JP MorganThe Banks Forces Chrysler into Bankruptcy

The UAW was willing to negotiate, but the banksters weren’t. So Chrysler will now enter bankruptcy.

The Obama administration will announce at noon today that it will take Chrysler LLC into a historic bankruptcy to force a cut in debt key to a partnership with Fiat S.p.A. after three firms refused a sweetened offer.

With the UAW late Wednesday ratifying cost cuts in its contract and cuts in the money due its retiree health-care trust fund, President Barack Obama will announce a Chrysler-Fiat deal and the government’s “surgical” bankruptcy plan later today.

The administration "was willing to give the holdout creditors a final opportunity to do the right thing," an administration official said. But "the agreement of all other key stakeholders ensured that no hedge fund could have a veto over Chrysler’s future success."

The lack of an agreement will not "impede the new opportunity Chrysler now has to restructure and emerge stronger going forward," the official said.

The Administration claims they’ll be able to pull off a surgical bankruptcy and still pull off the Fiat deal on the other side, leaving Chrysler with some lease on life. But meanwhile, the banksters get to collect on their bets against Chrysler and get rich rich rich! All while sucking at the Federal teat. 

Update: JPMorgan Chase may have been willing to deal. It was a couple of hedge funds that were the final holdouts.

The holdouts are no longer the big four banks (and TARP recipients) that together own 70 percent of Chrysler’s debt. Both the Journal and the Washington Post have fingered three hedge funds — Oppenheimer Funds, Perella Weinberg Partners’ Xerion Capital Fund and Stairway Cap Management — as the sticklers. The government is faced with the unenviable prospect of getting unanimous consent from all the bondholders to make a deal, which gives the hedge funds extraordinary leverage. In the parlance of Wall Street, taking a hit on what you are owed is known as a "haircut." The hedge funds seem to be allergic to the barbershop.

From Obama’s statements.

He starts by saying they get a new lease on life. 

Talks about its role in US history, and in building the middle class. 

It’s been a pillar of our economy, but a pillar that’s been weakening. Designing cars that were less reliable and less fuel efficient than competitors. As I’ve said from the start, we cannot keep this company afloat on an endless supply of tax dollars. Must be invested in making Chrysler more competitive. It’s also clear that if Chrysler was able to form a partnership with Fiat, there was a chance it could have a new lease on life. I challenged them to design a plan that would protect American jobs. Chrysler’s most important stakeholders have agreed to make major sacrifices. Pleased to announce that Chrysler and Fiat have formed a partnership that has a chance for success. Save thousands of jobs at Chrysler and tens of thousands at suppliers. Every dime will be repaid before Fiat can take a majority ownership. Canada also committing resources. It’s a partnership that will give Chrysler a chance not only to survive, but to thrive. Fiat has demonstrated it can design the clean efficient technology that is the future. Fiat also working to build fuel efficient cars and engines here in America. Unprecedented sacrifices. Management–especially Nardelli–constructive. UAW already made painful sacrifices, made further cuts. Several major financial institutions, including JPMC, agreed to reduce their debt. German automaker agreed to give up its stake in Chrysler.

While many made sacrifices, a group of hedge funds held out, they were hoping that everyone else would hold out. I don’t stand with them. I stand with Chrysler’s employees and management and suppliers. I stand with the millions who want to buy Chrysler’s cars. Supporting Chrysler’s plans to use our bankruptcy laws. Nobody should be confused about what BK means. Clearly charted path on the way to Chrysler’s survival. Because the biggest stakeholders have already agreed, this process designed to deal with those last few hold outs. Not affect the ability to buy a Chrysler or to get it serviced and repaired. Full support of key stakeholders. Every confidence that Chrysler will emerge stronger and more competitive. I know some believe BK should not happen. I recognize path we’re taking is hard, but it’s the right one.

Also to shore up financing. It’s not clear that Chrysler Financial would require stream of money to remain compatible. GMAC has agreed to finance new Chrysler sales. Additional capital to GMAC so consumers can get auto loans and dealers can finance inventories. Tomorrow small business admin to include more dealers and suppliers. Steps to make it easier to buy American cars. If you decide to buy a Chrysler, warranty back by US government. Working to accelerate purchase of federal fleet. Fleet modernization.

As pleased as I am, we know that far too many Americans are still struggling. That’s why as I discussed I’ve named Ed Montgomery to be director of recovery reaching out to hardest hit areas. Challenging times for American auto industry and American people, shared purpose, if we can embrace the idea that we’re all in it together, we will succeed not only with Chrysler, but we will rebuild our entire economy. And make 21st century another American Century.

Chrysler and GM are going to come back. 

70 replies
  1. oldoilfieldhand says:

    Isn’t it great! We can always count on the bankers to do the right thing for themselves! Judges cannot restructure home loans because the banks might lose some interest, but when the loans are defaulted the banks will want the government to purchase them at full value. We need to shake off the mantle of finance controlled government. Usury cannot be legalized!

  2. 4jkb4ia says:

    Very sad day.

    This admin official may be the same one who is briefing the NYT that the hedge funds are to blame for this fiasco. If Obama had to go out and do this and face the wrath of labor, we can think that he is likely to be more skeptical about what the banks and hedge funds are telling him.

    Even my husband asked whether Obama could force the bondholders to make a deal.

  3. klynn says:

    The administration just blew it. And that was the intent by the banksters.

    I want a Percora Commission. And the investigation must start with Chase. And I want that Percora Commission to be announced today, before the gov announces about Chrysler.

    • emptywheel says:

      I suspect we’ll learn the hedge funds bet very heavily against Chrysler, so it wasn’t a question of their debt, it was a question of the bets they now win.

      • klynn says:

        Oh I get that. But from their perspective, if they don’t win, it’s a haircut. That’s the Zero Sum thinking of hedge funds.

      • Watt4Bob says:

        I suspect we’ll learn the hedge funds bet very heavily against Chrysler, so it wasn’t a question of their debt, it was a question of the bets they now win.

        So, getting right to the point, when can we expect the truth to dawn upon our credulous president, that it’s absolutely necessary to get rid of the utterly corrupt Summers, and Geithner, the principal architects of Save Our Casino Capitalists ?

        There’s very little question that left to thier own devices they’re going to leave the cupboard bare, and then what’s Obama going to do?

      • readerOfTeaLeaves says:

        Okay, I really MUST stop blogwhoring, but just a reminder for any readers who are unaware: those ‘bets’ were called ’swaps’.

        Swaps were unregulated, which means that people could bet on Chrysler without fearing that the FBI or anyone else could ever learn about it or come after them. Venal.

  4. BoxTurtle says:

    I HOPE that the pre-planned bankruptcy can be moved quickly through the courts, but it takes only a few secured creditors objecting and Chrysler is parted out. And will this shotgun wedding be capable of making a profit afterwards?

    It’s going to be very interesting to watch the CDS’s unwind. Finally, some of the cards are going to be on the table and we can see exactly how that darn things are going to work out. I worry that this is going to end up taking down one or more of the big issuers of CDS.

    Boxturtle (Another bailout!!! Wheee, everybody party!!!)

    • hackworth1 says:

      The big boys got the opportunity to get their money back and make a profit by shorting Chrysler stock even as they held the stocks and bonds.

    • Mauimom says:

      It’s going to be very interesting to watch the CDS’s unwind. Finally, some of the cards are going to be on the table and we can see exactly how that darn things are going to work out. I worry that this is going to end up taking down one or more of the big issuers of CDS.

      And hackworth @ 11:

      Anybody who had ’sell short orders’ on Chrysler stock stands to make a profit. If the hedge funds knew that Chrysler was going to bankruptcy, they probably placed their sell short orders early when the share price was relatively high. Is there sufficient time to ‘buy to cover’ now?

      The participating hedge funds will make out like bandits on the death of Chrysler. This is what is wrong with the modern business world.

      Is there a diary somewhere outlining why it’s in the hedge funds’ “best interest” to force Chrysler into bankruptcy?

      And perhaps a “watchdog timeline” that can monitor this as these ghouls cash in?

      Finally, if we taxpayers own a big chunk of the various banks, why didn’t we “direct” them to deal on this? Or purchase their “toxic asset” of Chrysler stock?

      This is just so much more of Geithner & Summers protecting the hedge funds.

      Why, oh why weren’t there ANY questions on the economy @ yesterday’s presser?

  5. runfastandwin says:

    Why not just tell these hedge funds to go screw? Let ‘em sue, who cares. I have no doubt that’s what they’d tell me, if I was owed say a couple thousand dollars.

    • tekel says:

      why not tell the hedgies to screw? well, it sounds nice, but bankruptcy law is set up to make sure that everyone is treated equally. The hedgies aren’t complaining about the haircut, per se. They’re complaining that they’re taking a 60% cut on their secured debt while the banksters are getting paid at 100%.

      And the hedgies are right! The proposed reductions in secured debt were unfair to everyone that isn’t a TARP bank. The hedgies aren’t saying “we don’t want a haircut,” they’re saying “if we get $.40 on the dollar, it’s only fair that Chase gets in the same boat.”

      • oregondave says:

        Please tell me what you mean by “banksters are getting paid at 100%” Here’s what the NYT wrote today:

        The most recent plan proposed Wednesday by the Treasury Department and Chrysler’s four main bank lenders — JPMorgan Chase, Citigroup, Morgan Stanley and Goldman Sachs — would have given the creditors about 33 cents on the dollar.

  6. klynn says:

    Well, lets start making a list of names tied to those funds ASAP and start the connection…This is not about the hedge funds taking a hair cut, it’s bigger. I think the hedge funds need to be held accountable to what their holdout will do to our economy. Let’s get names in print. Fast.

    Let’s start listing the benefactors of all of this. Especially if there are foreign ties to them.

    • 4jkb4ia says:

      Possibly related: I had a quick and dirty question about whether any of these have invested in GM and overlap between GM and Chrysler bondholders in general.

  7. hackworth1 says:

    Anybody who had ’sell short orders’ on Chrysler stock stands to make a profit. If the hedge funds knew that Chrysler was going to bankruptcy, they probably placed their sell short orders early when the share price was relatively high. Is there sufficient time to ‘buy to cover’ now?

    The participating hedge funds will make out like bandits on the death of Chrysler. This is what is wrong with the modern business world.

    • readerOfTeaLeaves says:

      Ding, ding, ding!
      We have a winner!!

      I’d like these jackasses to have a few personal heart-to-hearts with the FBI.
      And the sooner, the better.

  8. foothillsmike says:

    There were news reports the other day saying that as a result of negotiations the UAW was going to come out with a 55% stock ownership in Chrysler. Does bankruptcy throw this deal out the window?

    • laborite57 says:

      Short answer is “no” although this particular part of the restructuring may be modified as the bankruptcy proceedings go forward.

      Also the 55 percent of the stock does NOT go to the union. It goes to an independent trust to fund benefits to retirees. Therefore the union does not gain meaningful control over the stock.

  9. hackworth1 says:

    There is no way on God’s earth that hedge funds who sold short millions of shares of Chrysler stock would budge after they placed their bets on bankruptcy. No Way. They would lose millions, more likely billions of dollars.

    This is what’s wrong with the so-called ‘free market’ system.

  10. hackworth1 says:

    There was sufficient positive spin on Chrysler last night and early this morning to entice suckers to buy Chrysler stock.

    As usual, the little guy gets robbed by the hedge funds. Sorry to belabor the point, its the way the Free Market works.

    • readerOfTeaLeaves says:

      These jackasses learned their predatory ways at the feet of Milken back in the junk bond days. They can’t produce jack shit, they wouldn’t know a production system if one bopped them on the nose, and they think that all it takes to ‘create wealth’ is inside information, software, chutzpah, and money.

      They deliberately screw with the stock prices of companies, and they hide behind ‘market’ bullshit as a means to try and make their predation legitimate. It’s fundamentally predatory, destructive activity.

      But like assholes everywhere, they overreach.
      I think we’re seeing it now.
      Unbefuckinglievalby stupid.

      • myshadow says:

        I hope that is the first of a set of rolling smackdowns. The hedge funders, specifically the ‘naked shorters’ have to be eliminated. A serious regulation of short selling has to be instituted yesterday. A slight digression but relevant, part of the convulsion in commodity prices, specifically oil was driven by speculators, some of whom are out of the market like bear sterns, aig and solomon bros, and hedgers among others, they were bidding up the price of oil to recapitalize themselves, know they were a rotten tooth waiting on a root canal. OPEC caught the blame, they are an easy target. Commodities have yet to reinflate because the world market/economy couldn’t support 150. oil, the spike wasn’t driven by real market forces of supply and demand. That said, regulation on speculation has to be enacted as well so a spike doesn’t happen again.

        • readerOfTeaLeaves says:

          Hedge funds tanking a major US corporation should be the Wake Up Call From Hell to the US Congress, the EU, international onlookers — and all of us.
          Tax havens, hedgies, and swaps have to be cleaned up.

          bmaz around these parts has done a brilliant job of showing how Washington DC does not understand engineering and industrial processes. These processes require a great deal of capital and are very subject to financial manipulators destroying them. You can have a great product, an exceptionally well-run company, and superb employees — but if the markets are manipulated, they banksters and hedgies can make a profit from sending your business straight to hell and putting skilled employees with years of education and experience out of work.

          So far, Congress has failed to connect those critical dots

          Congress has been completely bamboozled by banksters, who seem to think that they can mumble about computerized default swaps and other financial mumbo-jumbo — and then watch Congress swoon like a hormone-crazed teenager and legalize whatever the banksters want.

          But if you have time, go over to the CSPAN site and search for ‘commodities‘ and ‘Soros’ — last June, Soros brilliantly explained to a small Senate subcommittee how destructive the oil spec market has been for the US. Also, Greenberger was eloquent.
          That one single C-SPAN hearing (chaired by Sen. Maria Cantwell with Sen Byron Dorgon asking some really good questions!) should be required viewing for every voter. And if I were in the UAW, I’d urge my co-workers to watch it as a group and then discuss the implications of having a government that legislated Casino Economics for High Finance; we’re seeing one outcome with the fallout with GM.

          After following this GM topic here for so many months, and doing a lot of background reading, it’s really exasperating to see this happen.

          But if it reveals the predation of the financial sector, the depravity of the hedge funds, and the lunacy of allowing banksters to run the world then it may have a silver lining.

          I must now stop blogwhoring. Sorry, EW!

  11. 4jkb4ia says:

    OK, we have more. These are three of the hedge funds on the steering committee, but the steering committee was originally Chase, Goldman, Morgan Stanley and Citigroup. How was it arranged that hedge funds were represented there? Stairway Capital Management appears to be a very obscure fund without a website of its own.

  12. Akatabi says:

    This is good news for the teabaggers. Get “Joe the Plumber” if he ever really existed to want to bust the Unions and keep pouring more grain down the funnel in the Bankster’s throat. That’s Populism we can believe in! (And blame it on ACORN)

  13. Scarecrow says:

    From the NYT article:

    Many of the holdout lenders, primarily distressed-debt hedge funds who bought portions of Chrysler’s $6.9 billion of bank debt at a discount, are likely to argue that they have the first claim to the carmaker’s assets that were pledged for those loans, according to people briefed on the matter.

    They argue that they would see greater recovery in a liquidation of the car giant, which they contend would yield about 65 cents on the dollar. The most recent plan proposed Wednesday by the Treasury Department and Chrysler’s four main bank lenders — JPMorgan Chase, Citigroup, Morgan Stanley and Goldman Sachs — would have given the creditors about 33 cents on the dollar.

  14. 4jkb4ia says:

    This is a very good article which may be sufficient justification for the WSJ to increase circulation. Stairway Capital Management is also a distressed-asset investor, and the article points out that the hedge funds will make money when the big banks won’t in a bankruptcy because they bought the debt at a discount. So all of this is simply greed. Foreign connections not necessary.

  15. SanderO says:

    Capitalism is really nasty. Here you have these banks, Hedge funds with no social function other than to make oodles of money and in the case of hedge funds for a few very wealthy people.

    The system stinks and needs to be completely changed. But how?

    • ekunin says:

      We need to use the internet to create nationwide peaceful protests with so many people involved we no longer argue about who is in the majority, moral or otherwise. I’m not talking a million man march in say Washington DC. I’m talking all over. If we are dissatisfied with representative democracy which seems to have sold itself to the highest bidder, the alternative is we the people. We must think of a way to get on the same page. That will be difficult in the US, home of unbridled individualism. Once “we” find our voice, we can talk about what to say.

  16. LKN2 says:

    I certainly hope that any of the CDS agreements that are owed by AIG as a result of this bankrupcy will not get paid off with taxpayer funds. It is way past time to say no to these robber barrons!

    • BooRadley says:

      This is an important question.

      I cannot believe that even AIG would underwrite a large number of swaps for Chrysler, but I’ve been wrong before.

  17. 4jkb4ia says:

    And here a WSJ source says that the hedge funds distrusted the banks which were getting TARP money and were about to set up their own committee. Bank-hedge fund conflict is easy to believe because the people running the hedge funds chose not to work for the banks, but for themselves.

  18. EternalVigilance says:

    Well, if I’m a bondholder and I also happen to have credit default insurance swaps on bond default, I believe I’m looking at the choice of either

    a) If Chrysler survives, taking a loss and then waiting a long time for getting back whatever money I can

    b) If Chrysler goes bankrupt, getting paid off in full right now

    Which do you think any bankster would demand?

    If we talk about the creditors of these companies like they’re the medical team responsible for the companies’ health care and recovery, it’s like going into emergency surgery and discovering your heart surgeon has taken out a huge life insurance policy on you, with him as the beneficiary.

    (P.S. And remember, if they’re AIG-issued swaps, the taxpayers pay the payout – bust the unions and screw the uppity taxpayers! Sweet!)

  19. myshadow says:

    maria bartiromo was just on 8:45ish with a statement from ‘frustrated investors’ complaining about the ‘breakdown’ of the deal. As she was in the midst of her read/rant she started a word with ‘H’ referring to ‘investors’ and caught herself, larry kudlow broke in and steered the conversation around the fact the union was going to have a 55% stake in Chrystler, and it was they who blew the bargaining. I just heard the President announce a deal and it looks like the hedge funders take a haircut.

    • readerOfTeaLeaves says:

      This is going to be a battle for the airwaves, par excellence.
      No way in hell a US president with the kinds of problems Obama faces is going to hand a bunch of hedgies his ass on a platter, methinks.

      But Bartiloma needs to grow up and use the “H word”, for Chrissakes.
      Because when people find it out elsewhere, it just makes her look like a craven tool of the hedgies.

  20. readerOfTeaLeaves says:

    klynn, I don’t think the Administration blew it. I think Robert Gibbs will have 10x the amount of work today figuring out how to communicate this clearly as any human should have to do in one day.

    But the hedge funds just f*cked themselves.
    Today, they look ruthless and they’ll get their pound of flesh.

    But they have now revealed their ruthless, amoral, uncompromising essence.
    They have just cut off their noses to spite their faces.

    This is going to take a while to play out.
    The hedgies just fucked themselves.
    Which is the biggest silver lining that I see here.

  21. laborite57 says:

    I just watched the Obama statement and I admire the fact that he put the blame for the failure to reach a full agreement squarely at the feet of the hedge funds and speculators. We would never have seen that from Bush, Clinton, Reagan, etc.

    He put himself on the side of the Chrysler employees against the speculators. Change I can believe in.

    • mookieblaylock says:

      He put himself on the side of the Chrysler employees against the speculators. Change I can believe in.

      please,, what’s the end result,who makes friggin billions and who loses their jobs , change you can believe in

      • laborite57 says:

        Okay. Fair enough. My point was that Obama’s rescue of Chrysler seems different than most of the other corporate rescues we are seeing (or have seen in recent years). Yes, Chrysler’s employees are taking a serious hit. Is there an alternative where the status quo ante is restored? I don’t think so.

  22. frederic says:

    I think we should say the hell with it and have government control every aspect of our country. Name one bad thing that has ever come out of socialism.

  23. wohjr says:

    Tea Leaves-

    100% agree. Much like Darth Dick, this outrageous overreaching will be their ultimate undoing. They shoulda taken the haircut and kept their mouths shut.

    I actually know Perella, too. Seems like a nice guy… at first. Wouldn’t have made him for felonious-level obtuse though

  24. oregondave says:

    I am open to opinions on whether JPMorganChase redeemed itself in any way. I have quit using my VISA card and paid off my balance, but have not yet cancelled that account. I had sent them an email stating my intent to close the account if they failed to agree to restructuring Chrysler’s debt and forced Chrysler into bankruptcy (I am still waiting for an answer from them). Sounds like they went the extra mile with the government; it seems clear it was just the hedge funds that said “no.” Yes?

  25. readerOfTeaLeaves says:

    responding to laborite57:

    Here’s the CSPAN hearing. It’s about 2 hours, but I ran it while catching up on menial tasks. It’s a pretty good glimpse through the keyhole of unregulated markets at a time between the demise of Bear Stearns and the Sept 15th Market Meltdown.

    Worth a view while you’re doing something that doesn’t require much concentration.

    (BTW: This hearing focuses on energy futures, but has a huge, enormous impact on the entire economy, but particularly agriculture and the food supply. One of the participants is from a region in
    Washington states that produces onions, sugar beets, and other basic commodities. The impacts percolate all through the US and international markets.)

  26. barne says:

    Heat up an economy with HELOC and mortgage madness, short everything via CDS and other paper, kill the economy with sky high oil prices, Cha-Ching to the nth!

    • mookieblaylock says:

      Heat up an economy with HELOC and mortgage madness, short everything via CDS and other paper, kill the economy with sky high oil prices, Cha-Ching to the nth!

      isn’t that the truth. People write books,long magazine articles etc. and there is more in that one sentence than any of them.

  27. lickinpiece says:

    Dinosaurs eventually lead to the formation of the Maerican middle class,,,, also………….times that are a changing

  28. BlueSun says:

    Some warnings to think about:

    “If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.”

    — Thomas Jefferson

    I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country…Corporations have been enthroned, an era of corruption in high places will follow, and the money-power of the country will endeavor to prolong its reign by working upon the prejudices of the people until the wealth is aggregated in a few hands and the Republic is destroyed.

    – Abraham Lincoln

    Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital and deserves much the higher consideration.

    – Abraham Lincoln

    It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. Every man is equally entitled to protection by law; but when the laws undertake to add…artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society – the farmers, mechanics, and laborers – who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their government.

    – Andrew Jackson

    Don’t be deceived when they tell you things are better now. Even if there’s no poverty to be seen because the poverty’s been hidden. Even if you ever got more wages and could afford to buy more of these new and useless goods which industries foist on you and even if it seems to you that you never had so much, that is only the slogan of those who still have much more than you. Don’t be taken in when they paternally pat you on the shoulder and say that there’s no inequality worth speaking of and no more reason to fight because if you believe them they will be completely in charge in their marble homes and granite banks from which they rob the people of the world under the pretense of bringing them culture. Watch out, for as soon as it pleases them they’ll send you out to protect their gold in wars whose weapons, rapidly developed by servile scientists, will become more and more deadly until they can with a flick of the finger tear a million of you to pieces.”

    –Jean Paul Marat, 18th Century French Visionary

  29. cinnamonape says:

    I find it more than a little ironic that the same folks that pished the Chrysler bankruptcy are now eating in huge over in the Media area.

    Clear Channel is bleeding cash after loading up in debt during its buyout by Bain Capital. The recession has hit radio and billboard ad revenues quite dramatically…layoffs are now in the thousands. I expect that they will next try and sell off some of their radio stations.

    Clear Channel Faces Financial Crisis

    Clear Channel Lays Off Thousands

    • oregondave says:

      Perhaps a progressive buyer will turn up for KPOJ-AM here in Portland. (KPOJ is Thom Hartmann’s home base). The irony of Clear Channel owning the one (self-described) progressive talk radio station here is striking. Understandable, though — profit trumps ideology.

  30. ferrarimanf355 says:

    I see that some people are still in the denial stage of grief. Let it go, Chrysler had it coming. This isn’t about breaking the unions (although they do share some of the blame here). This is about survival. Chrysler can’t survive. It’s over.

  31. YYSyd says:

    Isn’t there a way to stiff the CDO holders so that they will not need to agree to not get paid short of going bankrupt?

    Guess not…

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