Saturday, May 2, 2009

Vulgar Threats from the White House

In this interview, (HT EPJ)at radio station WSJ in Detroit, Frank Beckmann interviews Tom Lauria, an attorney who represents a group of lenders that object to the term of the White House deal with Chrysler. The White House is bullying these bond holders to give up their contractual rights and take far less money than traditional law would give them in bankruptcy court. The bond holders also object to the UAW being handed ownership of Chrysler.

I am transcribing the words of this attorney, so forgive me any errors starting at around the 1:30 mark.

"...cause let me tell you, it's no fun standing on this side of the fence, opposing the President of the United States. Uh, in fact, let me just say, you know, people have asked me who I represent..and that's a moving target. I can tell you for sure that I represent one less investor today than I represented yesterday. Uh, one of my clients was directly threatened by the White House, uh and, in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight..."

I guess what der leader wants, der leader gets. Hail Victory!

UPDATE: A nice article from the Financial Times explains how dangerous this behavior by the White House is to financial markets. Likening it to Machiavelli.

"More importantly, the Chrysler saga sets a dangerous precedent for US capital markets. For once, the law is unambiguous: senior secured creditors should be paid before junior unsecured creditors and employees (the words “senior” and “junior” are a bit of a give-away on this point). By turning legal wisdom on its head – and vilifying investors that opposed the move – the administration is signalling the principle is no longer sacred.

While that, in itself, will not cause a massive capital flight away from the US, it will have some serious repercussions."

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