Chrysler Bankruptcy and Government Bailout

By Harry Sit

I love politicians and their carefully crafted statements. I found this quote in the Financial Times particularly interesting:

Mr Obama said: "As part of their agreement, every dime of new taxpayer money will be repaid before Fiat can take a majority ownership stake in Chrysler."

Chrysler files for Chapter 11 protection, Financial Times, May 1, 2009

Please pay attention. The President didn’t say every dime of taxpayer money will be repaid. Only the new taxpayer money has a chance of being repaid if Fiat wants to take a majority ownership stake. He didn’t say anything about the old taxpayer money. Remember that $4 billion "loan" given to Chrysler just four months ago? Remember? Oh, that $4 billion? We are not talking about it. What happens to that $4 billion? I infer it won’t be repaid. It will be wiped out in bankruptcy. President Obama didn’t say the new taxpayer money will be repaid either. He only said it has to be repaid before Fiat can take a majority ownership stake in Chrysler. What if Fiat doesn’t take a majority ownership stake? What if they only take 49.9% ownership but not quite majority?

What about those speculators, like OppenheimerFunds, who refused to play ball? Their loan is secured by Chrysler assets. There’s something to be said about secured loans. A debtor either pays the debt as agreed or gives up the collateral. Why should a secured creditor ever take less when unsecured creditors get something?

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Posted on May 1, 2009 under News. Keywords: .

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2 Comments on Chrysler Bankruptcy and Government Bailout

  1. SJ on May 1, 2009
     

    =(

    So the bailout successfully kept them in operation for an extra… half year or so? And they were how useful then?

    …

  2. The Weakonomist on May 1, 2009
     

    They should take their pink slips to title loans and get some secured loans that way. I’m sure they could get Obama to pay the 150% interest they’d be charged.

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