The Next Anti-Union Myth: Obama Gave Them Chrysler

Prepare to see lots more stories like this one–stories that suggest Obama, out of whatever good intentions, decided to "give" the UAW Chrysler even while he deprived banks of their rightful return on debt.

Regardless of its literary influences [in Machiavelli], the Obama administration’s decision to give unions a big stake in the ailing Chrysler while strong-arming banks into forgiving a huge portion of debt is a sign of the times.

A nearly bust carmaker, several lenders that owe the government billions of dollars (and, in some cases, their survival) and an interventionist president eager to be seen to be tackling the nation’s economic ills: welcome to the United States of America 2009.

I have heard the arguments supporting the decision to short-change debt holders and carve out Chrysler between the unions (which get 55 per cent but just one board seat), Fiat (up to 35 per cent and three board seats) and the government (most of the rest of the equity and four board seats).

They boil down to this: extraordinary times require extraordinary measures (the end justifies the means, if you like).

In other words, with Chrysler employing more than 50,000 people in the US and Canada, it was paramount to avoid a long bankruptcy that would have destroyed the company.

If that meant giving junior creditors such as the unions favourable treatment at the expense of senior debt-holders, so be it. As for those hedge funds that rejected the plan, they are nothing but “speculators” according to Mr Obama.

Absolutely critical to the myth of the poor little hedge funds being strong-armed by the evil union and the interventionist President is the conflation of "the union" with VEBA, the fund to provide retiree health care that is controlled by the union to which Chrysler actually owes the money. I know it makes Financial Times readers lash out to hear of an evil union budging ahead of productive hedge funds, but in truth this was a matter of dealing with Chrysler’s biggest creditors–whether it be JP Morgan Chase or a fund run by a union–and not a matter of class warfare. 

Now to be fair, there is a germ of truth in this article: the poor little hedge funds purportedly being strong-armed by the union do hold debt that takes precedence over the VEBA fund. In relative terms, a tiny bit of it. But that’s their problem, not that the evil union stole their money, but that the larger secured debt-holders have a big enough share of the debt to be able to make a deal without them; as masaccio explains, it’s called cramdown, and it’s not unusual.  The key to Obama’s deal is not any allegiance to the union–tens of thousands of jobs are going to be lost in this deal even in the best scenario, and current workers have already made huge sacrifices (see this article for a description of what the Chrysler deal really means for the union members themselves)–but instead due to his leverage over the big banks–JP Morgan Chase and Citi–that have been sucking at the federal teat for the last year, and to those banks’ interest in getting the most money out of their investment in Chrysler. I guess those poor little hedge funds should have found stronger big players to associate with, because JP Morgan Chase and Citi’s interests are not in the same place as the hedge funds (or weren’t after Obama’s team started negotiating in earnest). Furthermore, the shills for these poor little hedge funds unions pretend that, without the government intervention they decry, there would be anything left for them to take.

Analyses going around of how the new Chrysler stock would be distributed in a typical bankruptcy assume that Chrysler has the right to claim the government’s billions, and then split them among its own creditors. It does not.

That is, the only thing keeping Chrysler out of Chapter 7 liquidation is government funding. And liquidation of Chrysler–the sale of factories that no one has the need for right now, given declining sales–wouldn’t net much value even for secured debt-holders. Given the relatively small stake these vultures have in Chrysler, they’re choosing between some value or less value. Obama’s intervention itself is the only thing that makes the "some value" an option, but they’re attacking the intervention itself even while–as soon as they get any money out of Chrysler–will join JP Morgan Chase and Citi in sucking at the federal teat. 

Ultimately, though, here’s what the FT is arguing. That the principle of secured debt–and with it the principle that we should have hedge funds making big profits by killing off the productive parts of our economy–is more important than those productive parts of the economy. I don’t doubt many of the FT’s readers believe that. But it goes against another principle that capitalists like to spout, that all these finance games ultimately support production and not just raw greed. 

The capitalist myths are really at a crossroads. They can continue to insist that all these finance games do … something positive for our society, in which case Obama’s stated principles (at least here) will win out. Or they can expose themselves as the true parasites they are.  But once they expose themselves as parasites deliberately dismantling the productive side of our economy to fatten their pocketbook, it’ll make it a lot easier to make the changes to our larger economy we need. 

But until this happens, when a business writer conflates "the union" with "VEBA" you can be sure he’s shilling for a bunch of parasites trying to get rich sucking at the federal teat while killing our real economy. 

57 replies
  1. DaPug says:

    I think I join most Americans in cheering for the hedge funds to lose every cent they used to buy Chrysler debt. They’re nothing but vultures trying to make another quick buck for nothing.

    For further proof, check out what hedge funds have done with Third World debt.

  2. JohnJ says:

    another principle that capitalists like to spout, that all these finance games ultimately support production and not just raw greed.

    This is the point that needs to be made again and again and again. If you don’t ultimately produce something, then you are overhead.

  3. Rayne says:

    Dammitall. Bad enough any of Chrysler suppliers who have not been paid in full are going to take massive haircuts — like millions of dollars in losses on product already shipped to Chrysler — but then to have this bullshit on top of it.

    There are already so many union workers who’ve lost their jobs and are still going to lose their jobs as Fiat takes over and Chrysler suppliers have to absorb their losses.

    • emptywheel says:

      Here’s what Chrysler said in its bankruptcy filing:

      Already-strained parts suppliers, hurt by Detroit’s plummeting sales, face a squeeze of their own. In court filings, Chrysler warned that many parts makers could follow the company into Chapter 11 if its proceedings drag on. Its largest unsecured creditor is Ohio Module Manufacturing Co., a supplier that is owed $70.3 million. Chrysler in court Friday asked that it be allowed to continue to pay its employees and suppliers.

      “Without a clear timeline for when the [bankruptcy] situation will end and production will resume, I believe we will see massive suppliers bankruptcies that will stop Chrysler from resuming production,” Chrysler’s procurement officer, Scott Garberding, said in a statement filed with the bankruptcy court Thursday.

      Thankfully, the same article interviews someone from Honda, expressing justifiable concern.

      • Rayne says:

        Thanks for pointing that out, but suppliers are still expecting they will be expected to take a haircut of some size.

        We’ve had a brief reprieve, but this could be the thing which starts the ball rolling toward shutdown. It’s literally hanging by a thread.

  4. plunger says:

    Manipulation of the mainstream media message (lying to the American people using their own airwaves) is what has led to the destruction of America. The War On Reality is relentless, and one is led to assume that most of the talking heads are in the employ of the CIA and new world order, whether they know it or not.

    The hourly disinformation that passes for news has Americans convinced that black is white, and up is down. If you assume that everything you hear on the news is a lie, you’ll be well on your way to ascertaining the truth.

    The oligarchs have demonstrated time and again that they will use fear mongering to change the main headline, for the purpose of:

    A: Burying the growing story that is causing them the greatest angst, and

    B: Slipping stories out that have been held back until they had sufficient cover to comply with their disclosure requirements, without the coverage that would have come, but for the fake terror/pandemic scare.

    Whether this whole flu thingie turns out to have been a media-hyped hoax remains to be seen. People die from the flu every year, and you never hear about it.

    What I know for a fact is that:

    1. The Terror Memo Investigations are out of the headlines,

    2. Israel declared itself not guilty of War Crimes yesterday (and no one noticed), and

    3. The AIPAC Spy Scandal prosecution is being dropped, letting these bastards off the hook.

    These three items didn’t occur by accident. Israel and their coconspirators have mastered the fine art of media (reality) manipulation. They control the message. Everything you see on TV is purposeful. The brainwashing is constant, and powerful.

    “We’ll know our disinformation program is complete when
    everything the American public believes is false.”

    – William Casey, CIA Director (from first staff meeting, 1981)

    Since 1996, the task of the CIA to coopt the mass media has
    been made much simpler. Less than two dozen corporations now
    control or own over 90% of the nearly 10,000 newspapers, maga-
    zines, and radio and TV stations in America (18).

    Ben Bagdikian, “The Media Monopoly.” 2000; see also:

    Controlling the media is a classic Nazi tactic. “Propaganda”
    Hitler once said, “is the most effective form of terrorism.”
    Despite the efforts of the Ford-Rockefeller White House, the
    Senate and House each established their own Select Committee on
    Intelligence Activities, chaired by Frank Church and Otis Pike (re-
    spectively). Rockefeller, with the assistance of Kissinger, Rumsfeld,
    and Dick Cheney, began obstructing Senate and House inquir-
    ies, particularly those which in any way concerned the training and
    employment of CIA assassination teams (10,15,19) or terrorist at-
    tack squads, such as Operation Gladio.

    (The Pike Committee finally issued a contempt of Congress
    citation against Henry Kissinger for his refusal to provide information.

    Despite the efforts of the Ford-Rockefeller White House, the
    Senate and House each established their own Select Committee on
    Intelligence Activities, chaired by Frank Church and Otis Pike (re-
    spectively). Rockefeller, with the assistance of Kissinger, Rumsfeld,
    and Dick Cheney, began obstructing Senate and House inquir-
    ies, particularly those which in any way concerned the training and
    employment of CIA assassination teams (10,15,19) or terrorist at-
    tack squads, such as Operation Gladio.

    • Leen says:

      Two top officials at Aipac indicted on espionage charges, Larry Franklin gets left holding the goods, trial delayed 9 times, the MSM barely covers the investigation or 9 time delayed trial, Rachel maddow covers it once but makes it out to be a spoof, Daniel Schorr calls the upcoming trial a “brouhaha” last Saturday on Scott Simons Saturday news program. The issue of Jane “this conversation did not happen” Harman’s involvement with the Aipac espionage investigation is swept under the rug, Rosen leads the knock out of Charles Freeman, MSNBC, CNN, etc never report about the takeout of Charles Freeman, the 9 time delayed trial is dismissed just days before the Aipac conference starts on Sunday.

      And on Monday those attending the Aipac conference will be pounding the floors of our Congress pushing the “Iran Diplomacy Enhancement Act” That “enhancement” word again

      No I lobby influence here. No need to wonder why there is so much disrespect for our alleged Justice system

      Call your Reps on Monday and ask them to vote no on H.R. 1985

    • flyarm616 says:

      Thank You Plunger most excellent, and all of us especially dems need to ask why it was that Obama shortly after taking office had Henry Kissinger go to Russia to represent his new administration, and realize this, Geithner worked for Kissinger his first 3 years out of University and then moved on to the CFR.

      Yes Obama Had Kissingr who’s nickname is “THE BUTCHER OF CAMBODIA” GO TO RUSSIA ..representing his administration.


      i submit..NWO

    • freepatriot says:

      dude, pull yer head out of yer ass

      why the fuck am I reading about aipac in a thread about chrysler ???

      if you wanna be known as anything but a dickheaded troll, you better STOP this shit

      we had this talk before

      that’s why I don’t read your SHIT

      go post your rabid rants on an oxdown diary where I can just fucking ignore your sorry ass


  5. fatster says:

    One more excellent article, EW. Just nauseating what is being done to us–and using our own money to do it!

    More on the wonderful bailout of the banks, or fanning the flames of discontent:

    Politicians Are In Office But Banks Are In Power:Time To Fight Back?
    How Wall Street Is Fighting Back and Winning Their Fight For The Status Quo
    By Danny Schechter
    Author of Plunder…..1-302.html

  6. phred says:

    hedge funds making big profits by killing off the productive parts of our economy–is more important than those productive parts of the economy

    This is the crux of the problem. We have “investment vehicles” (a bit ironic in this instance) where the financial incentive is to take a company’s stock price down and force it into bankruptcy. This is an absolutely perverse incentive. How would these hedge fund managers like it if their neighbors had a financial incentive to burn their houses down? Not so much, I would guess.

    Somehow we have to re-regulate our economy to send such investment vehicles straight into car-crushers at the financial junkyard.

    It’s high time that we returned to an economic model that rewarded long-term investment where profits are made on an increasingly productive economy, rather that profits made on gambling on the collapse of our businesses.

  7. Leen says:

    EW/all Amy Goodman had Ralph Nader on to talk about the Chrysler issue yesterday
    Ralph Nader: Obama “Indecisiveness” in Chrysler Bankruptcy Leaves “Everything up in the Air”…..le_in_chry

    Ew would very much like to hear your opinion about Rep Sestak being in the ring to run for the Dem Senate seat in Pennsylvania. Matthews interviewed Sestak last night about “Specter the defector” and what looks like Obama and other Dems attempt to choose who the Democratic nominee will be in that race for that Senate seat

  8. behindthefall says:

    It would also have helped if corporate boards had not tried to get short-term improvements in the bottom-line by sending manufacturing to China, simply for the sake of getting lower labor costs. Does anybody know whether this is reversible? Or is the Almighty Investor Looking for a Return is always going to have the last (only?) say.

    (I am getting so tired of buying stuff and then finding that it doesn’t work. Guess where it’s made. And, yes, I’ve heard the argument that they _could_ make decent stuff if they put their minds to it.)

  9. orionATL says:

    excellent analysis.

    those who view the financial times’ report positively exhibit what matt taibbi refers to as “the peasant mentality”, a phrase so apt it deserves to become a widely used pejorative (see glenn greenwald,4/30/09).

    my carpenter has to have his daily rush limbaugh fix. lately limbaugh has been going on about “don” obama in a manner similar to the ft story –

    another right-wing myth aborning.

      • WilliamOckham says:

        I’ll respond on this tread, just because I’m lazy.

        Yes. We’re still outnumbered, but that’s changing. I’m actually grateful for the total lunacy of the Texas Republican party. It’ll make it that much easier to build a Democratic majority here. I know everybody thinks it’s crazy to talk about a Dem majority in Texas, but the signs are there if you look closely. It’ll probably take 10-15 years, but it’ll happen. Here’s the reason. The median age of Hispanic citizens in Texas is 18 years old. The median age of white, non-Hispanics is 40 years old. The Texas electorate is about to undergo a fundamental change. Combine that with the fact that the Republicans do much worse among whites born since 1978 (just like everywhere else), and Texas will start turning blue.

        Now, just imagine what the Presidential electoral college outlook will be like when Texas is a battleground state. Where are they going to go to replace those 30+ votes?

  10. Mauimom says:

    EW, I heard that the hedge funds WANTED Chrysler to go into bankruptcy because they had CDS’s on which they’d benefit if it did so.

    Any truth to this rumor?

    • Ishmael says:

      Not according to masaccio. In comments to the post yesterday:

      “There aren’t any credit default swaps listing Chrysler or Cerebus as the reference entity. Chrysler bank debt is referred to as a leveraged loan, which means the loans are collateralized by Chrysler’s assets. There isn’t a credit default swap directly related to Chrysler, but there is an index of leveraged loans that would make an imperfect hedge.”…..gets-even/

      While CDSs may not be playing a big role in the Chrysler Chapter 11, masaccio brings up an important point about the bankruptcy process and the role played by vulture funds which may have CDSs and therefore a reason to spike any proposed reorganization plan – in other words, those who may value Chrysler or any similar entity more valuable dead than alive. A debtor that proposes a Chapter 11 plan must file a court-approved disclosure statement that is close to a prospectus in form and content. A creditor in my opinion that has a substantial stake of debt that it might want to use to kill a reorg plan, the whole point of Chapter 11, should also have to disclose if it has CDSs (esp. naked ones) that would kick in if it votes down the plan. Perhaps such an entity, in addition to disclosure, should not be able to vote on the Chapter 11 plan.

  11. Rayne says:

    Yeah, I had to go and take a peek on the other side of the fence. Definitely, to the letter, you have it pegged, EW.

    Here’s a comment left at this PJMedia post:

    May 1, 2009 – 8:08 am
    55. Randy Finley:

    Very well said. By the way, GE owns MSNBC. The UAW and Democratic Party are about to own GM and Chrysler. I’m not sure I see any reason to own GE, GM or Chrysler products.

    I suppose it’s a minor consolation to know Neutron Jack’s baby GE is getting tarred with the same wide brush.

  12. maeme says:

    Do we know for a fact that Obama is not using signing statements? That possibility is still very concerning to several us and could be another insight into what we were lead to believe. Any clues; anyone?

  13. WilliamOckham says:

    And while I’m being completely off-topic, I bet the Republicans are going to try to make a new litmus test for SCOTUS nominees: torture.

    I think this because Obama apparently has been able to curse the Republican party to compel them to do the stupidest thing possible in opposing him. Seriously, have you got a better explanation of their actions?

    • MarkH says:

      When you hear a Republican argue that in some cases it’s IMMORAL TO NOT TORTURE, then you will know what we’re up against.

  14. alabama says:

    That Financial Times article attributes to Machiavelli (in Italian, no less!), the statement that “the ends justify the means”. Well, the statement is not to be found anywhere in Machiavelli’s copious writings, and he would never think that way.

    Machiavelli’s lucidity and his ethics of personal accountability certainly terrified the Church at the time, and it’s said that the Jesuits put these words in his mouth. The slander has worked very well, in the sense that people who don’t bother to read Machiavelli still believe, five centuries later, that the sentence is his, and that it sums up his thinking.

    Media manipulation? It’s been around since the beginning of political discourse. The stronger the discourse, the more violent, the more terrified, the response–violence being nothing more than a form of weakness.

    • ThingsComeUndone says:

      Great Catch the Financial Times misquoting Machiavelli on a story! It makes you wonder if the FT has fired to many editors as newspaper sales slump and people read blogs.

  15. laborite57 says:

    You’ve done a great service, EW, in explaining the difference between the UAW union and and the VEBA Trust.

    This has been confused in the mind of much of the public, due in part to some sloppy reporting by various media outlets. It has also been purposefully confused by some anti-union groups that want to give the false impression that Obama is turning Chrysler over to the UAW as payback for its electoral support.

      • laborite57 says:

        Any ideas on how to get the following questions answered:

        The vulture fund guys have made the argument that it is their legal duty to get the best possible return on investment for the individual investors in the vulture funds. Who are these individual investors exactly (names, please)? And what was the return on investment offered in the government deal that was turned down by the vulture fund managers?

        • emptywheel says:

          If I’m not mistaken, and using my estimate (FWIW) that Chrysler sold in pieces parts is worth no more than $2 billion in this day and age, they gave up 1.6 million (on average) for 1.45 million in liquidation.

          • masaccio says:

            Two points. First, it isn’t clear that Treasury’s deal wasn’t the best outcome for the vulture funds. A whole lot of other people think it was at least in the range of acceptable even if it wasn’t the absolute best. Bankruptcy isn’t predictable, the outcome depends on a whole host of variables that aren’t under control of the vultures.

            Second, I think EW overrates the values. I bet a fair amount of the equipment used in manufacturing is leased, or subject to a purchase money security interest. Who the heck wants the old plants. What are they good for? We don’t manufacture anything here. The value of Chrysler is as a going concern. That, in turn, rests on the willingness of the union to take pay cuts to improve the bottom line. I link to a WaPo article in my post above, quoting Standard and Poors as estimating that asset value is $.30-.50. The article puts the value of the deal at $.32. If the assets are in the range the WaPo says, the deal looks a lot better than taking a chance on whatever can be done in bankruptcy, where the only certainty is enormous legal bills.

  16. ThingsComeUndone says:

    If Dan Quayle is employed by your hedgefund can you really complain to anyone if you don’t get your money back?
    I only wish Obama would have treated the Banks this way.

  17. cbl2 says:

    Hi emptywheel and firedogs,

    MODS. – somehow again, I have an unpublished, unedited diary in the Oxdown Box – could you kindly make it go away ?
    ‘k thanks

    • RBG says:

      If you’re talking about the “Do As I Say” diary, it’s been moved back to drafts.

      FWIW, it may take a few minutes for it to be removed from the box.

  18. albertchampion says:

    Who really killed Chrysler?

    Wasn’t it Daimler-Benz AG[and its largest stockholder, Deutsches Bank]?

    Didn’t Daimler have a program[or is that pogrom] to lame Chrysler so that Daimler products would have claim to a larger share of the US auto market?

    just some musings about the concept of cui bono.

  19. hackworth1 says:

    The same right wing talking points from the article cited above were dutifully reported on NPR this morning:

    the Obama administration’s decision to give unions a big stake
    As for those hedge funds that rejected the plan, they are nothing but “speculators” according to Mr Obama.

    interventionist president

    Plunger is correct.

  20. CTHankster says:

    Well, I suppose this is beside the point. But that photo of the 1957 Chrysler accompanying this post on the front page: what a great looking car! Maybe if American cars today had that kind of style (and great fuel economy, etc yada yada yada) they wouldn’t be bankrupt. Bring back tail fins! (The higher the better.)

  21. phastphil says:

    There is definite flaw in our bankruptcy laws when employees and unions are considered junior creditors. Employees should always be at the front of line.

  22. richardpatten says:

    Hedge fund investment was at risk; they deserve leftovers. Workers gave salary and benefits-not at risk; they earned their shares, which are now at risk.
    Hedge funds are just corporate raiders by another name, except use inflated assets (excessive leverage and junk) to buy stock; then they weasel their way onto the board and profit by cutting the cost side (product quality, R&D, workers, wages, land holdings, usung real or threatened bankruptcy and asset-stripping) to jack up short-term profit, shareholder payout and paper value of shares). They are parasites that destroy productive assets, including newspapers, airlines, retail, auto companies-no limit or ethics. They have cost the U.S. millions of jobs and productive companies, with no return to the real national economy. They game the tax codes and hide profit offshore. We need them like we need a lampray attached to the body of our economy. No tears if they realize their risk.
    This person cares very much what Ralph Nader thinks, because Ralph is sharp, informative, progressive, correct and a ray of rationality in this stinking country of politics and payoff government.
    What I worry about now with Chrysler, Ford and GM is that they are building manufacturing and hiring in Mexico (EPI Briefing paper “Invest In America” by Robert Scott. April 8, 09) while shutting down U.S. plants and firing U.S. workers. I thought the purpose of the auto bailout was to retain auto jobs and manufacture in the U.S. Apparently, the auto companies as well as the banks are scamming the public.

  23. MarkH says:

    A vulture speculator can buy a company, cut costs to the bone (like a vulture picks a carcass) and then sell the result for maximum profit in the short-run shows there’s something terribly wrong with our system. Since when do they not receive the maximum benefit from making the company stronger for the long-run? How can anyone REMOVE something from a going concern and make it worth more?

    Something is wrong with the valuation system!

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