So now we know who the hedge funds were:
OppenheimerFunds Inc., Stairway Capital Management LP, Group G Capital Partners LLC and Schultze Asset Management LLC are among fund owners that tipped Chrysler LLC into bankruptcy and seek to stop its sale to Fiat SpA.
The Arrow Distressed Securities Fund, Group G Partners LP and Foxhill Opportunity Master Fund LP are also members of the group previously identified only as non-TARP lenders, in reference to the Troubled Assets Relief Program that bailed out some of the banks that support Chrysler’s reorganization, according to court documents filed today.
The group is down to nine funds, from the 20 claimed in an April 30 statement, and the face value of their loan holdings has shrunk by about 70 percent, to $295 million from $1 billion.
You’ll remember Group G Capital Partners LLC from this WSJ piece in which we learned how tough it was for our Wizards of Wall Street to push Chrysler into bankruptcy:
Geoffrey Gwin is wrestling with the knowledge that the retirement plans of some 80,000 Americans may rest in his hands.
“I am in turmoil,” says Mr. Gwin, principal of the Group G Capital Partners LLC hedge funds in New York.
Yes, the heartache. We see how that inner turmoil resolved itself. While losing their pension and health care might be tough for those 80,000 people, it may make it easier for them to know just how hard it was for Mr. Gwin to screw them. I mean, you heard him. He was in turmoil. He got over it.
And now here are the important questions I’d like to see answered, and fortunately, so would Rep. Elijah Cumming:
While the issues were described in the context of the Chrysler bankruptcy, I believe that potential conflicts could have existed regarding the debt of each Chrysler and GM. Accordingly, I respectfully request that you address the following questions:
1. Did AIG issue credit default swaps on debt securities of automobile companies?
2. Did creditors to GM or Chrysler hold credit default swaps on the debt? If so, were these AIG-issued swaps?
3. How many creditors to the auto companies also received payments as AIG counterparties?
4. What obligations are owed by the swap issuers to the holders of auto debt in the event of a bankruptcy or other default event?
5. What was the extent of the potential for abuse of taxpayer funds based on the scenario laid out above?Thank you for your continued advocacy on behalf of the American taxpayers and for your examination of these issues. Please contact Martin Levine in my office…with any questions.
Sincerely,Elijah E. Cummings
Member of Congress
I’d really like to see answers to those questions, and this is why:
Why take 30 or 35 cents on the dollar from Chrysler when you can get the whole buck from the American taxpayer?
“The basic story is very simple,” says economist Dean Baker of the liberal-leaning Center for Economic and Policy Research. “If they hold credit default swaps on the bonds, they’re totally happy with them defaulting.”
In what would rank as one of the great scams of this financial crisis, government bailouts may be colliding. Wall Street may be raking in taxpayer dollars through AIG and returning the favor by driving the auto industry into bankruptcy.
And while there is no evidence that this has happened, would anyone be remotely surprised if this is happening? Anyone?
Dreggas
If that is the case then fear of comments on the wapo blog will be the least of these rat-fuckers worries.
harlana pepper
need more kitty pics to counterbalance the malevolence of coulter visage
and, yes, it is worse that meet your meat
HyperIon
Interesting that all the estimates of worth of the securitized mortgages, banks and Chrysler converge to the same value:about 30 cents on the dollar.
Perry Como
I’d place money on a few of them doing it.
demkat620
I would bet this is exactly what is happening.
Tar and feathers are too good fot these bastards.
jl
Thanks for posting this. I will watch the developments.
And, my answer is no, I would not be even the slightest bit remotely surprised if this were happening.
If the big banks (that we need to break up anyway) were held to reasonable standards, put into receivership, and broken up in the first place, we would not have to deal with this kind of BS. The country could focus on repairing the real economy, the one that provided paltry non-sexy stuff like food, clothes, shelter and transportation.
It is good that the panic broke during the election so that Obama could get a good win. But it was bad in that the initial efforts were horribly botched under the Bush watch, and that Obama choose the the wrong people (that is, Larry and Tim) who for some reason, still have faith that the same giant mega-banks and financial BS artists who screwed things up, will do better next time. They won’t.
Dennis-SGMM
This reminds me way too much of “The Producers.”
WereBear
Well, what do you want from the guy? He ruins 80,000 lives, but he feels badly about it.
John PM
I missed John Cole’s transformation from wingnut to Democrat, but I am having a lot of fun over the past few days watching him blossom from Democrat to the reincarnation of Eugene Debs. The man has been on fire!
someguy
To be fair to the hedge funds, not that I’m inclined to, a lot of big institutional investors use short and bankruptcy-oriented hedges as insurance policies against general market upheaval. That’s why a lot of unions were burned really badly by the Madoff swindle – he was being counted on as pension and medical fund insurance.
Mnemosyne
So companies that specialize in buying troubled assets now think they should be able to buy them risk-free and have the government bail them out if the deal goes south? WTF? So much for our brave capitalists out risking everything in the market — they sound more like kids at the county fair trying to get their parents to let them try the games just one more time because they’re totally going to win this time.
kay
The judge wants to know if the hedge funds were “in and out”, or, who paid what, for what, and when. Apparently the value exchanged issue is a smidge more complicated than the hedge fund lawyer making his media appearances tonight would have us believe. Facts are so complicated.
The judge is going to be harder to play than a FOX News anchor, certainly.
Or Larry Kudlow.
The lawyer for the cooperating creditors already raised the credit default swap conflict issue, verbally, anyway.
The judge will sort it out. After all, the hedge funds demanded this be settled using bankruptcy law. And so it will be.
PeakVT
I think the CDS game is exactly what the holdouts are playing because the liquidation numbers they were waving about were preposterous.
Dave L
This may finally be the deal that turns government policy on the financial sector around – if Obama thinks these creeps will ever change, will ever show any sense of proportion, or restraint, or gratitude, he’s crazy.
geg6
Hmmm, seems that wily ol’ Southron Negro Elijah Cummings and evil turncoat John Cole may be on to something in regard to these poor, scared put-upon hedge funds. I can’t wait until the jury gets their hands on the answers to these very interesting and illuminating questions. I’m betting Andrew Cuomo will be asking these very same questions of them under oath in a court of law very soon. I can’t wait and am stockpiling popcorn for that very moment.
Perry Como
I would broaden it from AIG. If the hedgies do have CDS protection, who wrote it? Was any of it out of TARP money?
Dennis-SGMM
@Dave L:
John has posted any number of items that demonstrate that these creeps feel that they deserve to be rich just because of who they are. They tend to get all pouty when it doesn’t pan out or when someone suggests that destroying the economy to enrich yourself might not be the best way to act.
jl
someguy: point taken, and I have no problem with the hedge funds arguing their case. But the issues you point out just seem like more reasons why the current financial system is a mess, and needs to be broken up and very strictly re-regulated.
I do not understand the worry that doing so might wreck the country. We had a strictly regulated and boring financial sector for 60 years that provided high per capita income growth rates, and withstood serious problems like the Vietnam inflation and oil shocks of the 70s. It is not like we do not know how to do this.
The Rubin/Summers/Gram/Greenspan/GOP mess lasted ten years until it blew up and needed over a trillion taxpayer dollars to save its sorry ass, produced lower per capita growth rates, and at least one ‘hundred year’ crisis per decade.
Junk it.
(the diatribe was not aimed at “someguy” . I was just venting)
Adrienne
Interesting in that they tried to make Obama out to be this oogedy boogedy soc-ial-ist coming to singlehandedly destroy capitalism when he offered them what, by all accounts, seems to be the consensus worth of their investment….
The horror.
Dennis-SGMM
@jl:
You raise an interesting point: why has there been almost no talk of re-regulating the financial sector? It’s understandable that regulations written in haste would likely be counterproductive but repealing the Commodity Futures Modernization Act of 2000 and Gramm-Leach-Bliley seems like a no-brainer.
DougJ
Greed is good.
Would you rather these geniuses go Galt?
Brick Oven Bill
What I do not understand is why Cerberus got zero. Cerberus is Feinberg and a bunch of Clinton-Bush influence peddlers, and watching them get beat up pleases me on one level, but on another level what happened is wrong and concerning. It could be wrong in one of three ways:
1. There is a turf war between two power groups and the Cerberus group just got slapped; or
2. These Cerberus guys are in so deep that they agreed to take a $2 billion hit for the team.
3. Perhaps Cerberus had Credit Default Swaps on their position.
Cerberus, as I understand it, was #2 in line for money. I do not understand how zero would pass muster in a court of law. Cerberus took a hit, and so did the taxpayer. The taxpayer is a given, as he has no representation in these matters.
geg6
DougJ: Yes, please. And the sooner, the better.
Perry Como
Yes.
Zifnab
I’d be disappointed if they didn’t. In an economic free-for-all like we’ve seen over the last eight years, what would it say of an investment management group that DIDN’T indulge in this kind of legalized theft? I wouldn’t want to leave my money with such an organization.
bvac
This shit is getting too convoluted for me to follow anymore.
kay
@jl:
What I object to is the fake moral posturing, and the constant lying.
It almost makes me nostalgic for the 1980’s version of rapacious greedhead. They were strutting around bragging. These people are terrified of comments on a message board, are whining about “tyranny” and claiming their rights are being violated.
Like we all thought they had sterling moral standards, and we’re shocked. It’s the 3rd financial-type perp slow-walk in my adult lifetime. It’s one every 10 years or so. Who are they kidding with this?
Not only do they want to rob us, they now insist we like and/or admire them. That’s a bit much.
Dennis-SGMM
@DougJ:
If these people go Galt then who will buy the Gulfstreams, the Maybach sedans and the platinum toilets? At a time when people are losing their jobs it seems a bit callous to throw yet more people out of work.
JWW
And what are the previous bankruptsy cases you have followed.
Why is the union looking for a 50% stake when they had only 10%.
Investors take care of the client, never the business.
To make it simple for your readers, you don’t make the payments on borrowed money for a car, house, toilet paper and the lender will be at your door. When did the goverment every stop an auto repo.
Zifnab
@Dennis-SGMM: We’ve got a great deal of oversight “in place” that wasn’t functioning properly (read: at all) under Bush. I’d like to see Sarbaines-Oxley reinstated. And that’s just for starters. But I’d also like to know what laws are already on the books, because I’ve got an even bet that everyone was breaking at least some laws that just weren’t being enforced.
As everything is pretty mirred up at the moment, I don’t think it would be enough to simply repeal existing legislation anyway. You can’t retroactively dissolve CDOs or untangle all the default swaps by announcing they’re illegal.
KG
Bill, there is a legal (well, actually equitable) doctrine called “unclean hands” it basically means that if you go to the court and plead a claim, but it turns out you are responsible for a wrong yourself (within the context of your claim) you may be barred from recovery. This has been superceded, a bit, by the doctrine of contributory negligence, but it’s basically the same principle. I don’t know the facts here, but there are plenty of legal and equitable doctrines in the law that, if applied, would justify zero.
KG
@ 30: start with the Sherman Anti-Trust Act. A lot of these companies that somehow became too big to fail had to get permission from the government for mergers and buy outs. There’s a legit reason we don’t want entire industries controlled by a handful of companies.
JL
How disappointing that this post is criticizing the job creators in our country. There is a speculator now without the funds necessary to create a better mousetrap factory. Heaven knows that we have enough rats in this country that we need a better mousetrap. As far as those union workers, let them eat cake.
Dennis-SGMM
@Zifnab:
True that. Hell, common sense wasn’t even functioning. I remember thinking “WTF?!?” when Greenspan began touting “creative alternatives to the fixed-rate mortgage.” It was more than disappointing to me that so soon after the S&L debacle people had once again convinced themselves that gravity was just a state of mind and that shit could be spun into gold.
JL
@Dennis-SGMM: Greenspan knew that if he could convince homeowners to refinance and spend the money it would artificially boost the GNP. His goal was to make sure that Bush was reelected. When I heard him tell the American homeowners that they had to much money tied up in fixed mortgages, I knew we were doomed.
Middle income wages were falling and some folks found that by refinancing they could boost their income. The Fed only encouraged that.
I find the Republican party so disgusting, that I cannot imagine a time that I will vote for a Republican again.
TenguPhule
And that is why you understand nothing at all, BOB.
Equity gets wiped out in bankruptcy.
The Other Steve
I’m curious what Clinton influence peddlers work for Cerberus.
When I worked for Cerberus it was pretty much uniformly Republican with a handful of Libertarian independent types.
And for the record… Daimler-Benz paid Cerberus to take Chrysler. So Cerberus didn’t really have much invested in them.
Anne Laurie
Yeah, I just read an article in the Dec. 2008 Atlantic Monthly by Henry ‘Pets.com’ Blodgett,
whiningexplaining that many sensible, history-literate, temperamentally-cautious money managers were forced to participate in the high-dollar Pig Pile because otherwise they’d be fired by cold-hearted corporate bosses and short-sighted clients who were only interested in matching the competitions’ quarterly results. Sure, they knew it would all fall apart in the long term, but how else were they gonna pay their kids’ tuition in the best Manhattan private schools?In other words, they’ve moved from ‘nobody could have predicted… ‘ to ‘We were just following orders, like humble little functionaries’.
Hope this defense works as well for them as it did for its most notorious predecessors…
Bob In Pacifica
So Chrysler shuts down plants here in the U.S. and builds that one down in Mexico with taxpayer money. Why are we bailing out Chrysler again?
cliff
I’m glad I wasn’t the only one thinking about this. -see previous thread-
glad someone w/power thought to ask.
cliff
huh didn’t think putting dashes on either side of words did that, but I guess it -does-
Nancy Irving
“the face value of their loan holdings has shrunk by about 70 percent” –
But didn’t they buy them NOT at face value, but at a steep discount?
JP
Normally I would agree with Mr. Schultze in this matter, however, I happen to know that Mr. Schultze is personally full of crap. This is the same bozo who purchased Tweeter Electronics out of a chapter 11 bankruptcy, and then single handedly screwed over Tweeter customers and employees by mangling bankruptcy law to his favor. He scammed unwitting customers out of 3 million dollars in cash deposits that were held, then sold their merchandise out from under them to double his money. Then before the bk hit, he paid his largest creditors with this money. Then conveniently, he filed the bk, and WHOOPS, so sorry Mr customer, you are out of luck getting your money back..go stand in line for the courts to pay you NOTHING!! BOO FREAKING HOO Mr. Schultze….life isnt fair, and you have no business preaching about fairness. Someone should do a simple google search on this fools past before quoting him as an expert.