Oh for heaven’s sake. Our financial oligarchs are living in a fantasy world as remote from reality as any Yellow Elephant paintball bunker. Jesse Taylor finds this tripe by Peter Robinson in Forbes about business leaders afraid to speak out against the administration (per Atrios):
As far as I can tell–and I Googled on this until my fingertips grew tender–[Clifford] Asness is the only businessperson of any standing to have opposed the administration in public.
Really? You write about business Pete? For a living and everything?
How about hedge fund manager Orin Kramer, Obama’s biggest bundler, who said the President’s attempts to clawback AIG bonuses would "destroy the value of institutions where the government is an owner" and "drive people away from being willing to do business" with them? Or how about billionaire Les Crowne, who criticized Obama for his support of Employee Free Choice, saying it’s "absolutely the wrong thing to do?"
But let’s just cut through the bs and talk about why Asness (and other hedge fund managers) are upset.
In early 2008, Bill Gross — chairman of the world’s biggest bond fund, Pimco — started shifting the company’s investments into mortgage debt backed by Fannie & Freddie, because he was sure the government would bail them out. "We looked for assets that we felt the government would eventually have to own or support," said PIMCO’s Mohamed El-Erian.
Gross did the same thing with GMAC. "We tried to move ahead of the government," says Gross, "to purchase assets before we believe they will have to." Gross famously called it his "shake hands with Uncle Sam" plan. It’s been hugely lucrative for PIMCO and others, because the government did indeed step in and pay everyone off handsomely. In an era where the finance sector will no longer comprise 41% of GDP by milking a huge economic bubble, everyone is looking to taxpayers cleaning up after their own shady business practices as the biggest potential profit center.
So the co-investors that came together in 2007 to stupidly blow $6.9 billion on the Cerberus buyout of Chrysler thought they had gold on their balance sheets for an otherwise worthless investment. Their loans were in first position and secured, which meant that even if the company got chopped up and sold for parts, they’d be entitled to whatever was left in the event of bankruptcy.
Only that didn’t happen. The UAW’s VEBA trust had a $10.6 billion lien (and junior creditor position) against Chrysler. In bankruptcy, the judge gave the VEBA trust 55% of the stock, or .43 on the dollar for their investment, and the first position creditors got .30 for theirs, or so went the popular math.
"Long story short, a junior creditor was able to leap the senior-most creditor and in the process make a mockery of longstanding US bankruptcy law…capitalists have no choice but to sit up and take notice," said the cowering Eric Landry of Morningstar.
“The creditors’ rights were trashed and the unions got 55 percent of the company,” said "afraid to speak out" Jack Welch.
Gee, what’s missing from this story. Oh yeah:
- The US government has already dumped $7 billion into Chrysler.
- At that point, taxpayers became the "super senior creditors." That’s what it means when it says "debt owed to the government would be senior to other debts."
- As Steven Pearlstein and others have observed, the secured debt had a street value of .30 on the dollar — exactly what the hedge funds got.
- Had the government not loaned the $7 billion already, that secured debt would have been worth about zero cents on the dollar.
- The US government will take 8% of the company, which means they’ve essentially just transferred the bulk of their first position interest to the UAW and all other Chrysler stakeholders — they haven’t robbed the hedge funds crybabies of a dime.
In other words, Jack Welch and the rest of the corporate welfare set just assume that the government investment should go to them. As Pearlstein notes, the hedge funds were free to pump cash into Chrysler too and mitigate the need for government intervention, but they didn’t. They wanted to be cocooned from risk by the taxpayers and screw the workers too.
They’re incapable of seeing that the government acted not to help its "big labor donors" (which is garbage — finance dwarfed labor in direct contributions to the Obama campaign). The goal was not to give a way a bunch of money, but to keep Chrysler’s collapse from triggering a wave of 2 million job losses that could have precipitated a global economic meltdown.
If Chrysler is going to keep making cars, someone has got to work there. That’s part of the plan. And mewling hedge fund managers would have been eating well-deserved dirt on their entire investment had the government never stepped in, bailed them out, and given up their first-position status, which they’re entitled to do.
But now the cowering, intimidated hedge fund managers "burned by Obama" are threatening not to loan to unionized companies unless they can "shake hands with Uncle Sam" too.
Well maybe they want to divest themselves of the 78 billion dollars that public pension funds now have invested in hedge funds on behalf of unionized employees while they’re at it? You know, they’re the ones the hedge funds say got ripped off on the Chrysler deal?
Orin Kramer is also Chairman of the New Jersey State Investment Council, which is tasked with oversight of the state’s public pension system. In 2006 he successfully pushed to shift a huge chunk of the state’s $72 billion pension fund to private money managers rather than state employees. Kramer was the "prime architect of the diversification strategy" that saw union retirees pick up the tab for $115 million in Lehman Brothers losses on money invested shortly before the firm’s collapse (which the state may now sue for).
If the hedge fund managers want no exposure to unions, maybe public pension funds should stop any risky exposure to unregulated hedge funds? Especially since those hedge funds derive so many of their profits from not paying their fair share of taxes, and are lobbing heavily in opposition to President Obama’s plan to be "fiscally responsible" and plug offshore tax haven loopholes.
That’s capitalism, too.