Page 2 of 2 A break from the bankrupt norm
By Julian Delasantellis
But for blue-state senators Michael Bennet of Colorado, Thomas Carper of
Delaware and Arlen Specter of Pennsylvania, (along with 92-year-old Robert
Byrd, who has spread so much government largesse in his small state that he
couldn't lose an election even if he came out in favor of gay marriage and
proved it by marrying Osama bin Laden), the rationalizations come harder. Other
blue-state Democratic senators can also be counted on to reliably vote the
interests of big capital, most notably, the six senators of Connecticut, New
York and New Jersey, dependant as if on a respirator to the money oxygen
flowing out of Wall Street.
The truth is that the entire two-party political architecture in America is, in
reality, nothing but a magician's sleight of hand, a diversion that distracts
America's nanosecond attention span
away from what's really happening. Is America polarized? Of course it is. It's
divided between Chablis imbibers and Bud drinkers, NASCAR fans and opera
aficionados, gay marriage opponents and antique collectors.
But in the nation's capital, on the crucial issue as to where and to whom the
nation's wealth will be directed, there is a degree of unity that would make
the old Soviet central committee blush. In the senate, there may now be 59
Democrats and 40 Republicans, but the real party count is in between 70-75
senators owned by big capital, the rest floundering about impotently. Truly,
Thomas Jefferson's glorious congress of the people has degenerated to being not
much more than satirist P J O'Rourke's Parliament of Whores.
But, in this hour of the people's greatest needs, with gangsters and solons
roaming and plundering the countryside at will because the people are not able
to tell the difference, is a hero and his mighty sword arising to do battle for
the people?
And is his name Barack Obama?
In the past year. America has lost most of both its finance and automobile
industry, but it's the loss of the car business that has much more touched
America's soul. After all, people get a lot more emotional over their first car
than over the first bank check they wrote. From amorous back-seat, high school
assignations to new parents bringing baby back from the hospital to their first
new home, cars are central to many of the most commonly experienced American
life-cycle events. So the prospect of the near-term disappearance of many of
the storied auto brand nameplates of memory is proving particularly trying.
That's what many, or most people, are feeling - but not all. There's always
that remarkably misanthropic minority who, when they see human tragedy or
tears, wonder how they can make some money off it.
Eighteen jockeys came back to the paddock with a story of why they lost last
Saturday's Kentucky Derby, but not one of them can claim that they lost because
someone put a 1,000 kg weight on their back. In seeking to explain what felled
Chrysler, the company can legitimately claim that it was burdened by a huge
millstone placed around its neck, the $7.4 billion private equity buyout of the
company by Cerberus Capital Management in the spring of 2007.
If you talk about the gloriously daft irrationalities of the leverage boom that
ended in 2007, many people might think you are referring to the ranch houses
built in the 1950s in the desert outside San Diego that once sold for upwards
of $800,000. But perhaps the greater insanity was the belief that private
investors could buy up all a company's shares on the stock market, take it
private, fiddle around under the hood with it for a few months, and then bring
it back to the stock market worth 50-100% more than when it was taken private,
even though the new company was still being crushed by the debt taken on to buy
the shares to take it private.
In May, 2007, it was Chrysler's turn to get the debt leeches applied by the
quacks of private equity. (See
The Highs and Lows of Buyouts, Asia Times Online, February 22, 2007.)
Of course, for the company to be saddled with this much extra debt just as the
leverage boom was ending and the US economy falling into recession was like a
marathon runner being forced to pull a Chrysler gas guzzling truck uphill while
the other runners continued along unburdened. Sales faltered, not the least bit
helped by Chrysler's reputation as the quality laggard among the North American
big three automakers. Then the gas crisis of summer 2008 hit hard, not
particularly a propitious development for a company whose cars, and especially
SUVs and light trucks, suckled gas like a baby at a mother's breast, and about
as frequently as well.
When gas prices came down, automobile financing disappeared; there would be no
respite from the bills for Chrysler's previous errors that the company was now
being called to account for.
In the final week of the George W Bush administration, Treasury of secretary
Henry Paulson, almost as if he and Bush had set upon themselves a goal to leave
office as the least popular administration in US, if not world, history,
extended a $1.5 billion loan to Chrysler Financial, the company's auto purchase
financing arm, as well as a $5 billion loan to GM's similarly tasked General
Motors Acceptance Company, from out of the hated TARP. Thus, in this, as in so
many other bleak national issues, Bush punted to Obama. (See
US auto rescue - a society health check, Asia Times Online, December
11, 2008.)
Many thought that Obama's union support and connections would set the country
on a course of near-permanent government financial support of the US auto
industry, but that was not to be the case. Early on, Obama announced that there
would be no more government funds for GM and Chrysler; Ford, which had not
received support in the winter round, would not be getting any government help
even if it did ask. The only way the companies could survive would be through
massive cost cutting that would bring their cost structures more in line with
their revenues. The Obama administration was willing to shepherd the companies
through the cost cutting process, nothing more.
Unionized auto workers, who had already agreed to give back billions of dollars
in previously negotiated pay and benefits, would be asked to give more. Also,
and much in contrast to the apparent philosophy of Paulson and his successor,
Timothy Geithner, on bank rescues, bondholders would also be asked to give back
some, to accept losses, on their debt investments as well. This seemed
particularly appropriate for Chrysler, since the debt taken on to fund the
Cerberus buyout was a major reason why the company was in such dire straits to
begin with.
The idea seemed to be to have Chrysler, while avoiding the long and
unpredictable circumstances of a formal bankruptcy court filing, voluntarily
cut its cost structure so radically that the company would become attractive to
a foreign partner, in Chrysler's case Fiat of Italy, for some manner of full or
partial takeover.
The unions quickly caved in, agreeing to huge cuts in previously agreed health
and pension benefits for the fig leaf of a large equity share in an essentially
bankrupt company. Many of the largest holder's of Chrysler's debt, among these
reported to be J P Morgan Chase & Co, Citigroup Inc, Goldman Sachs Group
Inc and Morgan Stanley, also agreed to take big hits to the value of their debt
holdings; a story circling the right wing blogs has the White House actually
threatening to besmirch the reputation of the private equity firm Perella
Weinberg if it did not agree to cut the value of its Chrysler debt. Oh, how
beastly!
But not everyone played ball, not everyone was willing to sacrifice their debt
positions in the interests of what their supporters in the right wing
blogosphere called "socialism", what Obama called his efforts to "stand with
Chrysler's employees and their families and communities".
Obama said that he stood "with Chrysler's management, its dealers, and its
suppliers. I stand with the millions of Americans who own and want to buy
Chrysler cars. I don't stand with those who held out when everybody else is
making sacrifices." Among the haughty holdouts were reportedly vulture hedge
funds operated by Stairway Capital, Oppenheimer Funds, Group G Capital, and
many other funds that pleaded to the media to remain anonymous - the great
courage their principals display on the hellish battlegrounds of the paintball
course now nowhere to be found.
Why did they prove so recalcitrant? Their arguments here go to the rights of
unsecured versus secured creditors; they did not appreciate that Chrysler's
workers were being given consideration alongside them, when all the workers
were bringing to the table were their livelihoods, their communities and their
sweat.
But I think that the main reason that they hung tough was that the prospect of
finance bending to the popular will was so unheard of, like a tree walking down
the street or a fish flying through the air, that they couldn't actually
believe that they were being asked to do it. For the past few months, the
Geithner Treasury has been making a craven spectacle of itself in not
confronting the banks over the disposition of their toxic assets. The example
of the previous day, when the bankers got the Senate to back down on mortgage
cramdown, must have surely been in the back of their minds as well. If, they
must have feared, the hedge funds had caved before the mob, well, there would
be a lot of George Constanza from Seinfeld's dreaded shrinkage the next time
the hedge fund chiefs met the rest of the gang at the country-club locker room.
But the truly remarkable thing is what the Obama administration did next. It
gave the financial interests who despise nothing more than the possibility of a
court cramdown, yes, the possibility of a court cramdown. Late on Thursday,
Chrysler, undoubtedly with Obama's approval, filed for a Chapter 11 bankruptcy
reorganization. On official form B1 of the United States Bankruptcy Court for
the Southern District of Manhattan, the once proud symbol of the shiny chrome
excess that symbolized the most languid years of the American Dream listed
assets located from Huntsville, Alabama to Kenosha, Wisconsin, that were "part
of a global enterprise that has used the following trade names", which were the
names and models of the company, from the Chrysler Aspen to Plymouth.
The filing listed the nature of the company's business as "other - automobile
manufacturer" - as opposed to being in the railroad, healthcare, stockbroker or
real estate businesses. In the check boxes where the company was required to
estimate how many creditors it had, and the value of its assets and
liabilities, the company made the maximum choice in all three categories - more
than 100,000 creditors, and more than $1 billion in both assets and
liabilities.
The hedge funds had tried to raise against Obama, but he called.
"I'm supporting Chrysler's plans to use our bankruptcy laws to clear away its
remaining obligations so the company can get back on its feet and onto a path
of success," the White House said in a statement following the bankruptcy
filing. Now, the hedge funds may get what they asked for, or they may get a lot
less - it's up to the court.
Considering the sacrifices already made by the unions, and considering that
many of the hedge funds involved are so-called "vulture" funds whose very
raison d'etre was to take risks in buying the debt of distressed companies in
hopes of a huge payoff, if I were one of the hedge funds who just gambled and
lost against the president of United States, right about now I'd be wishing I'd
gotten up from the table one hand earlier.
In a far, far less politically correct time than today, Dr Johnson once had
this comment about women preaching from the pulpit:
Sir, a woman's
preaching is like a dog's walking on his hind legs. It is not done well; but
you are surprised to find it done at all.
The sagas of Chrysler
and the mortgage cramdown are much like this. The interests of the people were
far more damaged by the defeat of mortgage cramdown than the small victory at
the hedge fund corral. Still, the amazing thing was the realization that, even
if only on a relatively minor issue, the patricians in the financial class can
be bested, that it can be "done at all". The fact that it does not happen more
often probably says less about the power of the patricians than it does about
the impuissant, corrupt Judases at the front of the columns of the plebeians.
On Monday, the world returned to normal. Enough Democratic senators objected to
Obama's proposal to tax the American earnings hidden away in foreign shell
subsidiaries of American companies to assure its defeat.
So, cheer up, TARP wife. Daddy will be coming home soon, and, boy, will his
arms be laden down heavy with presents once more. As the angel Clarence (Henry
Travers) wrote to George Bailey (Jimmy Stewart) at the end of It's a Wonderful
Life, "No man is alone who has friends," especially if those friends
are a supermajority of the US Senate personally looking out for your money for
you.
Julian Delasantellis is a management consultant, private investor and
educator in international business in the US state of Washington. He can be
reached at juliandelasantellis@yahoo.com.
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