Thursday, May 14, 2009

Don Obama's Message to GM Lenders   [Henry Payne]

The Obama administration’s brass-knuckled coercion of bondholders to surrender their first-lien bankruptcy rights so that a politically favored UAW could take a majority stake in Chrysler amounts to a forced taking of assets. And it is important to note these mob tactics were carried out not by rogue underlings but with the public endorsement of the President of the United States himself.

It was President Obams (as I noted here last week) who personally stepped in front of television cameras on April 30 to smear Chrysler investment funds as “speculators.”

"I don't stand with them. I stand with Chrysler's management and employees," Obama declared.

Obama’s high profile got the intended result of cowing bondholders into submission. After all, the president is the don of Washington politics — and one with the IRS and the SEC as his button men.

But Obama was sending a message to GM investors as well. Chrysler’s Chapter 11 filing was just a warm-up act. GM’s bondholders control $27 billion in company debt, dwarfing the $20 billion owed the UAW’s health care (so-called VEBA) fund, or the $16 billion loans by the U.S. government.

Yet, the administration — through its ventriloquist dummy, GM — has told these investors they’ll get just 10 percent of the company while the UAW gets 39 percent and Washington 50 percent. Sound familiar?

But GM’s “speculators’ are different than Chrysler’s easily demonized Wall Street “hedge funds.” They are names like Fidelity Management, Franklin Advisers Inc., and Pacific Investment, which manage the 401ks of millions of Main Street Americans. They are also the Polish Beneficial Association, the Knights of Columbus, and the Grand Lodge Sons of Hermann in Texas. Speculators?  

The White House offer “must look to bondholders like something Tony Soprano dreamed up,” financial analyst Shelly Lombard has written. Sound familiar?

How far are these firms willing to go to secure a fair deal for their investors? They must even now be calculating the political costs after watching Don Obama himself mixing the concrete galoshes when Chrysler’s lenders were pushed off the end of the pier.

05/14 12:00 PMShare