# Terms of the Chrysler Bankruptcy **URL:** \ **Category:** Great Debates\ **Created:** [May 1, 2009, 1:44pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964 "2009-05-01T13:44:17Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [May 1, 2009, 8:19pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/21 "2009-05-01T20:19:32Z")
> [@kunilou](#): > > But if I’m reading it correctly, what you keep referring to as “the UAW” is actually the UAW’s health benefits fund – in other words, it’s the health insurance program for Chrysler’s union employees and retirees. AFAIK it’s for retiree only. > [@](#): > > (Side note: I know it isn’t unique to Chrysler or the automotive industry for the union to administer benefits programs instead of the employer – in fact, many employers use a 3rd party to administer benefits.) I believe you are in error here. Many self-insured health plans are _administered_ by third parties (known as TPAs) but they are not the liability of the TPAs - those are just the people who deal with enrollments, claims etc. Employers are required to recognize a portion of the present value of retiree medical benefits on their books and this is the case regardless of who administers the plan. What happened in the case of the automakers is that the automakers and unions agreed to set up a fund to be financially responsible for the claims, so that the liability would be off the automakers’ balance sheets. The automakers agreed to put up the billions of dollars for the fund. I can’t say for sure that they are the only companies that did this, but they were the first major companies to do it - it was considered groundbreaking and possibly precedent setting at the time. > [@](#): > > And even with that, the majority of the employee’s health insurance will be backed by stock (and stockholders are at the bottom of the list in terms of any bankruptcy proceedings.) You seem to be implying that it will be backed with stock in the current company. Actually the idea is that they will get stock in the new company that emerges from bankruptcy. > [@](#): > > Does this mean that you’re advocating that the bond-holders who lent to a company that was already struggling, that already had been gutted, failed to merge with Nissan, failed to merge with Ford, got taken to the cleaners by Daimler, etc. – that those bondholders should get a higher priority than employee compensation, particularly when those negotated compensation contracts have already been renegotiated? Yes, exactly. As I posted previously, if I was writing the laws I would give priority to pensions and retiree medical and the like. But the laws are the law, and the people who lent the money lent it on the basis of it’s being secured credit and first in line, ahead of all unsecured creditors including retiree funds. I object to ignoring (or using political shenanigans to get around) the laws and terms of contracts because you think so-and-so needs the money more than the other guys. > [@Whack-a-Mole](#): > > Propping up the company keeps the stock from imploding. The value of the stock is not a concern of the creditors. > [@](#): > > It encourages the likes of the UAW to negotiate with the belief that there will be jobs for its employess thus keeping Chrysler potentially viable in the future. The exact opposite is true. The UAW is going to give the smallest amount of concessions that they can (as indeed they should). The only reason they made the concessions they made was because the company was finally at the end of the rope. The longer the rope is lengthened, the less pressure there is on the unions. They and their workers can’t just walk away from Chrysler if they think it’s not “potentially viable”. They have no where else to go. > [@](#): > > Keeps Chrysler out of likely Chapter 11 liquidation if the government just stood back and let it fail spectacularly. These guys feel they would get more in Chapter 11 then they get under the proposed offer. > [@](#): > > Yes I made up 10% as an example…I have no freaking clue how much it’d really be but in Chapter 11 I wonder how much those creditors would expect to get? Betting it wouldn’t be near 60% which was my point. But your bet does not seem be based on anything factual. ---
**Author:** ![CJJ](https://avatars.discourse-cdn.com/v4/letter/c/ecc23a/32.png) [@CJJ](https://boards.straightdope.com/u/CJJ)\ **Post date:** [May 1, 2009, 8:21pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/22 "2009-05-01T20:21:10Z")
> [@Fotheringay-Phipps](#): > > But this is actually ancillary to the more important point which is that I’ve noted repeatedly that my primary concern is over the smaller lenders that were **not** TARP recipients and are being pressured by the fact that the government expects to prevail in court by having the TARP lenders override the non-TARP lenders. Normally I’d have more sympathy for the non-TARP investor, since it’s easy to assume these are smaller investors who–as noted in the [public statement](http://blogs.wsj.com/deals/2009/04/30/statement-from-non-tarp-lenders-of-chrysler/) from the "Non-TARP lenders to Chrysler–“represent many of the country’s teachers unions, major pension and retirement plans and school endowments who have invested through us in senior secured loans to Chrysler.” But let’s look a little closer at the list of investors, shall we? Many of these–Group G Capital, Stairway Capital and Xerion Capital–are listed as [distressed debt hedge funds](http://www.investopedia.com/articles/bonds/08/distressed-debt-hedge-fund.asp), essentially vultures looking for a quick return by extending credit to failing companies. It’s a risky strategy, but one that promises huge returns if the firm falls into bankruptcy, since most companies emerge with better value on their debt than when they went in. Moreover, given the prevalence of the practice in the time leading up to the current financial crisis, it’s likely these investors have also bought credit-default swaps that pay off if Chrysler goes into bankruptcy. An ordinary investor might use CDFs as an insurance policy against losing their investment; for distressed debt hedge funds, bankruptcy is the payoff, so they have an incentive to see Chrysler go into Chapter 11. Of course, given Congress’ utter lack of will to regulate hedge funds, no one outside of the firm is likely to know the truth. Let me make it clear that all of the above is perfectly legal, and under the current rules the non-TARP funds are legally entitled to force bankruptcy in support of their investment strategy. But forgive me if I’m a little less inclined to reward folks who make their fortunes gaming the system and then give us a sob-story about the pensioners they so valiantly defend (ignoring the thousands destined to lose their pension when Chrysler files) because they think Obama is picking on them. A system that allows this sort of financial chicanery is a large part of the problem, and it’s high time government did something about it. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [May 1, 2009, 8:30pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/23 "2009-05-01T20:30:59Z")
> [@CJJ](#): > > But forgive me if I’m a little less inclined to reward folks who make their fortunes gaming the system I don’t see how “gaming the system” follows from anything else you wrote. How is a high risk high reward strategy “gaming the system”? Vultures perform a valuable function in nature and “vultures” perform a valuable function in the financial system in providing financial support in risky situations. (Not that my position on whether legal rights should be enforced would change even if they didn’t.) ---
**Author:** ![scabpicker](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/scabpicker/32/8268_2.png) [@scabpicker](https://boards.straightdope.com/u/scabpicker)\ **Post date:** [May 1, 2009, 8:50pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/24 "2009-05-01T20:50:45Z")
It’s gaming the system, because: They loan money to a company, an act normally done in order to help the company survive and grow. Instead, they actually benefit more if same company fails. When times get tough, they are more inclined to kill the company than take action which would allow it to survive. When this happens to smaller companies, it’s not so devastating, when it happens to a company high in the manufacturing food chain, it can have far-reaching effects. Again, everyone’s taking a bite of the shit sandwich in this case, most are waiving some of their contracted rights. This particular group of investors is taking their football and going home because they did not like their serving. There are other issues with CDS, but that is the one I see with this bit of insurance. ---
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [May 1, 2009, 8:51pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/25 "2009-05-01T20:51:06Z")
> [@Fotheringay-Phipps](#): > > The value of the stock is not a concern of the creditors.The exact opposite is true. The UAW is going to give the smallest amount of concessions that they can (as indeed they should). The only reason they made the concessions they made was because the company was finally at the end of the rope. The longer the rope is lengthened, the less pressure there is on the unions. They and their workers can’t just walk away from Chrysler if they think it’s not “potentially viable”. They have no where else to go. Ordinarily you’d be right. This time was different. The UAW had to give concessions to put them roughly in line with non-union workers at other auto plants. It was clear that if this was ever going to work the concessions needed to be meaningful so a future Chrysler would have a real shot at being competitive and not saddled with the mess they had before if they only received some minimal token concessions. > [@](#): > > These guys feel they would get more in Chapter 11 then they get under the proposed offer. Reading _CJJ’s_\* post it would seem they arranged it that way so guess you are right. Usually (not always) Chapter 11 is not a good deal for creditors which is why they are often willing to negotiate deals and forgive debts and such in an effort to keep the company alive (if they think it is reasonably likely the company could do so). If the creditors were always better off in bankruptcy court then they’d never bother lowering their demands and kill the company. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [May 4, 2009, 5:23pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/26 "2009-05-04T17:23:52Z")
[Some controversy](http://dealbook.blogs.nytimes.com/2009/05/03/white-house-perella-weinberg-deny-claims-of-threat-to-firm/?hp) > [@scabpicker](#): > > It’s gaming the system, because: They loan money to a company, an act normally done in order to help the company survive and grow. Instead, they actually benefit more if same company fails. I don’t see how this is possible, unless they are really getting ripped off out of court. Can you clarify what scenario you are thinking of? ---
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [May 4, 2009, 10:27pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/27 "2009-05-04T22:27:18Z")
> [@Whack-a-Mole](#): > > Reading _CJJ’s_\* post it would seem they arranged it that way so guess you are right. Usually (not always) Chapter 11 is not a good deal for creditors which is why they are often willing to negotiate deals and forgive debts and such in an effort to keep the company alive (if they think it is reasonably likely the company could do so). If the creditors were always better off in bankruptcy court then they’d never bother lowering their demands and kill the company. It depends upon what type of creditor you are as to whether or not you would be better off in bankruptcy. The secured creditors most likely would be much better off having the company go through bankruptcy rather than just stay out of it continuing to lose more and more money. ---
**Author:** ![threemae](https://avatars.discourse-cdn.com/v4/letter/t/5f9b8f/32.png) [@threemae](https://boards.straightdope.com/u/threemae)\ **Post date:** [May 5, 2009, 3:51am UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/28 "2009-05-05T03:51:08Z")
> [@scabpicker](#): > > It’s gaming the system, because: They loan money to a company, an act normally done in order to help the company survive and grow. Instead, they actually benefit more if same company fails. Who in the hell is writing cheap credit-default-swaps for the implosion of Chrysler? If this is \*actually \*happening, let me know, because I’m in the market for some. Back to the OP: I do find this episode troubling. IMHO, the Obama administration has a bit of arrogance about its own meritocratic strengths and ability to successfully guide the economy. I agree that they’re a vast improvement in terms of competence over the previous occupants of the executive branch, but they’re arrogance over their own ability to successfully intervene in the economy could certainly be a huge problem for all of us down the road. [http://www.charlierose.com/view/content/10250](http://www.charlierose.com/view/content/10250) Hopefully intervening in the private sector from his bully-pulpit will not be a defining characteristic of the Obama administration. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [May 5, 2009, 6:40am UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/29 "2009-05-05T06:40:47Z")
> [@CJJ](#): > > Normally I’d have more sympathy for the non-TARP investor, since it’s easy to assume these are smaller investors who–as noted in the [public statement](http://blogs.wsj.com/deals/2009/04/30/statement-from-non-tarp-lenders-of-chrysler/) from the "Non-TARP lenders to Chrysler–“represent many of the country’s teachers unions, major pension and retirement plans and school endowments who have invested through us in senior secured loans to Chrysler.” > > But let’s look a little closer at the list of investors, shall we? Many of these–Group G Capital, Stairway Capital and Xerion Capital–are listed as [distressed debt hedge funds](http://www.investopedia.com/articles/bonds/08/distressed-debt-hedge-fund.asp), essentially vultures looking for a quick return by extending credit to failing companies.“” So let me see if I understand you - anyone who invests in high-risk ventures, expecting high retuns to compensate for the risk, is a ‘vulture’? This type of investor is a net negative to the economy? They should be punished for their misdeeds? This is populist twaddle. These types of investments are critical to innovation, they provide crucial financing when companies most need it, and yes, they help liquidate and clear the resources of companies when they fail. You would rather every failing company just trickles it’s way to oblivion, leaving behind a rusted hulk of itself that no one else can use? And these are investment funds. What, you think only crazy wall street dudes invest in high-risk funds? Anyone who’s under the age of 50 and has decent financial advice should have some part of their investment made up of high risk/high return funds. As should managers of pension funds and trust funds. Using TARP recipients as a hammer against businesses and investors who didn’t borrow a dime from the government is a very dangerous precedent. It’s exactly why government shouldn’t be involved in business at all. It has leverage other players do not have, which it can use to force the market in directions it would otherwise not go, and to reward favored constituents and punish political opponents. There’s a bright line here, and the Obama administration is started to nudge up against it. > [@](#): > > Let me make it clear that all of the above is perfectly legal, and under the current rules the non-TARP funds are legally entitled to force bankruptcy in support of their investment strategy. But forgive me if I’m a little less inclined to reward folks who make their fortunes gaming the system and then give us a sob-story about the pensioners they so valiantly defend (ignoring the thousands destined to lose their pension when Chrysler files) because they think Obama is picking on them. A system that allows this sort of financial chicanery is a large part of the problem, and it’s high time government did something about it. They’re not ‘gaming the system’! At some point, _someone_ has to start putting pressure on a failing company to go into bankruptcy before the walking corpse pisses away whatever residual value it has left. To allow it to survive through subsidy and government pressure deprives other people of the use of the resources that would have been freed by bankruptcy. It denies the other, healthier car manufacturers the sales that Chrysler swallowed up in its death throes. It keeps tens of thousands of people employed in jobs that make society poorer on balance than what they could otherwise be doing. ---
**Author:** ![scabpicker](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/scabpicker/32/8268_2.png) [@scabpicker](https://boards.straightdope.com/u/scabpicker)\ **Post date:** [May 5, 2009, 6:58am UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/30 "2009-05-05T06:58:14Z")
I doubt anyone is writing cheap ones these days. I am getting my information from sources such as [this article](http://seekingalpha.com/article/134314-credit-default-swaps-may-be-playing-a-supporting-role-in-chrysler-bankruptcy-filings), which quotes [this](http://online.wsj.com/article/SB124102375931669205.html) WSJ article that I cannot read for free, and which might provide more context. > [@WSJ](#): > > Bank-debt holders, many of them hedge funds or distressed debt funds, voted against the latest deal for various reasons, ranging from financial interests to philosophical ones. Some said their funds had bigger positions in Ford Motor Co. or General Motors Corp. and could benefit by a Chrysler bankruptcy and the production capacity that may eliminate. **Some funds may also have credit-default swaps on Chrysler bank debt that pay out in the event of a bankruptcy.** (bolding mine) So it is speculation. I am not a financial regulator, I am not certain there is any way to know if they do have such CDS contracts. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [May 5, 2009, 1:52pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/31 "2009-05-05T13:52:51Z")
> [@scabpicker](#): > > I doubt anyone is writing cheap ones these days. But that’s the whole point. Because if these companies have CDSs on the debt it’s likely that they bought them a while ago, when the debt was trading higher and it wasn’t likely that the company would go BK. In general, it wouldn’t make sense for anyone to sell a CDS at any price if that would cause the buyer to have the incentive and ability to make the company go BK. So the speculation doesn’t add up. What makes sense, and what these media reports are saying, is that the CDS makes it worthwhile for the companies to reject low ball offers currently being put forth. Not that a “vulture” can buy a CDS and then turn around and force a company into bancruptcy. ---
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [May 5, 2009, 3:13pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/32 "2009-05-05T15:13:06Z")
> [@Sam\_Stone](#): > > They’re not ‘gaming the system’! At some point, _someone_ has to start putting pressure on a failing company to go into bankruptcy before the walking corpse pisses away whatever residual value it has left. I do not know but they could be gaming the system. Would work like this. You buy CDS to cover yourself from a Chrysler bankruptcy. There is no real limit to how much of these you can buy. It is not a 1:1 match with the bonds you hold. You don’t even need to own a single bond and can just buy all the CDS you want. Now you go and buy enough bonds in Chrysler that you can force a bankruptcy. You lose on the bonds but make a fortune from the CDS more than covering your loses. Such gaming of the system is not “healthy” as you would have it. Again, whether such a thing is really happening I do not know. Just pointing out how there can be perverse incentives in all this. ETA: Here is a [Financial Times](http://www.ft.com/cms/s/0/5c62b3b2-2adf-11de-8415-00144feabdc0.html?nclick_check=1) article describing this effect. ---
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [May 5, 2009, 3:19pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/33 "2009-05-05T15:19:29Z")
Here’s a better treatment of “gaming the system” via CDS: > [@](#): > > What is an empty creditor? Consider that debt ownership conveys a package of economic rights (to receive principal and interest), contractual control rights (to enforce the terms of the agreement), and other legal rights (to participate in bankruptcy proceedings). Traditionally, law and business practice assume these components are bundled together. Another foundational assumption: Creditors generally want to keep solvent firms out of bankruptcy and to maximize their value. > > These assumptions can no longer be relied on. Credit default swaps and other products now permit a creditor to avoid any actual exposure to financial risk from a shaky debt – while still maintaining his formal contractual control rights to enforce the terms of the debt agreement, and his legal rights under bankruptcy and other laws. > > Thus the “empty creditor”: someone (or institution) who may have the contractual control but, by simultaneously holding credit default swaps, little or no economic exposure if the debt goes bad. Indeed, if a creditor holds enough credit default swaps, he may simultaneously have control rights and incentives to cause the debtor firm’s value to fall. And if bankruptcy occurs, the empty creditor may undermine proper reorganization, especially if his interests (or non-interests) are not fully disclosed to the bankruptcy court. > > SOURCE: [http://online.wsj.com/article/SB123933166470307811.html](http://online.wsj.com/article/SB123933166470307811.html) ---
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [May 5, 2009, 3:53pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/34 "2009-05-05T15:53:03Z")
> [@threemae](#): > > Back to the OP: I do find this episode troubling. IMHO, the Obama administration has a bit of arrogance about its own meritocratic strengths and ability to successfully guide the economy. I agree that they’re a vast improvement in terms of competence over the previous occupants of the executive branch, but they’re arrogance over their own ability to successfully intervene in the economy could certainly be a huge problem for all of us down the road. > > [http://www.charlierose.com/view/content/10250](http://www.charlierose.com/view/content/10250) > > Hopefully intervening in the private sector from his bully-pulpit will not be a defining characteristic of the Obama administration. This is sort of how I feel about the situation. Obama is really being arrogant here. An out of court restructuring of Chrysler was impossible. The best work-out groups like Alvarez & Marcell wouldn’t have attempted it. Bankruptcy exists for a reason, and Chrysler should have been able to go into bankruptcy much sooner. All Obama did was waste significant taxpayer funds on something that was impossible to accomplish. ---
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [May 5, 2009, 4:18pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/35 "2009-05-05T16:18:36Z")
> [@LonghornDave](#): > > This is sort of how I feel about the situation. Obama is really being arrogant here. An out of court restructuring of Chrysler was impossible. The best work-out groups like Alvarez & Marcell wouldn’t have attempted it. Bankruptcy exists for a reason, and Chrysler should have been able to go into bankruptcy much sooner. All Obama did was waste significant taxpayer funds on something that was impossible to accomplish. Err…didn’t Obama tell them to have a plan by the end of April for a workable company or face bankruptcy? Isn’t that what happened? In an attempt to revamp the company concessions to put them in line with non-unionized autoworkers were reached with the CAW and UAW. A deal with Fiat was reached to expand Chrysler into overseas markets and gain access to small, fuel efficient cars which Chrysler generally lacked. They renegotiated 70% of their debt to less than half what is had been. The remaining 30% of creditors said no go and forced the bankruptcy which is what happened. From what I have read, considering the above efforts, a Chapter 7 bankruptcy proceeding can now proceed much more quickly and more orderly. Most people are already on board with concessions to get the company out of bankruptcy. The court will settle what remaining issues there are and they can move on. Remember, a quick resolution is important because so many suppliers are dependent upon Chrysler getting back to work. Without them those suppliers could go bankrupt and disrupt supplies to all the automakers with not so good knock-on effects to the overall economy. ---
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [May 5, 2009, 4:35pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/36 "2009-05-05T16:35:23Z")
> [@Whack-a-Mole](#): > > Err…didn’t Obama tell them to have a plan by the end of April for a workable company or face bankruptcy? Isn’t that what happened? That’s sort of how it went. Of course this ignores the fact that he gave them around $4 billion to stave off bankruptcy initially and that the government was an active participant into trying to negotiate the out of court restructuring. What I’m saying is that they should have just been allowed to fail from the get go. The $4 billion was a waste of money. Further, an out of court restructuring was never going to happen because it is impossible. I think it is arrogant to assume that he could have gotten something like that accomplished. At the end of the day, the company is in bankruptcy because that was the only workable way of restructuring them in the first place. > [@Whack-a-Mole](#): > > In an attempt to revamp the company concessions to put them in line with non-unionized autoworkers were reached with the CAW and UAW. A deal with Fiat was reached to expand Chrysler into overseas markets and gain access to small, fuel efficient cars which Chrysler generally lacked. They renegotiated 70% of their debt to less than half what is had been. The remaining 30% of creditors said no go and forced the bankruptcy which is what happened. > > From what I have read, considering the above efforts, a Chapter 7 bankruptcy proceeding can now proceed much more quickly and more orderly. Most people are already on board with concessions to get the company out of bankruptcy. The court will settle what remaining issues there are and they can move on. > > Remember, a quick resolution is important because so many suppliers are dependent upon Chrysler getting back to work. Without them those suppliers could go bankrupt and disrupt supplies to all the automakers with not so good knock-on effects to the overall economy. It won’t be a chapter 7 bankruptcy, it will be chapter 11. Further, nothing says that they would need to stop operations while they are in bankruptcy. Typically what occurs is that a debtor in possession (“DIP”) financing is arranged to provide the company with working capital to maintain essential operations. ---
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [May 5, 2009, 4:43pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/37 "2009-05-05T16:43:23Z")
> [@LonghornDave](#): > > It won’t be a chapter 7 bankruptcy, it will be chapter 11. Doh! :smack: I actually know the difference but for some reason am very prone to conflating the two for some reason. ---
**Author:** ![Lemur866](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lemur866/32/434_2.png) [@Lemur866](https://boards.straightdope.com/u/Lemur866)\ **Post date:** [May 5, 2009, 4:47pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/38 "2009-05-05T16:47:43Z")
> [@Sam\_Stone](#): > > So let me see if I understand you - anyone who invests in high-risk ventures, expecting high retuns to compensate for the risk, is a ‘vulture’? This type of investor is a net negative to the economy? They should be punished for their misdeeds? Not that they should be punished, but if you lend money to an extremely troubled company like Chrysler, should you be surprised to find that your high-risk loan goes sour? And when you lend money to a politically entangled company like Chrysler, should you be surprised to find that you’re being leaned on by the politicians? One of the reasons people might lend money to a company like Chrysler is that they figured that if it went south the US taxpayers would bail it out. Which is what is happening. So these investors loaned money to a company that would otherwise fail, because they knew it wouldn’t be allowed to fail. And they expected the US taxpayers to fork over 100% of their investment with a smile. Except we’re not smiling, and now the investors are whining that it isn’t fair, they expected the taxpayers to bail them out, waaaaaaaaah. Fuck em. ---
**Author:** ![scabpicker](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/scabpicker/32/8268_2.png) [@scabpicker](https://boards.straightdope.com/u/scabpicker)\ **Post date:** [May 5, 2009, 8:07pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/39 "2009-05-05T20:07:29Z")
> [@Fotheringay-Phipps](#): > > But that’s the whole point. > > Because if these companies have CDSs on the debt it’s likely that they bought them a while ago, when the debt was trading higher and it wasn’t likely that the company would go BK. > > In general, it wouldn’t make sense for anyone to sell a CDS at any price if that would cause the buyer to have the incentive and ability to make the company go BK. So the speculation doesn’t add up. > > What makes sense, and what these media reports are saying, is that the CDS makes it worthwhile for the companies to reject low ball offers currently being put forth. Not that a “vulture” can buy a CDS and then turn around and force a company into bancruptcy. The only argument that I have against this is that I felt Chrysler was on its last legs long before folks started wondering about the car industry in general. It had long been a wavering #3 among the Detroit automakers. The only persons who were buying their products were the people who were lured into to purchasing the least expensive American brand they could find. Really, I could go on about how they were the most likely automaker to fail for a long time, but it’s still pretty thin speculation, and sort of a rant. I’ll just say, if I Chrysler owed me money a year ago, and I knew I could buy insurance against the loan, it would have been pretty attractive. [Lionel Hutz] _Well, Your Honor. We’ve plenty of hearsay and conjecture. Those are kinds of evidence._ [/Lionel Hutz] ---
**Author:** ![Trom](https://avatars.discourse-cdn.com/v4/letter/t/958977/32.png) [@Trom](https://boards.straightdope.com/u/Trom)\ **Post date:** [May 5, 2009, 8:43pm UTC](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964/40 "2009-05-05T20:43:44Z")
> [@Lemur866](#): > > Not that they should be punished, but if you lend money to an extremely troubled company like Chrysler, should you be surprised to find that your high-risk loan goes sour? > > And when you lend money to a politically entangled company like Chrysler, should you be surprised to find that you’re being leaned on by the politicians? > > One of the reasons people might lend money to a company like Chrysler is that they figured that if it went south the US taxpayers would bail it out. Which is what is happening. So these investors loaned money to a company that would otherwise fail, because they knew it wouldn’t be allowed to fail. And they expected the US taxpayers to fork over 100% of their investment with a smile. Except we’re not smiling, and now the investors are whining that it isn’t fair, they expected the taxpayers to bail them out, waaaaaaaaah. Fuck em. So would you agree that the government getting involved in the first place is what upset the normal risk/reward parameters? Assuming that the “vulture” (:rolleyes:) funds were actually relying on a “put” option via the US government, were they not making a logical, rational decision? [Previous page](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964.md?page=1) [Next page](https://boards.straightdope.com/t/terms-of-the-chrysler-bankruptcy/494964.md?page=3)