Some people think that the administration's approach to Chrysler's bankruptcy, in contrast to its approach to the financial sector, is a signal that it is coddling one industry while delivering harsh medicine to another. This is an oversimplification, as I've pointed out before. Now, an article in The Wall Street Journal confirms that in Chrysler's restructuring one key thing that Obama's team did was screw over the bankers who owned Chrysler's debt:
President Barack Obama's auto task force heard a blunt message early this spring from J.P. Morgan Chase & Co., the largest lender to Chrysler LLC. In any deal to remake the troubled auto maker, Chrysler would have to repay its lenders all $6.9 billion it owed.
"And not a penny less," said James B. Lee Jr., vice chairman at the bank, in a call to auto task-force boss Steven Rattner on March 29.
The next day, Mr. Obama called the banker's bluff. The president stepped before a podium to announce that Chrysler could face a disorderly bankruptcy or even liquidation. His meaning was clear: If that happened, the lenders would get nowhere near $6.9 billion.
A few hours later, Mr. Lee called Mr. Rattner back. "We need to talk," he said.
The banker's about-face was a vivid example of the government's tightening grip on a humbled financial industry. Pulling a trick from the hedge-fund playbook, the government used its leverage as the sole willing lender to Chrysler, either in bankruptcy court or out, to extract deep concessions from some of the country's biggest banks.
...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.
This comes from an enlightening post by the Epicurean Dealmaker, perhaps the most entertaining finance blogger I'm aware of, who is challenging conservatives who think the administration somehow destroyed contract law by, apparently, having a strong negotiating position. Yeah, I don't get it either. But it also serves as another reminder that within the financial community, people aren't pleased with Obama's track record and that even though the administration has shown it can concede too much to the banks in some situations, it can also take a hard line against them in others.
-- Tim Fernholz
