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“You don’t need banks and bondholders to make cars.”
—Anonymous White House official to the Wall Street Journal‘s Neil King Jr. and Jeffrey McCracken. Check out their detailed breakdown of the White House/Chrysler Bondholder negotiations at the WSJ.
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“You don’t need banks and bondholders to make cars.”
-Anonymous
Actually, you really do need banks and bondholders to make cars unless you replace them with the U.S. Treasury and taxpayers. I agree this is a superior arrangement since they don’t require collateral.
Nothing like politicians spending money that they didn’t earn or would even have the foggiest idea how to do so. Change so they claimed…
“You don’t need banks and bondholders to make cars.”
Trust me, they haven’t the vaguest idea. That is like saying you don’t need flour and water to make bread.
“Anonymous White House official”
That says it all. I wonder who it was. The exterminator? The cook? The hairdresser?
Whomever it was, this was a real scoop. I mean, how can they stop the leaks?
Social security is going broke as well.
By 2020 the interest on the national debt, social security paybacks of amounts borrowed by Congress, and Medicare will be something like 80% of the federal tax revenue.
We should take financial advice from the losers in Washington?
I’m sure plenty of people will be along shortly to tell us all what shrewd operators the Obama Administration are and how he really understands these things better than anyone.
“We should take financial advice from the losers in Washington?”
At least they are working and their houses aren’t being foreclosed upon. Perhaps we should start listening to them instead of the people on Wall Street who were so smart they nearly trashed the whole economy.
Just imagine where Social Security would be today if Bush had succeeded in moving our money to Citi and Goldman Sachs.
By 2020 the interest on the national debt, social security paybacks of amounts borrowed by Congress, and Medicare will be something like 80% of the federal tax revenue.
They can always print more money. Weimar-style debasing of the currency is the canary to watch for.
There are some interesting quotes in the WSJ piece:
“There were 46 debtholders in all, including many small hedge funds and distressed-debt funds. Most of these had acquired their holdings at a discount on the secondary market.”
“Many of the lenders believed the administration wouldn’t let Chrysler file for bankruptcy. “The plan was to call the government’s bluff. The game was to game the government,” said a manager of a distressed-debt fund.”
The WSJ story is an interesting read. The PTFOA offered to simply turn Chrysler over to the creditors to either run or liquidate themselves multiple times. They refused. The whole story is a game of typical negotiation between the party which is funding a restructuring (the DIP lender) and those holding the existing debt. The only thing unusual about the story is that the DIP lender is the US Treasury. $2 billion cash was a very generous payout for the remains of Chrysler.
The whole story is a game of typical negotiation between the party which is funding a restructuring (the DIP lender) and those holding the existing debt.
There is one difference here — usually, it would be the debtor that does the negotiating. The DIP lender under most circumstances is just a lender. Cerberus and Chrysler’s management were clearly not in control of this deal at this point. The day that they fired Wagoner is effectively the day that they fired Cerberus, too, they just didn’t make it official.
But otherwise, it was the same. As some of us have been saying here for awhile, it’s a matter of one party out negotiating another, fair and square. Politics, socialism, Hitler, blah blah, yadda yadda have nothing really to do with it.
Reading between the lines, the bankers were expecting the Obama administration to roll over like scared dogs on this, just as the Bush administration had rolled over for the banks with the original TARP plan. They weren’t expecting good gamesmanship.
Oh, well. I suspect, though, that the administration still paid too much. They probably overpaid a bit in order to move things along. Neither side could afford to fail here.
“Just imagine where Social Security would be today if Bush had succeeded in moving our money to Citi and Goldman Sachs.”
No matter the topic, seems like someone will throw in a political canard. I guess they expect the statement to become true if it’s repeated again and again. What is true is that Democratic and Republican presidents have bravely tried to discuss Social Security reform but demagoguery from the opposition–R or D as the case may be–results in stalemate. And it is true that without fundamental reform Social Security will join Titanic as a synonym for disaster.
Oh, and BTW, the head of the PTFOA is a Wall Street guru.
Pch101 is right, I should have likened the PTFOA to an acquiring turnaround fund, not to a DIP lender.
“Just imagine where Social Security would be today if Bush had succeeded in moving our money to Citi and Goldman Sachs.”
“Politics” or not, carlos makes a good point; that would have been the greatest disaster in history. Our corporations have copped out on real pensions, sold a bill of goods by a money-hungry Wall Street who needed sand for their sandbox. We supplied it (grudgingly, but with the company match, it was the only game in town) because of fears about the inadequacy of Social Security. If our SS money had been pissed away as well…
“Just imagine where Social Security would be today if Bush had succeeded in moving our money to Citi and Goldman Sachs.”
It’s still a canard. Bush never proposed moving all of Social Security to Citi and GS. Each worker would have been given the opportunity to stay with the current Ponzi scheme or direct a portion of their SS tax to a private investment account.
Social Security is a badly broken, unsustainable system. The printing presses will be working overtime to keep up with the demand for free money.
Spot on Pch101.
Given the constraint that the government was not going to force a liquidation of most of the US-headquartered car industry (which, oddly, some commenters appear to think was a real option), it seems clear the administration has played well. There should be (tempered) cheering by all that the government has not been a patsy for the ‘smart’ guys on Wall Street.
Looks to me like this administration’s got game. The (Wall) street cred gained in not rolling over for the bondholders looking for a quick score will be useful going forward in this economic disaster.
Those types of pictures make me mental. I spent years trying to get good resistance (spot) weld nuggets. It’s a total waste when you blow it out the sides of the sheet metal, and end up with poor weld strength. Great for drama, crappy for quality.
carlos.negros: At least they are working and their houses aren’t being foreclosed upon.
Yes, not paying taxes frees up extra money for other things, and making sweetheart deals with mortgage companies and banks tends to prevent foreclosure.
carlos.negros: Perhaps we should start listening to them instead of the people on Wall Street who were so smart they nearly trashed the whole economy.
I agree. My wife and I are planning on not paying our federal income taxes in the future; I want to know how not only get away with it, but also land a plum federal job as well.
“Trust me, they haven’t the vaguest idea. That is like saying you don’t need flour and water to make bread.”
+1
Stupid. Fucking. Idiot. How can a White House official honestly think that, much less say those words? You must have capital to do anything, where does this idiot suppose that money comes from? I am really starting to hate the current administration and it’s only a few months old.
Ask a White House Official what they do need to make cars.
Receive blank stare. After they finish stripping banks and bondholders of their wealth in the auto business and showing the socialists in the country their street creds in this matter they will have to get down to business of actually competing with other companies, and even themselves.
All that is left is for the willing consumer to sign the purchase order for a new car and they reap the benefits of the sale.
Oops, forgot about that last part. Maybe we need an agency to determine how to force people to buy cars they don’t want and probably don’t need.
After they finish stripping banks and bondholders of their wealth in the auto business and showing the socialists in the country their street creds in this matter they will have to get down to business of actually competing with other companies, and even themselves.
Funny, I hadn’t realized that negotiations were a left-wing affair.
Business negotiations should know no politics. It happens at points like this in the economic cycle, when lenders find themselves overextended along with their borrowers. It’s not left, right, or upside down, it’s just business.
Nobody with half a brain would have paid these lenders at par, any more than you’d pay $1 million for a $100,000 house just because there is a million dollar loan on it. Is there some political principle at work here that makes it logical to buy assets for well above their value just because they’re owned by a hedge fund?
Of course, if it really is that political, then the answer is clear — corporations should be hiring leftists for the tough stuff, because the right is too weak and sympathetic to the other team to cut a better deal. The last thing I’d want on the payroll is an employee who is eager to buy stuff for well above market value just because Rush Limbaugh told him to do it.
“Just imagine where Social Security would be today if Bush had succeeded in moving our money to Citi and Goldman Sachs.”
Why do you think SS is safe? Congress has and will raid the funds at any time. I read papers too and I don’t recall GWB desiring to turn over SS to Citi and Goldman, maybe that was suggested on a blog somewhere.
Funny, I hadn’t realized that negotiations were a left-wing affair.
It’s never too late to learn.
Turning over 55% of the company to the UAW is not socialist in nature?
superbadd75 :
May 13th, 2009 at 8:59 am
Stupid. Fucking. Idiot. How can a White House official honestly think that, much less say those words? You must have capital to do anything, where does this idiot suppose that money comes from? I am really starting to hate the current administration and it’s only a few months old.
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The whole thing would make much more sense if the said idiot is Obama himself and the money come from a printer.
GS650G :
May 13th, 2009 at 9:39 am
Turning over 55% of the company to the UAW is not socialist in nature?
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No. That’s Communist in nature. Socialists still respect private ownership of property.
Turning over 55% of the company to the UAW is not socialist in nature?
Complete the following math problem:
$0 X 55% = $____.
There’s your answer.
It’s just cover for wealth transfer to a sector where minorities are over represented.
If the quality sucked under private ownership, it will be dismal under .gov ownership and productivity will plunge.
No one but some UAW people and official institutions will be stupid enough to buy these vehicles.
By a funny coincidence, you definitely need banks to SELL cars.
Pch101 :
May 13th, 2009 at 11:54 am
Turning over 55% of the company to the UAW is not socialist in nature?
Complete the following math problem:
$0 X 55% = $____.
There’s your answer.
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Then why not shut all those pesky bond holders up by giving them 100%?
Then why not shut all those pesky bond holders up by giving them 100%?
For one, it wasn’t necessary.
For another, they were offered the business and rejected the offer. Clearly, they wanted the cash, not the operations, equity or liabilities.
The whole point of a bankruptcy is to discharge debt. If you complete bankruptcy without alleviating the debt load, then there wasn’t much point in doing it in the first place.
The new entity needs workers. It doesn’t need the existing bondholders. Reality bites, I guess.