Can Obama Run the Auto Industry?Daniel Miller 4 May 2009 President Obama’s intervention into the automotive industry will cost taxpayers billions of dollars, and his populist, unfounded comments toward the creditors of Chrysler will only serve to worsen this economic crisis. Last week, Chrysler announced that they would enter into Chapter 11 bankruptcy, where they will attempt to renegotiate their contracts in court. This is after Obama announced months ago that he would inject billions of dollars into the two failing automakers, Chrysler and General Shortly after these interjections, the two automakers announced that they would need billions of additional funding to continue their survival. A few months ago, on November 20, 2008 I wrote an article in The Towerlight stating that capital interjections into these automakers would be a terrible mistake for this country. Looking back, I couldn’t have been more right. One of the most offensive and outrageous comments from Obama recently has been his attack on the creditors of Chrysler and the investment funds, which held Chrysler’s debt. Last week, the Treasury was unable to reach a deal with all of the investment funds, ultimately leading Obama to force the company into bankruptcy; the holders of the company’s senior debt were unwilling to accept $2.25 billion for $6.9 billion of company debt. Why, you may ask? In the government’s takeover of the automaker, they attempted to force debt holders to take larger losses on their debt than other stakeholders. Keep in mind that these secured lenders legally have the first claim to the assets of the company; legally, they should not take larger losses on their investments then the UAW or any other unsecured, sub senior creditor, as proposed by the government’s plan. In a press conference Obama said that these funds did not want to make any sacrifices, while benefiting from others. Does President Obama not understand the idea of fiduciary duty? Does he not understand that the responsibility of these fund managers is to protect the capital of their investors? These investors are pension funds, factory workers, firefighters, your “everyday Americans.” Additionally, the current administration is under the impression that they can execute a Chapter 11 bankruptcy in 30 days; Obama stated that it would be “quick, official and controlled.” Yet court documents filed by Chrysler stated that they expect to present a reorganization plan on August 28—four months from now. The Obama administration has effectively taken control of these automakers. The one question every taxpayer should ask themselves is, since when did the government become more efficient at running an automaker than the private sector? Daniel Miller is the Portfolio Manager for the Wall Street Investors’ Investment Club. This article was also ran in The Towerlight (4 May 2009), p. 4. |
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