Why Would Anyone Invest In Chrysler Now?

President Obama’s ham-handed ultimatum to Chrysler’s “secured” creditors promises to have adverse consequences beyond just rewarding the UAW for helping to drive the company into the ground.   At Real Clear Markets, Bill Frezza asks some excellent questions:

Why would anyone lend money to heavily unionized companies knowing that if things went wrong, the president and his men could trash their security interests by executive decree, hold them up to public vilification, and subject them to future retribution by regulators?

Why would anyone buy the shares of TARP-backed banks or invest alongside them knowing that their executives have proven their willingness to sacrifice shareholders’ interests and throw co-investors under the bus any time the president snaps his fingers?

Why would foreigners buy the distressed debt of American companies knowing that this debt cannot be secured by law but only by political clout? …

The fate of Chrysler and its workers pale in comparison to the wrecking ball that would be taken to economic order if bankruptcy judge Arthur Gonzalez approves the administration’s plan to give Chrysler’s secured creditors the shaft. And what prize will we-the-people get in return? A doomed third-rate car company majority owned by its militant union run by Italian management building congressionally designed “green” cars no one wants to buy financed by taxpayers into perpetuity because no private investor in their right mind will touch the company with a ten foot pole. Is this supposed to be economic policy or comic opera?

Hat tip: Neo.

6 thoughts on “Why Would Anyone Invest In Chrysler Now?

  1. Well, actually the security interest in the companies was driven to -0- under the guidance of the shareholders, managements, and the boards, until they had no remaining security interest. Now, in talking about recapitalized companies in suppressed insustries that will eventually recover, I would say there would be a lot of investor interest. We saw in the first TARP (Bush/Paulson) escapade what government investment without governance would do. What would you have suggested as the alternative?

  2. That’s not how a bankruptcy works, dano — EQUITY interest (stock price) goes to zero, but bond-holders and other creditors are entitled to divvy up whatever assets remain.

    Further, SECURED creditors are entitled to 100% repayment before unsecured creditors get anything — that’s why the interest rates are higher for unsecured loans, to compensate for the higher risk.

    The administration should let the normal bankruptcy process play out, rather than put presidential pressure on the secured creditors for the purpose of handing a gift of majority ownership to the UAW — an important Democratic constituency.

  3. Fiat and the UAW could sink GM as badly as the management before them. The major losers in all of this is the American taxpayer who will be called upon again to settle the bill. This is a disaster.

  4. Pingback: Wanna Buy GM Stock? Better Hurry, the Price is Rising! :All That Is Necessary…

  5. You raise valid points. It’s aweful these companies got any money at all, only to wind up going bankrupt anyway. Bush set the wheels in motion for this and Obama bought into it. These are huge mistakes that stain the elected officials of both parties. I get the feeling, they know something we don’t and are operating on information the general public has no knowledge of. Even the worst of economists could tell you these car companies were going bankrupt.

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