Lessons Learned from the Chrysler Bankruptcy
by Richard
Satire loses its sting and bite when reality serves up a scenario as convoluted, tragi-comic and pathetic as the chapter 11 filing from Chrysler.
Where to Start?
How about the new ownership structure?
UAW retirees, Fiat, and the U.S. and Canadian governments. Well, what could possibly go wrong with this stalwart lineup?
It should provide a new slant on class warfare…not against private equity owners, who have been exterminated in this transaction.
No, I’m talking about the inevitable clash between the current UAW workers who will press for outsized wage and benefits, at the expense of the UAW retirees drawing down even more generous benefits.
That’s what happens when you eliminate the investor class….the workers will only have each other to savage over the scraps.
Even more disturbing…
…is the emergence of the new administration as a butcher with their thumb on the scale, favoring supporting “stakeholders” like labor, at the expense of the bond holders….to the point of vilifying the hapless creditors for having the temerity to insist upon the contractual rule of law.
This is not Argentina or Venezuela or the gangster capitalists in charge of Russia. This is a country that has honored the rule of law for over two centuries. Up to now.
Most pertinent is the lesson going forward to debt investors.
The next time you feel the compulsion to lend money to any corporation, or home loan borrower for that matter, just lie down and relax until your sanity is restored.
In times past, lenders could rely on contractual obligations, enforced by impartial judges in bankruptcy courts, to have their loans repaid in a designated, hierarchical order of priority.
In the twilight zone we’ve entered, only debtors and labor qualify as preferred stakeholders…with forced markdowns and cramdowns to shift wealth away from creditors.
Paradoxically, the only assured loans will be direct U.S. government obligations, such as inflation protected bonds, and FDIC-insured bank deposits. You will be repaid in a depleted and shrinking currency, but you will not run the risk of direct confiscation and redistribution now inherent in private lending.
Any group taking bailout money, even states and municipalities, as wards of the state, can now petition the state for relief from their spending indiscretions.
Since wealthy investors in search of tax relief are the primary buyers of Muni bonds, and since the wealthy are being disparaged on a daily basis, don’t be shocked when that source of wealth is redistributed through givebacks and debt repudiation.
No world power can remain at the top forever. History is a relentless reminder.
I had hoped our turn would have lasted a bit longer.
