The mudslinging surrounding Chrysler's recent bankruptcy court filing promises to get still louder as General Motors limps toward a similar denouement.
A U.S. bankruptcy judge late Tuesday approved the government's plan to auction Chrysler assets in a manner that effectively elevates some unsecured creditors' claims over those of secured creditors.
President Obama used his formidable weight to strong-arm most creditors into going along with the proposed reorganization plan that awards a $4.6 billion note and 55 percent of Chrysler's equity to a United Auto Workers health benefits trust. When holdout creditors forced the issue into bankruptcy court, the president and his chorus ramped up the rhetoric against hedge funds - hurling epithets such as "speculators" and "vultures" against fund creditors who rejected the offer to settle their secured claims against Chrysler.
Next in line is GM. Management has set a May 26 deadline for bondholders to approve its latest reorganization proposal, under which the U.S. government would control at least 50 percent of GM shares and the UAW health benefits fund would get 39 percent.
One well-known fund manager who doesn't hold Chrysler bonds poked his head up to defend the fiduciary obligations of investment managers to those who entrust them with money - rather than to a broader group of "stakeholders," such as the taxpaying public. "Let's be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can," writes Clifford Asness, head of AQR Capital Management, in a widely circulated letter. "If they give away their clients' money to share the 'sacrifice,' they are stealing."
What do you think? Are courts, news media, the government and anyone else with power to adjudicate these claims, justified in overruling contractual rights of lenders in order to protect taxpayers' and labor unions' interests?
Will the Chrysler resolution diminish foreign appetite for investing in U.S. assets, now that the the vaunted U.S. legal protections for investors and lenders are shown to be less ironclad than previously believed?
And, are creditors justified in pursuing the bankruptcy route - or would they likely get more for their claims in the end if they just went along with whatever plan is put forward by government appointees who run the insolvent automakers?