I then posted the following comment:
"You know, it's interesting that they would attack the hedge funds. The largest investor class for hedge funds, and Wall St. for that matter is retirement accounts (direct Pension Fund investments, as well as mutual funds held in 401(k), IRA, and other retirement vehicles).
It turns out that this subject had piqued Instapundit's interest as well (while Mrs. cdm and I were waiting for our table at a restaurant, we both ran through our PDA's - I checked Instapundit, and he had linked to Conor's post, and quoted a part of my comment).
I followed with a comment to Megan's post, and another comment to Conor's original post that refined my thinking as to the long term fallout to the attempted Chrysler cram down (italics and bold mine):
"I think that after the BK, it will be really hard for Chrysler to go back to the public well. At that point, the public's good will will have expired. And Fiat has played this just about right in order to minimize their exposure. They have no skin in, so they can threaten to walk away.
From my perspective, the key is to examine the respective end positions in a succeed/fail scenario: If Chrysler succeeds, then the Obama administration, Fiat and the UAW all win; If Chrysler fails, the Obama administration and the UAW loose - but Fiat is nuetral. Fiat has maximum leverage.
Why should Fiat put cash in to finance operations when they can dump it on the UAW (the UAW having the most to loose if Fiat walks)? The UAW will have to spend their equity in order to raise cash, and they will get brutal terms. Who will want to pay dollar for dollar with the risk that the Treasury will stick it to you?
So in the end the UAW may get jammed after all, which could be argued their subordinate lien position justifies.
The problem is that in going through the process of this exercise, the Administration has caused investors to be wary and skeptical as to the motivations, actions, and guarantees of the US Treasury. Look at the problems they are having in receiving serious submittals for PPIP. They are questioning the Treasury's guarantee.
Think of it this way - when was the last time investors questioned a guarantee of the US Treasury? It has been the gold standard in the investment world for years - but at least in regards to PPIP (and the auto companies are really PPIP type projects), not so much."
The hedge fund Wall St. fat cats are us!!
Obama really does seem to be pushing his luck in regards to how he treats the people he is counting on in these public private partnerships. If B of A or Citi fails their stress test, and the Treasury wants to unload them on another bank, who will step up to do business with Obama?
In particular, I found interesting his label that creditors are "speculators", when in fact some some of these bondholders were part of the 2003 class to fund..... the UAW pension fund! Given that the reconstituted Chrysler will need cash flow, who will fund them? Absent a guarantee from Bernanke - and lets be honest, it would have to be the Fed (the big money will be highly skeptical of a Treasury guarantee and Treasury's willingness to back it's promises irrespective of politics) - what pound of flesh will creditor's demand in the future to compensate, and what do these demands do to Chryslers ability to survive?
Bigger question: The US Treasury's promise has always been the gold standard; does the position of the Executive in regards to contracts and obligations cause an unintended market dilution of the value of the US Treasury's promise?
Irony: Rattner investigated for claims his hedge fund bribed pension funds."