Mon, 04 May 2009 18:58:12 +0000 – By Liz PeekFinancial Columnist
Who knew that a bunch of hedge funds could become the champion of the little guy? As Chrysler bondholders faced down the Obama administration last week, insisting on due process, they emerged as my personal pick for civil rights champion of the week. Not everyone, of course, will see it this way. And, especially, not those courting Big Labor.
On Saturday The New York Times ran a story with this headline: "Union Takes Rare Front Seat in Chrysler Deal." The piece, which ran over onto page three and in all occupied thirty inches of print -- in other words a "Big Story" -- related in a "gee whiz" fashion how the UAW had been surprisingly well treated in the negotiations which led to Chrysler's bankruptcy. Nowhere in the two-plus feet of copy was there a mention that the UAW had contributed $5 million to President Obama's 2008 election campaign. That strikes me as pretty lame reporting.
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Instead, we read "The government, in assessing what was needed to make Chrysler viable, decided it needed to support workers..." Forgetting the forgettable wording, we also read "In contrast, other companies often use bankruptcy as a way to gain leverage over labor, so they can lower their costs." Really? What a novel concept.
Here's news: the effort by the Obama administration to protect the UAW will likely leave Chrysler permanently uncompetitive. As The Times points out "Chrysler's most senior workers, like those at Ford, still have healthy wages and benefits; bountiful healthcare coverage, at least until it is adjusted, and subsidies to help bolster unemployment benefits..."
In other words, this bankruptcy proceeding will proceed with only marginal savings of labor costs. Meanwhile, the lenders who dared to oppose the deal, undoubtedly considering that the bargaining had been too one-sided, were excoriated by the president as "speculators" for raining on his parade. Over the weekend it emerged that would-be auto czar Steve Rattner threatened to sic the White House press corps on bondholder Perella Weinberg if they continued to oppose the deal on the table. (The White House denies the story.) If true, this is a truly shabby development. It mirrors the notion that the large banks that have received TARP support have been told in no uncertain terms to play ball with Obama's team. As the Committee of Chrysler Non-TARP Lenders has said, the TARP group is "an obviously conflicted intermediary."
Why do we care about this proceeding? Because, as taxpayers, we stand to lose billions if the restructurings of GM and Chrysler are not handled properly. These companies will continue to bleed and, given the administration's coziness with the UAW, taxpayers will be asked to provide emergency dressings again, and again. The UAW will likely emerge with a majority ownership of Chrysler, much like the employees of United Airlines in 1995 -- a move that was expected to align interests and set the course for significant wage and benefit reductions. What happened? United had to file for Chapter 11 in 2002.
Moreover, the efforts of the Obama team to strong arm lenders to make unusual concessions follows a pattern of ignoring legal precedent in favor of a policy agenda not so friendly to those who provide credit and capital to facilitate the nation's industry, homeowners, consumers and Treasury. As the Non-TARP Committee wrote: "the government has risked overturning the rule of law and practices that have governed our world-leading bankruptcy code for decades." Really, is it any wonder that credit is still gummed up?
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