I confess, I have no idea what "absolute priority" means after reading this article in The Washington Post. Or maybe I have no idea what "senior" or "secured" means. Read for yourself:
Chrysler filed for Chapter 11 bankruptcy protection Thursday after a handful of lenders holding some of the company's senior secured loans declined to accept the government's offer of 33 cents on the dollar. The dissident senior lenders contend that the sale illegally rewards junior creditors at their expense, despite laws granting "absolute priority" to the senior lenders. The UAW, for instance, would get the bulk of its pension payments, the dissident lenders said.
Simple question -- if these lenders really are senior and secured, then how are junior creditors like the UAW getting anything if the senior, secured lenders aren't getting everything to which they are entitled? And let's be clear: only some of the senior lenders are dissidents in this process. Most of the senior lenders (judged by dollars at risk) have taken TARP money. To protect the taxpayer, the government should be the one pushing for absolute priority of the senior claims over those of the UAW. It is doing the opposite. What a joke.
The problem is not the speed of the process. The problem is that the current stage of the process appears ready to transfer assets to which the senior lenders have the strongest claim to other stakeholders who have less of a claim to it. The judge should modify the plan put before him to correct this.
I'll be continuing my education on these matters at this new (to me), indispensable blog.
The damage is already done
Thomas Cooley saw it coming:
http://www.forbes.com/2009/05/05/obama-talf-tarp-economy-uaw-opinions-co...
And, understands what it means:
'Government interference in the normal conduct of business has had a chilling effect on financial markets and threatens the progress of the recovery. The Treasury and the Fed have created many new programs to provide liquidity to the financial system, to help banks restructure their balance sheets and to re-invigorate securitization markets.
'So far, the interest in these has been distinctly muted because potential participants fear the longer term consequences of getting involved with any of these programs.'
Likewise, and with much more pizazz, Cliff Asness:
http://zerohedge.blogspot.com/2009/05/cliff-asness-i-am-ready-for-my.html
'The President's attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to "sacrifice" some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power.
'Let’s also mention only in passing the irony of this same President begging hedge funds to borrow more to purchase other troubled securities. That he expects them to do so when he has already shown what happens if they ask for their money to be repaid fairly would be amusing if not so dangerous. That hedge funds might not participate in these programs because of fear of getting sucked into some toxic demagoguery that ends in arbitrary punishment for trying to work with the Treasury is distressing. Some useful programs, like those designed to help finance consumer loans, won't work because of this irresponsible hectoring.
'Last but not least, the President screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large. Find me a hedge fund that has been bailed out. Find me a hedge fund, even a failed one, that has asked for one. In fact, it was only because hedge funds have not taken government funds that they could stand up to this bullying. The TARP recipients had no choice but to go along. The hedge funds were singled out only because
they are unpopular, not because they behaved any differently from any other ethical manager of other people's money. The President’s comments here are backwards and libelous. Yet, somehow I don’t think the hedge funds will be following ACORN’s lead and trucking in a bunch of paid professional protestors soon. Hedge funds really need a community organizer.'
It means the price of
It means the price of corporate secured debt has just gone up, especially for a company that has any chance of future Ch. 11.
But hey, the US is becoming so non-competitive anyway, what's another fly in the ointment?