Wednesday, June 3, 2009

Obama Sends The Message That Investors Are Not Wanted

Bloomberg: click on Bloomberg to read it all
This article by David Reilly is the best I have seen on the truly dangerous direction the Obama administration taking the Federal Government. This is Chicago style pay to play politics and a quantam leap in the growing corruptibility of Washington.
No Bond Safe From Obama’s ‘Shared-Sacrifice’ Plan:
Bondholders have a new risk to
contend with -- the Obama administration’s policy of “shared

The government’s approach to the bankruptcies of General
Motors Corp.
and Chrysler LLC illustrates how this new, unstated
policy works: Bondholders are told to give up legal rights, and
cash, as part of a government-mandated tradeoff that favors a
politically connected special-interest group.


As Singer lamented, when that happens, capital tends to
find a new home. That would be worrisome, given that the U.S.
needs to raise trillions of dollars to fund all the Obama
administration’s bailout and stimulus plans.

In the meantime, debt investors will have to consider new
risk factors when weighing an investment. These include the size
of a company’s workforce; the proportion that is unionized;
whether or not the company, or a sizeable part of the unionized
workforce, is in a political swing state; and whether it has
operations in the home district or state of an important
congressional committee chairman.

The GM case showed that these issues, not usually
considerations for investors, can be just as important as a
bond’s yield-to-maturity or covenants.

and, bondholders who were owed $27 billion while the Unions health trust was owed $20 billion yet look at the settlement results:

The deal certainly didn’t represent, as Obama said during a
Monday press conference, an “equitable outcome” for

Bondholders were given a 10 percent stake in the new GM and
warrants to purchase additional shares down the road. The
employee trust fund, meanwhile, received a 17.5 percent equity
stake, as well as $6.5 billion in new preferred stock. This
preferred stock pays a 9 percent dividend. So the trust will
receive $585 million each year, while bondholders stew.

No Fair Shake

Much of the ultimate recovery for bondholders and the trust
depends on the value ascribed to GM’s new stock, years into the
future. No matter how you cut it, though, bondholders don’t get
a fair shake.

“The UAW gets a recovery of five times the bondholders’
under reasonably upbeat scenarios,” CreditSights Inc. analyst
Glenn Reynolds wrote in a research note. “This is just the

This is a deal worthy of Rod Blagoievich. The message is Barack Obama doesn't care what the law is, he cares only about buying votes. The protection of indiviual rights and the rule of law in the United States have fostered the greatest improvement in the quality of life in the history of the world and our President and his minions have rejected that philosophy in favor of policy actions that will lead to a Vladimir Putin and eventually to a Saddam Hussein. Whe the rights of the individual to protection from the majority are lost then one is simply a slave to the whims of the government.


Lsquared said...

This is like something straight out of Atlas Shrugged. Also, I read somewhere that most of the Chrysler dealerships that were chosen to be closed were contributors to the Republican but not the Democrat Party. Could that be true?

BBL Jr said...

There was a lot of talk about that but I am not sure if it actually holds up. Certainly there were some good examples and it got creedence because either the former head of fund raising for the campaign is on the committee choosing dealers to be closed or the spouse of that person is on the committee.