5 ms·

Reminds me of the people who got mad about the auto bailouts in 08 because the junk bonds they were holding didn't pay out. You bought the bonds! This is on y

Reminds me of the people who got mad about the auto bailouts in 08 because the junk bonds they were holding didn't pay out. You bought the bonds! This is on you!

nradov 5y ago
Investors were mad because the auto industry bailouts abrogated normal bankruptcy rules about creditor seniority and gave sweetheart deals to politically favored unions. The federal government changed the rules in the middle of the game.
opo 5y ago
People were upset because of how the secured debt was treated Some analysis here: >...Secured debt takes first priority in payment; it is also typically preserved during bankruptcy under what is referred to as the "absolute priority" rule — since the lender of secured debt offers a loan to a troubled borrower only because he is guaranteed first repayment when the loan is up. In the Chrysler case, however, creditors who held the company's secured bonds were steamrolled into accepting 29 cents on the dollar for their loans. Meanwhile, the underfunded pension plans of the United Auto Workers — unsecured creditors, but possessed of better political connections — received more than 40 cents on the dollar. >Moreover, in a typical bankruptcy case in which a secured creditor is not paid in full, he is entitled to a "deficiency claim" — the terms of which keep the bankrupt company liable for a portion of the unpaid debt. In both the Chrysler and GM bankruptcies, however, no deficiency claims were awarded to the wronged creditors. Were bankruptcy experts to comb through American history, they would be hard-pressed to identify any bankruptcy case with similar terms. . https://www.nationalaffairs.com/publications/detail/the-auto-bailout-and-the-rule-of-law https://www.nationalaffairs.com/publications/detail/the-auto...
- refenestrator 5y ago
  Another way of describing that story is they held the bonds into bankruptcy and didn't come out on top of the legal/political battle. This battle was always going to happen! They just thought they had the better legal arrangement and would instead stick it to the pensioners. I have no sympathy.
  - gruez 5y ago
    >They just thought they had the better legal arrangement and would instead stick it to the pensioners. I have no sympathy No sympathy why? Because they're greedy investors and on the other side are hard working honest pensioners?
    - refenestrator 5y ago
      That's an oversimplification, but it doesn't hurt as far as sympathies. My actual issue is more along the lines of caveat emptor. People bought junk bonds in a company that then went bankrupt. That means they're going to be in court trying to recover money, and there's a lot of risk there about what they might or might not recover. To the extent that the legal resolution was unprecedented... so was the top carmaker entering bankruptcy with all of those employees and pensions on their books. Biggest bankruptcy of that sort since the depression. Precedent isn't a suicide pact, when things get weird then people can adapt.
      - opo 5y ago
        >..so was the top carmaker entering bankruptcy with all of those employees and pensions on their books. Biggest bankruptcy of that sort since the depression. Precedent isn't a suicide pact, when things get weird then people can adapt. The example I quoted was about Chrysler. The actual largest bankruptcy was Lehman Brothers not Chrysler (or GM) The Lehman Brothers bankruptcy was about 15 times larger larger than Chrysler. If the government wanted to save the pension, then the government should have increased the bailout to pay for it. This would have been better than breaking the rule of law just because the non-secured creditors have more political pull.

Reminds me of the people who got mad about the auto bailouts in 08 because the junk bonds they were holding didn't pay out. You bought the bonds! This is on you!

nradov 5y ago

Investors were mad because the auto industry bailouts abrogated normal bankruptcy rules about creditor seniority and gave sweetheart deals to politically favored unions. The federal government changed the rules in the middle of the game.

opo 5y ago

People were upset because of how the secured debt was treated Some analysis here: >...Secured debt takes first priority in payment; it is also typically preserved during bankruptcy under what is referred to as the "absolute priority" rule — since the lender of secured debt offers a loan to a troubled borrower only because he is guaranteed first repayment when the loan is up. In the Chrysler case, however, creditors who held the company's secured bonds were steamrolled into accepting 29 cents on the dollar for their loans. Meanwhile, the underfunded pension plans of the United Auto Workers — unsecured creditors, but possessed of better political connections — received more than 40 cents on the dollar. >Moreover, in a typical bankruptcy case in which a secured creditor is not paid in full, he is entitled to a "deficiency claim" — the terms of which keep the bankrupt company liable for a portion of the unpaid debt. In both the Chrysler and GM bankruptcies, however, no deficiency claims were awarded to the wronged creditors. Were bankruptcy experts to comb through American history, they would be hard-pressed to identify any bankruptcy case with similar terms. . https://www.nationalaffairs.com/publications/detail/the-auto-bailout-and-the-rule-of-law https://www.nationalaffairs.com/publications/detail/the-auto...

refenestrator 5y ago
Another way of describing that story is they held the bonds into bankruptcy and didn't come out on top of the legal/political battle. This battle was always going to happen! They just thought they had the better legal arrangement and would instead stick it to the pensioners. I have no sympathy.
- gruez 5y ago
  >They just thought they had the better legal arrangement and would instead stick it to the pensioners. I have no sympathy No sympathy why? Because they're greedy investors and on the other side are hard working honest pensioners?
  - refenestrator 5y ago
    That's an oversimplification, but it doesn't hurt as far as sympathies. My actual issue is more along the lines of caveat emptor. People bought junk bonds in a company that then went bankrupt. That means they're going to be in court trying to recover money, and there's a lot of risk there about what they might or might not recover. To the extent that the legal resolution was unprecedented... so was the top carmaker entering bankruptcy with all of those employees and pensions on their books. Biggest bankruptcy of that sort since the depression. Precedent isn't a suicide pact, when things get weird then people can adapt.
    - opo 5y ago
      >..so was the top carmaker entering bankruptcy with all of those employees and pensions on their books. Biggest bankruptcy of that sort since the depression. Precedent isn't a suicide pact, when things get weird then people can adapt. The example I quoted was about Chrysler. The actual largest bankruptcy was Lehman Brothers not Chrysler (or GM) The Lehman Brothers bankruptcy was about 15 times larger larger than Chrysler. If the government wanted to save the pension, then the government should have increased the bailout to pay for it. This would have been better than breaking the rule of law just because the non-secured creditors have more political pull.