. Government gets effective control of 2 major car companies.

    Economy doesn’t improve, continues to tank, Dow plunges to 8000, 401k and mutual funds take a bath. Now Obama is mad because these guys refuse to take any further losses and thus halts his plan to grab control of the mutual funds.

    Comment by dscott — May 1, 2009 @ 9:25 am

  2. Found a nice article on the bankruptcy details:


    30 days my eye…more like a year or two.

    Comment by dscott — May 1, 2009 @ 9:53 am

  3. The word “unconstitutional” is fast becoming obsolete. Obama does seem to be irritated that he can’t behave as a dictator; the rule of law stands in his way. It is frightening that so many of his admirers seem willing to handover their freedom so casually. The rest of us are called extremists and enemies of the state. Will Obama soon issue an executive order to “free” the illegal aliens? He is telling us pretty much exactly what he intends to do, and citizens sit by and watche as freedom vaporizes before our eyes. Firearm sales are up and my guess is that we’ll see a rapid decay in morality as lawlessness and hopelessness converge.

    Comment by Michael — May 1, 2009 @ 10:00 am

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