Post Misrepresents Situation of Creditors in Chrysler/Gm Bankruptcy

[Hannah Bell]

Fox on 15th Street (aka "The Washington Post") misrepresented a number of issues in its discussion of the Chrysler/GM bankruptcies. It is very upset that union auto workers might get the retirement health benefits that they worked for decades ago, while speculators may not see much return from their speculation.

The Post argued that the bondholders are supposed to have a preferred position in the event of bankruptcy compared to workers' claim for retirement health benefits. This is true under bankruptcy law. However, the factor that has apparently escaped the Post's attention is that the government is giving money to Chrysler and General Motors... If it opted not to try to help these companies then it is likely that the whining speculators claims would be worth even less. In other words, even though the speculators are getting their debts paid at a lower rate than the debt owed to the autoworkers, they are still likely getting more money than they would without the government's generosity.

There are two other important points left out of the Post's rant. First, these speculators bought the Chrysler and GM debt at 30 cents on the dollar. It had already been marked down by the market with the understanding that debt holders would incur large losses. The speculators bet that they could be tough guys and press President Obama for more money. The tough guys are now whining because it looks like they lost that bet.

The other point concerns the bond insurance that the Post mentions. This bond insurance, which will pay 100 cents on the dollar, may have been issued by bankrupt institutions like AIG. If this is the case, the government is effectively paying creditors to hold out by honoring commitments that it is has no legal obligation to honor and certainly no obvious policy reason to honor. If the tough guys bought bond insurance from a bankrupt company, then they made a bad decision. The government should allow them to enjoy the fruits of their investment and not give AIG the money to pay off insurance written on the bonds of Chrysler or GM.

--Dean Baker

http://prospect.org/csnc/blogs/beat_the_press_archive?month=05&year=2009&base_name=post_misrepresents_situation_o

[LiberalFighter]

1. The key is they are speculators. They were betting on the outcome.

They shouldn't be bailed out because they made a bad decision and knew it.