Sunday, May 3, 2009

You Realithe, Of Courth, Thith Meanth War

"Consequences, Schmonsequences, as long as I'm rich."

"I may be a craven little coward, but I'm a greedy craven little coward."

— Daffy Duck (attributed)

Apparently unlike many of my fellow citizens, I freely confess that I harbor no morbid fascination for car crashes. Many people seem unable to draw their eyes away from the spectacle of thousands of pounds of hurtling vehicle rearranging itself into a smoking pile of mangled metal and broken bodies. For my part, I prefer to look away, both before and after the fact. I feel no great compulsion to remind myself that when metal and flesh collide at speed, flesh is always and everywhere the loser. I claim no moral superiority for my behavior, simply a finely tuned squeamishness and a certain intellectual distaste for repeated demonstration of the obvious.

Hence, you should not be surprised when I admit I have not devoted more than cursory attention to Chrysler Corporation's developing bankruptcy. The multifarious sources of the crash have long been evident to any sentient being with a pulse. In addition, the looming bankruptcy itself has been unfolding for so many months it resembles the slow motion pile-up in Talladega Nights, which takes so long the TV announcers break to a commercial in the middle of it. A bloggist less honest than myself might claim he saw the wheels coming off the LeBaron almost two years ago. Fortunately, your Dedicated Correspondent is above such petty credit-jumping.

But now that the patient has been wheeled into the operating theater, where a bankruptcy judge will soon commence the drawn-out and delicate procedure of reconstituting Chrysler into a viable new company which will magically produce vehicles irresistible to all those consumers previously inured to their temptations, I have begun to take notice of a certain strain of commentary which I feel compelled to address.

This commentary seems to issue primarily from Chrysler's secured creditors and their supporters, apologists, and fellow travelers. I believe one can fairly characterize the essence of this commentary as

"Waaah! The Government is Picking on Me!"

To be perfectly honest, I find this intensely amusing.

* * *

The first indications I received that all might not be well in the temples of untrammeled commerce came from a self-described group of Chrysler's smaller secured creditors, who objected in print and in public last week to what they perceived as President Obama's rather shabby treatment of them in the whole mess. In their communiqué, they whined about being shut out of direct negotiations with the government, groused about dramatically lower recoveries on their debt than secured lenders at General Motors, and wrapped themselves in the saintly robes of Sanctity of Contracts and Fiduciary Duty. And, knowing full well that the government would do it for them, they pompously proclaimed that they would never push Chrysler into bankruptcy.

The fact is, in this process and in its earnest effort to ensure the survival of Chrysler and the well being of the company’s employees, the government has risked overturning the rule of law and practices that have governed our world-leading bankruptcy code for decades.

Heavens to Betsy! Save the Bankrupcty Code!

The next little goodie to cross my consciousness was the allegation by White & Case lawyer Tom Lauria, subsequently denied by the White House and Mr. Lauria's client Perella Weinberg, that the White House has been playing very hard ball indeed in the Chrysler negotiations:

"One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight...That was Perella Weinberg."

Finally, to cap it all off, we received this little bulletin from the front lines of capitalist hysteria1 late Saturday night:

This (as yet unproven) yarn goes exactly like this:

Confronting the head of a non-TARP fund holding Chrysler debt and unwilling to release it for any sum less than that to which it was legally entitled without compelling cause, this country's "Car Czar" [Steven Rattner] berated the manager of said fund with an outburst of prose substantially resembling this:
["]Who the fuck do you think you're dealing with? We'll have the IRS audit your fund. Every one of your employees. Your investors. Then we will have the Securities and Exchange Commission rip through your books looking for anything and everything and nothing we find to destroy you with.["]
Faced with these sorts of threats, in this environment, with valued employees in the crosshairs and AIG a fresh, open wound upon the market, the fund folded.

Fuck the Bankruptcy Code, and Betsy, too! Save us instead!

* * *

Now, I would like to make a few remarks in reaction to this.

First, while I have no particular knowledge of the facts and circumstances surrounding the negotiations over Chrysler's restructuring prior to its bankruptcy filing—and no eager little beavers are sending me real or imagined transcripts of inflammatory conversations which may or may not have taken place—I have no reason to doubt that these conversations or ones similar to them did in fact take place. In fact, I would be surprised if they had not.

Think about it. The political stakes for the Obama Administration in the Chrysler fiasco are monumental. Barring the ongoing clusterfuck in the finance industry—which is arguably a legacy problem inherited from the previous bumblefuck administration—Chrysler is Obama's first big test to fix an incredibly hairy political, social, and economic dilemma. I would be shocked—shocked!—if every member of the Administration charged with its resolution was not under tremendous personal and professional pressure . In such circumstances, I think it is the height of folly not to expect a great deal of vituperative language, threats, and other nastiness to come spilling out of the mouths of such individuals. Is such behavior right, proper, or even polite? Of course not. Should allowances be made for it? Yes indeed.

Saying awful, hurtful, or even threatening things under conditions of high stress is normal human behavior. Anyone who has not been on the giving or receiving end of such treatment from another human being at least once in his or her life is either a) lying, b) staggeringly obtuse, c) certifiably autistic (see (b)), or d) incredibly immature.2 The proper response to such an attack can be any number of things: defuse it, ignore it, deflect it, or retaliate. How one responds depends on the situation at hand.

This leads to my second point. The negotiations over carving up claims to Chrysler Corporation prior to bankruptcy were just that: negotiations. Notwithstanding whatever principles of Truth, Justice, and the American Way the Chrysler non-Tarp lenders would have us believe undergird their positions, they were simply one party among many to a very complicated negotiation over the proper distribution of value of a very large and troubled company. Yes, there are general principles and precedents concerning the division of spoils in a corporate bankruptcy which normally guide such processes. Yes, many of these have been laid down over decades of contested and uncontested bankruptcies prosecuted through our court system.

That being said, none of these precedents are Holy Writ.

The parties to the Chrysler negotiation tried to agree to a prepackaged division of spoils which they could present to a bankruptcy judge and thereby speed the company's restructuring. They failed. Did someone—the government, the UAW, the non-Tarp secured lenders—overreach? Maybe. Does it matter who? Not in the least. A pre-agreed deal was not struck, so the distribution of claims to Chrysler will be determined in court, by a judge, who will listen to advocates for each group argue their case. The process will take longer, and perhaps introduce additional stresses and strains that Chrysler can ill afford, but everyone will have their day in court. Even those poor, put-upon non-Tarp lenders. In fact, even though they would likely be loathe to admit it publicly, everyone may be happier that the company has fallen into Chapter 11. That way, each can say to their own constituents that they tried as hard as they could, but were unable in the end to get everything they wanted. (Chief among these, by the way, I would place the Administration.)

The corollary point of negotiations is this: they are hard, and often unpleasant. Parties to a bankruptcy say hard, unpleasant things, they threaten and cajole, and they use all their powers of persuasion, soft and hard, to convince the other parties to the deal to give them what they want. In this context, why should anyone be surprised that agents of the government threatened recalcitrant lenders with IRS audits, excoriated their behavior in populist press conferences, or promised to destroy their institutional reputations in the public eye? The government was simply using the real and imagined powers at its command to browbeat its counterparties into agreement. This is standard operating procedure in high-pressure negotiations.

Had I advised the government on Chrysler, I would have encouraged them to use the very same tactics.

Of course, anyone on the other side of the table during such outbursts who had half a brain or any sort of experience in such matters would have recognized them for what they were: bluffs. And they would have countered with their own hard and soft power, and their own real and imagined levers of persuasion—"fiduciary duty," for example, and David and Goliath press releases would have worked (and did work) nicely—to push back in turn. Furthermore, if threats and bullying appeared to cross the line, the affected party was always free to politely remind the offending official that there are such things as limits to power in this country, and very nasty things tend to happen to public figures who abuse them. Every corporate and individual citizen in the United States is legally subject to an IRS audit at any time. But precedent, tradition, and most Americans' innate fear and hatred of the IRS reassure me that any official who was discovered to have triggered one on a purely political basis would face blowback of career-ending proportions.

* * *

Now I assume the non-Tarp Chrysler lenders actually brought someone to the restructuring negotiations who knew what the fuck he was doing. (If they didn't, too bad for them.) They clearly have learned they need to work the press as hard as the Administration, if only so they do not appear to concede the government's talking points by their own silence. Sad to say, this will be a Sisyphean task, since hedge funds and finance companies of every stripe have a reputation with the general public only slightly less awful than that of drug-dealing child molesters. I personally understand and am sympathetic toward their argument of fiduciary duty, but vulture funds wrapping themselves in the banner of widows and orphans won't do them much good. In all but the most hardened capitalist cadres' hearts, working mens' paychecks and the Public Weal still trump the profit motive, even if it is Aunt Millie's profit.3 They also play better on national TV.

Lastly, I fear I will disappoint my card-carrying capitalist comrades by remaining defiantly unconcerned that the Obama Administration is playing hardball in the current economic crisis. After all, the President and yea, even the US Congress, have their own fiduciary duties to prosecute and uphold. Many of the people to whom they owe their duty have few or no other advocates in economic affairs. Call it my stubborn American sense of fair play, but I cannot see why everyone with a stake in the outcome shouldn't have a competent and committed representative on the field of battle.

Perhaps some financiers feel a little miffed now that they have to fight for what they think is their due, after having had the field to themselves for so long.

Here's a clue for the novices in the room: It's called politics, you fucking morons. Stop being such a bunch of whiny pansies.

1 Editorial note to Equity Private: Stressed out, hyperaggressive former investment banker and private equity professional reaming hedge fund guy a new asshole during bankruptcy negotiation : Deliberate government swerve toward "Fascism" :: Bouncing a check to your local laundromat : Lehman Brothers' bankruptcy. I don't care how many academic or pseudoacademic definitions of fascism you provide, you have well and truly jumped the shark with this post.
2 And any professional dealmaker who does not recognize this is either a) brand new to the business or b) headed toward the unemployment line.
3 Especially if, as I suspect, a majority of these "widow and orphan" funds picked up their Chrysler secured debt at pennies on the dollar, with the express intent to profit from its pull toward par in a bankruptcy proceeding. A little harder to spin that story in Middle America, ain't it?

© 2009 The Epicurean Dealmaker. All rights reserved.