There Was a Reason to Call Chrysler Bondholders "Speculators"

[Hannah Bell]

The Washington Post devoted the bulk of its front page article on the GM bankruptcy to the pressing question of whether the bondholders are being treated fairly. At one point It noted that Obama had dismissed Chrylser's bondholders as "speculators."

There was a good reason for Obama to describe the bondholders, or at least those refusing to accept the government's proposed conditions, with this term: they were speculators. These bondholders had not been holding the debt for years only to find their company going bankrupt. In most cases they had bought the debt for 30 cents on the dollar (the going market rate), with the expectation that they could push the Obama administration for a better deal.

In short, these were not long-term lenders but speculators who hoped to make a quick buck. (if you buy debt at 30 cents on the dollar and can push to get 33 cents, this is a 10 percent return on an asset that may have only been held for a few months. That is real money.)

http://prospect.org/csnc/blogs/beat_the_press_archive?month=06&year=2009&base_name=there_was_a_reason_to_call_chr

[Statistical]

1. All investments are speculative to some degree.

The original bondholders bought Chrysler bonds with long term and low interest rate because they speculated they were low risk and earned slightly more than the lower risk US Treasury bonds.

They were trading return for security & long term interest rates superior to T-bonds.

[liberal N proud]

2. At least Obama looks like he knew what he was doing

Of which I have no doubt that he did.

It may also give answer to why GM and Chrysler were allowed to go into bankruptcy vs a straight bail out.

[Statistical]

3. GM & Chrysler were give a straight bailout of more than $30 billion.

They were required to come up w/ a plan for profitability before receiving mpre funds.

Both companies looked at the options are stated they could not without BK.
As a company you can't simply erase debt or not pay it like an overdue CC.

The only way to reorganize the companies was Bankruptcy Protection.
It provides protection from creditors and allows judge to restructure the company forcing all stakeholders (management, shareholders, employees, creditors, bondholders) to accept reductions that they never would unless forced.

[Hannah Bell]

5. "reductions"? the big bondholders will make money.

[Statistical]

6. Sure keep telling yourself that.

The original bondholders bought it as $1.00 on the $. They are lucky to get $0.05 on the $ and even then it won't be cash. It will be stock in a super devalued company (millions upon millions of shares issued).

[Hannah Bell]

7. They bought an asset at a bargain basement price. They'll get back what they put in, & more.

[Statistical]

8. Anyone could buy it at bargin basement prices.

ANYONE.
The UAW could have bought those bonds at bargin basement prices.
Nobody had to sell it to them.

The funny thing is you make it sound like a bunch of guys who look like the monopoly character pulled out big bags of gold coins and bought the bonds.

You know who one of the largest bondholders is........ those fat cats in CA teacher's union pension.
Any bolder holder who either bond the bonds or bought the bonds took a risk. They could and can still get out but they are taking a risk on final value of the company.

They took a calculated risk. If the company had been liquidated they likely would have lost money.
They may still lose money. Many GM bonds TODAY are available for sale @ $0.15-$0.25 on the dollar. If you think they will get $0.30 on the $ then you can make some money. However on the other hand if the judge gives them $0.10 on the $ then they/you will lose big.

I mean the analogy would be you are concerned your house prices are going to keep going down so you sell me your house (your choice) at a very low price (your choice).

Then you get mad that the risk I took pays off if/when the value of the house rises.

[Hannah Bell]

9. it's not any kind of risk when the gov't is on your team.

[Statistical]

10. then it is no risk for you either.

bondholders are handled in BK as a class.

All bondholders in the class are paid the same.

So max out all your credit cards, mortgage your house, borrow every dollar you can from anyone you know.

Put it all into GM bonds @ $0.15 on the $1.00

If you are right and they get $0.30 on the $ you double your money in 90 days.

RISK FREE RIGHT!

I'll even help you:
CUSIP 370442BW4. Has an ask price of $0.15 right now. 30 bonds available @ that price ($0.15 * $1000 * 30 = $4500).

Easy $4500 risk free. Double your money in 90 days.

I bet you won't take that offer because it isn't as "risk free" as you seem to think.

GM finances are such a mess you might get $0.30 on the $, hell you might get $0.50. You also might get $0.05.

[Hannah Bell]

12. nope, there are two classes of bondholders.

[Statistical]

13. Exactly and every bond in that class is treated the same.

Buy a senior secured and you are fine.

GUARANTEEEEEEEEEDD MONEY. Just like those work from home commercial.

Hell you could retire this year with all the 28139028290482% gain in just days!

Hurry act now. Valid today only. Get on board the free money express before it leaves the station.

[leveymg]

4. Chrysler was bought out in 2007 by a huge global hedge fund, Cerberus-Gabriel, in expectation of

this bail-out. A controlling interest in GMAC Capital, the financial side of General Motors, was also bought by Ezra Merkin, one of the same circle of "speculators" with the same agenda. These same guys were also Madoff feeder fund operators.

Call them what they are: vultures and criminals. See,

leveymg's Journal - That was a heckuva deal for Cerberus that ...That was a heckuva deal for Cerberus that bought Chrysler in 2007 for $1.35B. Posted by leveymg in General Discussion Wed May 06th 2009, 02:30 PM ...
http://journals.democraticunderground.com/leveymg/411 - 26k - Cached - Similar pages

leveymg's Journal - MYTHS ABOUT MADOFF'S “PONZI SCHEME” – Bernie's ...1 post - Last post: Mar 17
Posted by leveymg in General Discussion .... In May 2004, Feinberg's private equity group, Cerberus Capital Management, LP (Cerebrus is the ...
http://journals.democraticunderground.com/leveymg/400 - 40k - Cached - Similar pages
More results from journals.democraticunderground.com »

Daily Kos: Larger CIA and DoD Privatization Scandal Emerging from ...leveymg's diary :: :: The scandal involving Cerberus' holding, International American Products (IAP) Worldwide Services, awarded a $120 million contract to ...
http://www.dailykos.com/story/2007/3/10/21556/5045 - 973k - Cached - Similar pages

Daily Kos: State of the NationLiterally King of the Hill as chairman of House Appropriations Committee, per leveymg's Cerberus diary, Rep. Jerry Lewis was main interface between Cerberus ...
http://www.dailykos.com/story/2007/4/13/113048/369 - 232k - Cached - Similar pages
More results from www.dailykos.com »

[leftstreet]

11. Thanks for those links

Very interesting