R.I.P. American Capitalism

[haha]

U.S. Forced Chrysler's Creditors to Blink - WSJ.com

"The White House's role in restructuring Chrysler has sent a shudder through the community of lawyers and lenders in the field of bankruptcy and corporate workouts. Critics complain that the administration has violated a bedrock principle of American capitalism and unfairly demonized financial firms that are vital to the functioning of the economy and its eventual recovery.
Administration officials reply that the Chrysler crisis required bold action. While Chrysler's suppliers, dealers and unionized workers are critical to its survival -- and so is Fiat, which will contribute high-efficiency engines and foreign distribution -- the creditors were expendable.

"You don't need banks and bondholders to make cars," said one administration official."

You may need a WSJ sub to see this article, but for those who can it is definitely worth reading. Do you think there are precedents and rules of law and procedure involved in bankruptcy? Not any more, at least not if the governnment is interested in the outcome.

I would not be surprised if this "rule by power"didn't make strong mischief with the whole meaning of capital structure, and indeed with interest rates. How likely would you be to lend to a struggling company, or even any cyclical company, if you could not set any limits on recovery expectations if things were to go badly?

Ha

 

[dex]

http://online.wsj.com/article/SB124199948894005017.html
I would not be surprised if this "rule by power"didn't make strong mischief with the whole meaning of capital structure, and indeed with interest rates. How likely would you be to lend to a struggling company, or even any cyclical company, if you could not set any limits on recovery expectations if things were to go badly?

Ha

Very true - the precedent has been established - it can/will expand from here.

 

[ejman]

Interesting that 20 years after the demise of communism, capitalism would go the same way - prompted by internal rot. We certainly seem to be on our way to a blend sort of like the French model.

 

[mark500]

Don't get all worked up. It's just the pendulum swinging the other way. It will swing back eventually.

The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of misery.
—Sir Winston Churchill (1874-1965)
​

 

[Westernskies]

Interesting that 20 years after the demise of communism, capitalism would go the same way - prompted by internal rot. We certainly seem to be on our way to a blend sort of like the French model.

I propose this French model to help tidy things up...

 

[Zathras]

Why are people panicking? This has gone to court where it should have been in the first place.
The politicians can make all the noise they want, it is out of their hands.
Yes, the government made suggestions and requests, and some might even say blackmail. But in the end, that means nothing, the courts will now make the decisions.
If a company going into liquidation came to me and said 'can you loan us the money we need to keep going', you can be sure that I would feel free to make any demands on the company I wanted to.

 

[ziggy29]

If a company going into liquidation came to me and said 'can you loan us the money we need to keep going', you can be sure that I would feel free to make any demands on the company I wanted to.

While I agree with this, there are also banks who didn't want to take any TARP money but the government forced it on them.

It's one thing to attach strings to "bailout money." It's another to prohibit the recipient from choosing whether or not to accept said money and strings.

 

[Zathras]

While I agree with this, there are also banks who didn't want to take any TARP money but the government forced it on them.

It's one thing to attach strings to "bailout money." It's another to prohibit the recipient from choosing whether or not to accept said money and strings.

That I definately agree with.
But since the topic seemed to be focused on the Crysler bailout I don't see that as an issue for this specific point.
'Pure' capitalism doesn't really exist with any regulation, does it?
I am not sure if the idea of asking, convincing, forcing (not sure which it was) banks that didn't need the TARP funds to take them was a good idea.
I understand the logic behind it, but adding stipulations AFTER issuing the funds was, well, criminal if you ask me.

 

[Frugality_of_Apathy]

Remember the good old days when "Too big to fail" was pronounced "monopoly" and the solution was to tear them down immediately instead of giving them unlimited monies?

Not to worry though, The USSR thoroughly tested out the method of inflating their way out of debt and spending multiple times of their actual budget to fight undeclared wars and keep their citizens in line. And it totally would have worked if they just had more colors on their flag.

 

[Running_Man]

Why are people panicking? This has gone to court where it should have been in the first place.
The politicians can make all the noise they want, it is out of their hands.
Yes, the government made suggestions and requests, and some might even say blackmail. But in the end, that means nothing, the courts will now make the decisions.
If a company going into liquidation came to me and said 'can you loan us the money we need to keep going', you can be sure that I would feel free to make any demands on the company I wanted to.

The government used it's power of the TARP program over JP Morgan Goldman Citigroup to force concessions to get the banks to accept 29 cents on the dollar for their secured debt in cash right now without going through bancruptcy proceedings to force the non-TARP banks to accept. Those that didn't were publicly identified by the President of the United States.

Ron Bloom is leading all of this and is a union henchman and leader. Rattner's former private equity firm Quaddrangle is in a battle with the lead creditor of Chrysler, Cerbus. His wife just happens to be the former lead finance head of the democratic party.

So when the president of a country is choosing sides and the rule of law is being replaced with "fairness". Is there any way you could imagine those banks forcing a bancruptcy to get the secured money back when they themselves were existing due to federal government TARP? The NON-TARP lenders that demanded their secured rights, as was their right were publicly castigated by the president and received death threats:

Chrysler holdouts must say who they are, judge says | Reuters


Once they all had to be publicly identifed, and all knew if the 29 cent special deal fell through the union would blame them, didn't want a "Hoffa" deal so they "agreed" to the 29 cent deal.

The government is now in the catbird seat of dictating the results they want for who they want, in this case for the unions of Chrysler.

This is not capitalism this is capitolism.

The reason this matters is that if there are questions over the ability to maintain "secured" lending rights to corporations when the government steps in, then lending to certain instituitions is in reality no better than lending non-secured and will lead to withdrawls in the economy financing game in the future. So that the government will fill that void with ever-increasing power over the financing and leveraging of the economy, which is not capitalism.

 

[Zathras]

The government is now in the catbird seat of dictating the results they want for who they want, in this case for the unions of Chrysler.

The judicial branch of the government is, the executive branch and legistlative branch are not. And since this is following the rule of law, I don't see what the complaint is.

I have yet to see anyone list out how a liquidation would have affected the bondholders. I would be interested in seeing such a report as I don't believe bondholders would have gotten nearly as much as they were offered.
Also, the UAW gets common stock, which could very well be worthless. They also gave up a lot of other benifits. I would hardly call them as coming out of this well UNLESS the company can turn itself around, which I have doubts about.
The bondholders on the other hand have been offered CASH. More cash than the bond markets were offering them.
They were well within their rights to refuse, and if they felt they were getting the shaft, they should have.
If on the other hand they were simply trying to get a bigger tax payer bailout from the feds (since no one else would pay them that much) I have no sympathy for them. They gambled, and lost.

 

[unclemick]

Soooo - how much blood letting world wide is yet to go before the "toxic??" debt is cleared off the books and the sun shiny folks with equity(not credit) come out of the woodwork.

Reminds me of that old Monty Python skit - Bring out yer dead.

heh heh heh - Gonna be an interesting decade - possibly a tad longer. .

 

[ejman]

After due consideration, I like Westernskies economic model the best...

 

[valsdad]

Look on the bright side. If American capitalism is dead, maybe I won't have to lose half my IRA every eight or nine years, while our brothers from New York weekend in the Hamptons.

 

[Bikerdude]

I think secretly some US politicians covet the Chinese model of "controlled capitalism" run by a single all powerful ruling party backed by a well fed army. The only question is how to pull it off here.

I hope its just a paranoid delusion.

 

[haha]

I think secretly some US politicians covet the Chinese model of "controlled capitalism" run by a single all powerful ruling party backed by a well fed army. The only question is how to pull it off here.

I hope its just a paranoid delusion.

Yes, people are mistaken I think when they worry about socialism. What we are heading toward is more like state capitalism, which in a different envoronment was called fascism.

Ha

 

[Frugality_of_Apathy]

Yes, people are mistaken I think when they worry about socialism. What we are heading toward is more like state capitalism, which in a different envoronment was called fascism.

Ha

Yes but noone will take you seriously if you call fascism fascism.

And since we do still have some societal freedoms while we may be on the road we aren't there yet. What we have now is Corporatism.

Corporatism is one of main features of fascism but we won't really be in a fascist regime until we get the "Citizen's army" which obama made one of his campaign promises.

 

[Zathras]

We have had corporatism since the supreme court ruled corporations have the rights of individuals. Opening the door for 'lobbying'.

 

[Bikerdude]

We have had corporatism since the supreme court ruled corporations have the rights of individuals. Opening the door for 'lobbying'.

Don't forget to include the other non corporate "special interests" who block vote and also lobby.

 

[Zathras]

Actually, I believe they are included in the same ruling.
Again, get rid of that, I see no reason corporations (profit or non) should legally be able to 'lobby'. Call a spade a spade and just go back to good old bribery.

 

[Bikerdude]

Actually, I believe they are included in the same ruling.
Again, get rid of that, I see no reason corporations (profit or non) should legally be able to 'lobby'. Call a spade a spade and just go back to good old bribery.

Hear! Hear!..I'll drink to that!

 

[samclem]

I've got no problem with the bondholders taking a beating. 29 cents, zero cents, that's not the point. The highly objectionable part is the government using its power to put unsecured debt (UAW) ahead of secured debt (bondholders). They are using highly questionable means to do it.
1) Pressure on the banks that accepted TARP funds to go along with this usurpation of property rights. In an administration unbeholden to the UAW, the government would, if anything, be pushing these banks to NOT give up anything in these "negotiations." After all, in a logical world, the banks need to recover as much as possible from Chrysler so they can repay the government loans. But, that assumes the government wants them to repay the TARP loans. The government wants nothing of the sort--TARP facilitates the string-pulling we are seeing here, and the present administration thinks that's great.
2) Public vilification by the President of bondholders who are simply standing up for their rights. These bondholders should expect tax audits soon.

I don't understand why civil libertarians on the left aren't outraged by this. The government is not just another creditor throwing its influence around. It is a sovereign entity with the police power of the state and the ability to make/break corporations through regulatory actions. The government, we were told at the time , put money into these banks and manufacturers as a short-term fix to avoid a crisis, not as a means to control the activities of these companies. The POTUS's claims that he doesn't want to run banks or car companies are sounding a little hollow right now.

Note to bondholders: As we see now, it's much smarter to push for corporate bankruptcy rather than take government funds and lose your property rights and also bring the government down on you in a very personal way.

 

[haha]

Note to bondholders: As we see now, it's much smarter to push for corporate bankruptcy rather than take government funds and lose your property rights and also bring the government down on you in a very personal way.

Exactly the point. Many of us on the board predicted this outcome early on, but I can't remember anyone who foreshadowed the viciousness of method.

Ha

 

[Westernskies]

Exactly the point. Many of us on the board predicted this outcome early on...

Say it ain't so, ha! All that posturing and prognosticating last fall? It was just a bunch of hot air.

...but I can't remember anyone who foreshadowed the viciousness of method.

Hugo Chavez?

 

[Zathras]

What visciousness?
Did swat teams descend upon the hold outs?
Were the offices raided?
The government tried to broker a deal with the groups involved. The bond holders decided they were better off in court.
Pomp and circuses ensued and politicians on all sides made grandiose statements.
The whole issue has gone to court where it should have been in the first place.
So as it is now, the government is doing the right thing (it is in the correct branch of the gov.). Some in the government were not doing the right thing.
Hey!! Checks and balances worked!