Hedge funds become the villains in Chrysler's ongoing saga
Filed under: Company News, Investing
President Obama clearly blamed hedge funds for the collapse of the Chrysler deal, which ultimately forced the company into bankruptcy Thursday. Hedge funds hold about $1 billion of the automaker's debt, which they bought at deep discounts from other investors who wanted out.In his speech Thursday, Obama said, "In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them."
As DailyFinance's Peter Cohan wrote yesterday, "Perhaps they bought General Motors (GM) and Chrysler debt in the open market at 15 cents on the dollar and are now holding out for, say, an extra billion -- letting them triple their investment instead of merely doubling it."
In defense of the hedge funds, one of their attorneys, Ron Geffner, told the Washington Post, "I stand with the fact that we live in a capitalist society where companies who don't modify their business plans and stay current die and go by the wayside."
That may be true, but if Chrysler dies, the hedge funds get nothing for their investment. So where's the logic in this statement? Does he mean the hedge funds will stand on principal and let Chrysler die, rather than get at least something for their investment?
Some hedge funds tried for a softer approach at defending their position. A group of firms that would not identify themselves put out a statement that said the government "unfairly asked our fund shareholders to make financial sacrifices greater than those being made by" other creditors. They are holding back, hoping that the bankruptcy court will award them more as it discharges the debt.
Sarah Anderson, director of the Global Economy Project at the Institute for Policy Studies, summed it up well for the Post, "It seems rather short-sighted to risk having the auto sector collapse so that they can get a few more cents on the dollar for their investors."
While hedge funds try to make those few extra cents on the dollar, thousands of workers face the prospect of additional layoffs and the car industry moves just one step closer to collapse. Where do you stand on this one?
Lita Epstein has written more than 25 books including Working After Retirement for Dummies.
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Reader Comments (Page 1 of 2)
5-01-2009 @ 8:17AM
Tom Braun said...
The Sec of Treasury and the President should pay back social security folks, dollar for dollar for investments they made in Chrysler and GM bonds.
These people should not be left out in left field taking this loss. A loss of their investment and worse off, the loss of their much needed interest income stream.
The Administration should do the right thing for Main Street people on Social Security.
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5-01-2009 @ 10:26AM
Mel Freedenberg said...
My wife and I collect Social Security and I have been trying to figure out Tom Braun's rationale for his statement. Why shouldn't everybody be treated equally? I can't make it alone on SS so I have a job and I don't plan on retiring. As it is, this country is just printing money. According to Tom, we should just print more for people on Social Security. Why? And as it is, we are expecting a couple of $250 SS checks at the end of this month. I don't even understand the government's rationale for that.
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5-01-2009 @ 10:26AM
David Jacobs said...
I worked hard all my life. I have no penson or health insurance from my job. I put money away for my retirement and invested in GM bonds years ago. Why should the unions get more than me in the settlement?
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5-01-2009 @ 10:49AM
gd said...
Precisely Mr. Jacobs, hang in there and good luck, you hold the moral high ground even if most these folks can't figure it out. Obama is just looking out for the Union's intrest. He owes them.
5-01-2009 @ 8:34PM
Walter said...
The UAW is taking on the expenses of the retirees benefit what are you taking on.
5-01-2009 @ 10:26AM
James said...
It is really shameful that these hedge funds and other financial services firms continue to have this self-centered and extremely self-servicing view of the world. Chrysler actually "makes" something of value. These hedge funds only create "paper" value that is short-lived and only benefits a few. Yet, these firms would rather risk the failure of a significant company (and their workers and suppliers) rather than lose out on a few additional pennies on the dollar of their investment. All they are going to do anyway is pay out "profits" or "taxpayer" bailout money in dividends and/or bonuses to people who are probably the least needing at this point. What happened to we're all in this thing together?
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5-01-2009 @ 11:05AM
charles hopfl said...
You hear all kinds of lame excuses why the few hedge funds, mutual funds, etc. did not go along with the Chrysler compromise. The worst is the one from Oppenheimer, and probably echoed by the other culprit investors, where they said it owed a responsibility to its s/h's not to take a loss. They take losses all the time when they sell a security at a loss, due to the wrong call, mismanagement, etc. and never whimper a word. All of a sudden they want to be heroes and not reduce their bonus. It is good that the lender, the US government, called their bluff. It would be fitting if due to the expenses of the bankruptcy, they would get less. Did one wonder what they even paid for the debt. Probably 10 cent on the dollar. Pigs I say should get their just dessert.
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5-01-2009 @ 1:09PM
ken said...
Oppenheimer and the others who forced Chrysler into bankruptcy will have a large price to pay, down the road. They will be vilifed for their greed. How ever many thousands or millions they might gain by their action.....they will soon find that what goes around, comes around. Isn't it the Oppenheimer logo that shows 4 interlocking hands? Perhaps they should extend the middle fingers of those hands as they have flipped off the many people who worked so hard to achieve a better outcome. Shame and disgrace is theirs.
5-01-2009 @ 11:38AM
radford said...
Ms. Epstein certainly does not refrain from presenting one side of the facts. The other side is the UAW holds the major responsibility for the demise of the USA Auto Industry. When you get full pay during shutdowns and can retire at age 50 with full benifits, you are setting the industry up for failure. The real problem is our President has been trying to pay back the Unions for getting him elected. Banks, Autos, and soon health and energy, are setting the stage for the biggest takeover of a way of life that has given our country a wonderful standard of living. Big time inflation is months away.
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5-01-2009 @ 12:30PM
Marlene said...
It's outrageous that the UAW will get 55% of Chrysler, a huge cash influx, job and health benefits protection while the secured debtors get 33 cents on the dollar. For Obama to then excoriate the bondholders with a legitimate claim shows how dangerous he really is. I hope that the bankruptcy judge realizes what is at stake in this bankruptcy--the rule of law.
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5-01-2009 @ 12:30PM
vinhug said...
Guys it is what it is. Everyone is greedy,including ourselves.
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5-01-2009 @ 1:06PM
lee shofler said...
Greed is bring this country to the ground, we will all go down or recover together, If the Boat sinks we all drown, what ever happened to our moral society, God help us.
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5-01-2009 @ 1:16PM
pbrown said...
You can now tell socialism has arrived for the next two years. They want to own just enough interest with paper money, (our money) to direct Chrysler and GM, down the tubes for good. Obama will direct them to build cars we will not buy. Japan will control the auto industry for many years to come. At least Obama can not direct Japan to build cars no one wants.. He will then tax big oil down the same tubes that auto can not recover from. They should have let Chrysler go down the tubes 30 yrs. ago. Who in the world will want to buy stock in a company owned by the union and Obama. Hello paper money and inflation shortly we have not seen since Cater.
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5-01-2009 @ 1:46PM
sweed7 said...
The UAW broke Chrysler, GM and crippled Ford not only by receiving excess pay and benefits but by refusing to allow union members to be fired for poor work ethics and incompetence. Now Obama uses taxpayer funds and govt strong arm to get rid of Chrysler debt, insure retirement funds and refinance the company and then GIVES Chrysler to the UAW. (55% is controlling interest) Obama pays off political debt and buys forever vote and all with taxpayer funds. True Chicago politics.
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5-01-2009 @ 1:59PM
dave russell said...
The hedge funds represent a bunch of greedy Cons whose self interest should be penalized. The line workers at these auto plants build designs they are given. Then we have liquidator Nardelli getting a golden parachute like he did after leaving a trail odf debris at Home Depot. Another Con.
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5-01-2009 @ 2:00PM
sweed7 said...
The Teachers union is doing the same thing with the schools that the UAW did with the Auto industry. Too bad that the Public School System can't be thrown into a real, not Obama funded bancrupcy. It is not the teachers pay that is the problem. It is the Union control of the Public School System and through politics all education in the USA. We cannot improve our educational system becaused of entreanched Union Intersts!
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5-01-2009 @ 9:14PM
matt said...
Sure wish oppenhiemer and these other bond holders would let me buy debt for six cents on the dollar and then hold out for billions of tax payer money, wow what a scam. Just can not keep from being grossly greedy. You still would have made five times your money at thirty three cents per
dollar. Bet someone gets canned, no bonus for being stupid!
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5-02-2009 @ 10:17AM
dale said...
why don't the people who signed the contract with the uaw get any of the blame.when i deal on a car,agree to a price,and pay for it,i dont go around saying i paid to much, if i did i would sound less than smart.
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5-02-2009 @ 10:23AM
dale said...
Why don't the people who agreed to sign the contract with the uaw ever get any blame.When I deal on a car,agree to a price,and buy it,I don't go around saying I overpaid.If I did I would be less than smart.
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5-02-2009 @ 11:48AM
michael said...
Some of us bought stock and bonds of GM and Chrysler
as retirement investments in our IRA at retail not as
a hedge fund investor at thirty cents on the dollar so should
we be painted as greedy bond holders and get less than
UAW gets for its retirement funds if we can prove we
at retail an not at whole-sale we should get the same as
UAW after all it is our retirement mony also.
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