I’m not sure it’s anything more than he said in his order at the time of the Chrysler bankruptcy, but the Chrysler bankruptcy judge, now retired, spoke with ABC News.
He reiterated that there was no other funding for Chrysler. It was either the government’s deal or liquidate. Mourdock had no basis for spending $2 million in what looked like a politically motivated legal challenge. Secured creditors got more out of the government deal than they would have out of the only other available deal, liquidation. Mourdock’s challenge, in effect, was demanding that Indiana and secured creditors get less so that auto worker pensions and other unsecured creditors would get nothing.
Anyway, the judge:
[Chrysler] could not have survived without taxpayer money. “The record before the Court was clear that there were no other sources of lending,” said Arthur J. Gonzalez, who served as chief judge of the U.S. bankruptcy court for the Southern District of New York.
. . .
“One thing is clear, without government support in one fashion or another, there were no sources of funding.” Gonzalez, now a law professor at New York University, said Chrysler — then the weakest of the Big 3 automakers — did not have the ability to secure financing on its own and “it was not generating sufficient cash to operate without an outside source of financing.”
. . .
The former chief judge also denied that the speedy bankruptcy hearing somehow prevented private investors from stepping up, pointing out that the government and Chrysler’s creditors had been seeking a solution for 18 months, to no avail.“The notion that the speed of the process may have missed a potential buyer has no basis in the record,” he said.
You probably think that those silly things called “facts” should matter–if not to Mourdock, who is clearly unable to differentiate between fact and fantasy, at least to voters.
We can only wish….
I’m sure Mourdock has his own facts to support his own reality.
So we make up the law as we go along? If a company is bankrupt, liquidate it, and pay off the creditors in order of priority.
When investors purchase assets, they do so with an understanding of what the law is going to be throughout the life of the asset. Mucking around with the law when it comes time to employ it gives us no law, at all, and strips investor confidence.
No. They’ve done this before. The bankruptcy court has a lot of options. Here (pdf) is the judge’s decision. He gives citations and everything.
Bottom line, secured creditors got more under the plan the court went with than they would’ve gotten under any other plan. Mourdock’s main beef seems to be that someone else got something as well.
That is the sine qua non of reorg v. liquidation. If the secured creditors and adequately protected and the debtor does not retain equity and violate the absolute priority rule, reorg will happen. It did and the creditors went away happier. What’s not to like?
RoadSalt, in a Chapter 11 reorganization, as opposed to a liquidation, there is a great deal of flexibility to reorganize debt and even priorities. Bondholders often are treated as equity creditors, similar to stockholders. Mourdock took a giant risk when he invested in Chrysler junk bonds when everyone was predicting bankruptcy, then he threw more taxpayer money down a hole pursuing an appeal that was unwinnable. So, no one made up law as they went along, Mourdock was just reckless with pension money. Fiscal conservative my eye.
No, no, no. That’s just a way to commit a crime. If the bondholders aren’t happy with the terms of a reorg, then they can force a 7 and let themselves cash out. If the reorg doesn’t have enough cash behind it to take care of the creditors, then don’t steal from the creditors by pretending they don’t exist. Bondholders bought in knowing their notes were backed by assets. Later changing the rules is wrong.
This was nothing more than a case of having the ends justify the means.
roadsalt and the Treasurer so competent he lost 300 million dollars, have something in common: they support plutocrats and bond holders over the future of Kokomo or Anderson. Entire communities of thousands of Hoosiers would be smoking holes in the ground (think Elkhart) if we did what these “conservatives” asked us to do. Instead, the law saved whole communities at the expense of pension funds and hedge funds.
I’d make the same trade today
Entire communities of thousands of Hoosiers would be smoking holes in the ground (think Elkhart) if we did what these “conservatives” asked us to do.
And other communities, with other, non-bailed out automakers, would be doing better than they are today, perhaps far better.
In particular, Honda and Toyota have had market share stolen by these bailed-out automakers. Both are strong in Indiana.
Ford would be making money hand over fist if GM and Chrysler no longer existed. While they don’t have the most extensive Indiana presence, they do have some facilities here.
Obama has made the auto industry a lot like the airlines, with companies that have unfair advantages because they’ve gone through strategic bankruptcies. It seems to me that bankruptcy should result in liquidation a lot more often than it does.
Successful reorgs produce far more value for creditors than 7s.
If GM and Chrysler would have gone done, entire supply chains would have been gutted. It is estaimated that 60% of the lost vehicle sales would eventually return. 60%. Well, a little more than half.
I give Bush and Obama great credit for his actions taken in regard to the Motors and Chrysler. The recession would have been far deeper and the recovery more stunted. I was listening to some Canadian lawmakers talk about the bailouts in which the bailouts were supported across party lines. But Canada does not have to deal with southern states that opposed the bailout to gain market share for their foreign automakers and Ayn Rand acolytes.
Damn good move and critical juncture.
This incident along with the pending “screw the bondholders” bankruptcies from Birmingham and Stockton could seriously alter how things are funded in the future. The more “secure” bondholders that get screwed, the less likely folks will invest in corporate and municipal bonds. This is going to lead to municipalities to borrow money from one source, the US Government. That is going to cause a huge fight for all sorts of municipalities coming out with their hand extended, demanding everything they want to finance be approved.
Another reason why not to invest in bonds or stocks. The government can and will change the rules at anytime. I laugh at people who are socking away money in Roth IRAs who think the government isn’t going to end up either confiscating those accounts, or will change the taxing laws that currently apply to such a product. There is still a lot of money in Roth IRAs, IRAs, and 401(k)s. The government wants that money, and it needs that money given what it spends. Watch for a remittance tax of 2-5% on top of ordinary income. Wouldn’t surprise me to see an additional tax in the same ballpark on capital gains. It won’t be the double digit tax we see on normal capital gains, but there will be something to squeeze money out of those who have it.
I don’t understand what secured creditors have to complain about in this situation. No one has painted a scenario based on the facts on the ground at the time where Chrysler’s secured creditors get paid more than they did under the arrangement that took place. The judge looked at the evidence submitted and concluded there was no such scenario. I haven’t heard anything more specific than vague grumblings.
It isn’t complaining or not complaining, it is a sign that at any given time, the “law of the land” can just be tossed into the trash can and one person can just make up new law on the fly. I don’t know the particulars in this case, and I don’t necessarily believe one side or the other. There were politics at play here. Bush and Obama both bailed out Wall Street, and Obama, being on the left, had to bailout the union as well. I won’t ever believe any one side on this, ever, as both sides will play games with the numbers.
The issue is that this is just one example of where historical practices are just changed overnight. Very scary for anyone who thought about investing the market. Bonds used to be safe, not anymore. Just because in this situation bondholders may have been better off, bondholders could be worse off in the coming bankruptcies.
I do not believe the Congress would ever tax Roth withdrawals. Can you imagine the backlash and Inelecetibility of anyone congress person that would vote to tax Roth withdrawals.
In a sense, though, traditional IRA and 401k holders are being slightly screwed by the flattening of the tax code and the 15% marginal rates on LT Cap gains and dividends. If a person has great inccome and are taking withdrawals, their marginal rate could be above 15%.
Bear, I do have a question for you. What stocks are you currently shorting. Are you long on any commodities or metals? if you don’t mind sharing.
Congress wants money, especially the pro-big government spending types (this crosses party lines). Currently I’m doing nothing. I would advise anyone to pay down debt with excess funds. My annuity is invested in the safest fund, basically US Treasuries. My wife’s 401(k) is invested in similar investments. We were both in “safe” bond funds, but her bond funds were in stocks, Euro futures, some other Euro tied investment, muni bonds, and corporate bonds. One of her bond funds basically follows the overall market. It is now full of C rated bonds. The other bond fund had, for now, higher rated bonds, but given what we have seen with Chrysler bondholders (semi-shafted) Rhode Island muni bondholders (protected), Birmingham, AL (will get shafted), and Stockton, CA (will get shafted), I felt it was time to pull the money out.
These municipal bankruptcies are just the beginning and no one can say how bad it will be for bondholders. As far as what I do with my brokerage account, I save cash money. We want to move to a little larger home in another metro county. We also still have student loan debt and a car loan. I just tell people if they have any newer debt outstanding with rates around 3% or higher, they may as well pay them off. Savers are being punished in this economy. The county can’t function with our savings rate in the positive. If people are saving, they aren’t spending in our consumer driven economy, which looks bad.
I personally would be shorting the overall market, but I think the market is so controlled, what should be happening won’t. The government won’t allow NYC brokerage firms and banks to go under, letting smaller regional banks buy up assets for pennies on the dollar. They want to keep that bank/lending power in lower Manhattan. I’m not seeing anything positive with this economy. Unless you are getting some sort of government tax break, or direct tax revenue infusion, why would you open a business? We have people on 99+ weeks of unemployment in some areas. Foreclosures are still bad, government claims jobs will come, then we get news reports showing empty factories, or stats that only half as many people were hired.
If one wanted to short anything, I would say just the overall market. Think of put spreads. Of course those expensive stocks could be targets as well. Again, I’m not shorting anything, as the market is irrational and no longer based on true capitalism.
Thanks, Bear. I use put strategies instead short positions. I also use inverse ETFs at time.
Mourdock was right. The federal government controlled the bankruptcy from the beginning by being its biggest creditor and owner. If it is going to get in that business, it should protect the US taxpayers and the bond holders that included Indiana government and citizens. The US government ‘s car czar made the terms and basically made sure we lost money, bondholders were left out in the cold, and that consumers injured by Chrysler and GM products were left without a remedy. Now Chrysler is making millions thanks to Obama, our Congressmen and Senators without any accountability.
Mourdock was wrong. The reason the U.S. government controlled the bankruptcy was because it was offering more to secured creditors than anyone else and more than the liquidation value. That’s the central fact. Chrysler had been looking for buyers for years. Couldn’t find any. The bankruptcy trustee was open to offers. There weren’t any.
The U.S. Government deal was the best one available to secured creditors. Mourdock’s argument was, in effect, a plea for liquidation and, therefore, less money for secured creditors. That’s why secured creditors representing 97% of the total amount owed to secured creditors voted for the plan.
Doug, I linked this piece to my Hamilton County politics page on Facebook. http://www.facebook.com/HamiltonCoPolitics
I also have my own blog post which touches on this, and agrees with you. http://hamiltoncopolitics.blogspot.com/2012/04/why-i-dislike-richard-mourdock.html