Friday, May 22, 2009

The Early Fruits of Government Coercion in Chrysler's Bankruptcy Negotiations

Early consequences of the administration's use of coercion to stiff secured creditors in the Chrysler bankruptcy are already upon us.

You will recall that Team Obama muscled Chrysler bondholders to step behind the UAW, an unsecured, junior creditor, and accept 29 cents on the dollar, so that the union could receive 55 percent of the smoldering ruin that will be the 'new' Chrysler.

Never mind that being a secured creditor legally confers certain privileges in bankruptcy, all of which have been voided at whim by the administration.

Some investors are already announcing their changed behavior.

The Wall Street Journal reported yesterday,

"Indiana Treasurer Richard Mourdock revealed this week that his state's police and teacher pension funds have lost millions of dollars in the Chrysler "restructuring." Indiana's State Police Fund and Major Moves Construction Fund, which finances roads and bridges, together lost more than $1 million. And the Teacher's Retirement Fund "suffered, at a minimum, a loss of $4.6 million due to the action of the Federal government," reports Mr. Mourdock.

And, sure enough, Mr. Mourdock says that from now on no funds under his control will invest in the secured debt of "General Motors, other manufacturing companies, or those insurance companies who have or will be receiving bailout funds." Given the recent actions by the feds, he adds, "the risk is too great for any prudent investor to accept."

This isn't political grandstanding. Public investment officials like Mr. Mourdock have a fiduciary duty to seek maximum returns for retirees. The question for all public officials responsible for investing pension money is whether they too should conclude that investing in U.S.-aided companies now carries so much political risk that it violates their legal obligations. Such are the wages of White House disdain for legal contracts."

So, there you have it. And who'd have guessed that a state-level investment official would be the first to publicly declare any investment 'opportunity' that is remotely near any federally-assisted company to be 'off limits.'

The consequences of the administration's deliberate violation of bankruptcy laws are just beginning to be felt. But investors have taken note and are behaving accordingly.

No comments: