Chrysler’s bankruptcy, and what looks to be the impending bankruptcy of government-run General Motors, are getting ever more bizarre and outrageously expensive. Two pics will demonstrate.
First, there’s this from Reuters on Wednesday:
That’s more than likely at least $16 billion down the dumper taxpayers and future generations get to eat: $6 billion in secured debts assumed, minus their underlying asset value ($3 bil at most, I would estimate), plus “the bulk of” $15.4 billion in emergency “loans.”
The Reuters piece further notes that “The government is negotiating the terms on which it will assume GM’s secured debt and might make an …. offer to holders of the debt that is far superior to the one made to Chrysler LLC’s secured lenders.”
That’s precious. The New York Times portrayed Obama’s threatening hardball with Chrysler’s non-TARP secured first-lien creditors as a “lesson” for GM’s creditors — who appear to be on the verge of getting a far better deal. The “far superior” treatment of GM’s secured creditors, if it indeed comes to pass, shows that it’s the government that got schooled.
Speaking of schools, this will be good news for pension funds representing teachers and police in Indiana that have taken legal action objecting to the terms of the Chrysler bankruptcy that don’t give first-lien lenders their proper and legal due:
Richard Mourdock, Indiana’s treasurer, said in a statement (that) “The Indiana state funds suffered losses when the Obama administration overturned more than 100 years of established law by redefining ‘secured creditors’ to mean something less.”
They should be demanding at least what GM secured lenders are getting. The litigants are even moving to move the entire Chrysler bankruptcy matter out of bankruptcy court into federal district court “to deal with what they argue are constitutional issues.” It doesn’t seem likely that Chrysler will be emerging from bankruptcy on the Obama 60-day timeline. (Update, 11:30 pm.: The bankruptcy judge seems bound and determined to push the sale through before the Indiana litigants see if they can be heard in federal district. Update 2, 11:55 p.m.: But the left-for-dead Chrysler Financial and the terminated dealers are also lodging objections to the sale.)
Now imagine my surprise (no, not really; the fun never stops in the Obama-Geithner Industrial Complex) when I got this from CNNMoney.com in my e-mail yesterday evening:
Just another capital infusion down the drain, right? Well yes, but it’s more than that.
I think this infusion was necessary because of this story from two weeks ago:
Chase Terminates Chrysler Dealer Loans
One of our sources reports that Chase has just told Chrysler dealers that it will no longer loan them money to buy Chrysler products.
Chase has officially terminated the floorplanning of Chrysler vehicles. Given the freeze at CFC [Chrysler Finance], now nobody can buy cars. ….. the expected losses to the taxpayer are going to be through the roof.
“Floorplan” loans are made to dealers so they can stock cars on their lots and have them available for sale. GMAC became the lending arm for Chrysler when it filed for bankruptcy. The real message of the e-mail is that Chrysler was dead company if the government didn’t jump into the day-to-day floorplan lending business. How many other near-death experiences that only be avoided by pumping in more and more money await us (e.g. suppliers, utilities, contractors, etc.)?
If, as I expect, Chrysler’s sales continue to tank, and surviving dealers’ sales volumes even after the pruning go below their current levels, much of that $7.5 billion will be lost to write-offs.
The march towards the $100 billion in taxpayer losses predicted when President Bush sadly opened the floodgates after Congress wouldn’t continues.
All of this may yet have a happy ending for those who believe in free markets and, ultimately, human progress. Enough potential buyers to matter (and it doesn’t take that many) might recoil from all of this and refuse to buy GM and Chrysler vehicles, deciding that they would rather not be someday seen as willing accessories to creeping statism, or merely that they can’t trust government-run companies to make good products and back their promises. If that occurs, all of Dear Leader’s horses and all of his men won’t be able to put the companies back together again.
If the crack-up that becomes more likely with each passing day occurs, the one-word lesson for any other company or industry thinking about going for a government bailout will be there for all to see: Don’t.