Back during the heat of the auto bailout, when President Obama was being criticized for usurping the contractual rights of the bondholders, I wrote that he was doing no such thing…that he was merely playing hardball and winning. My money quote: “The creditors blinked first; they knew that if they took over the company it would essentially disintegrate overnight, and they would be left with a bunch of factories nobody would buy.”
New York Magazine recently did a long piece on Steve Rattner, Obama’s car czar, and in the sections that discuss Rattner’s negotiations with the creditors, it becomes clear that Rattner played the factual business hand, not the federal government will crush you hand. To wit:
“In this go-round, Rattner held all the cards, and Lee [JP Morgan Chase Vice-Chairman Jimmy Lee] knew it. The government was the lender of last resort, and if it walked away, Chrysler and GM would be sold off for parts.”
“Rattner almost laughed. “Jimmy, look. If you want the company, it’s yours,” Rattner told him. “If we can’t make a deal, then it’s your company,” which Lee knew he couldn’t afford.”
Finally, after JP Morgan Chase agreed, and only a few hedge funds were holding out, led by Daniel Arbess, portfolio manager of Xerion, we get the following:
“He’d [referring to Arbess] shrewdly picked up some bonds for as low as $.15 on the dollar. If the government paid $2 billion, he’d still make money. Did he want to risk that for the chance of greater returns? Arbess signed on.”
We don’t like to gloat here at Thoughtbasket, but sometimes we have no choice. Now if only we could get WordPress’ block quote function to work, life would be awesome.