President Barack Obama sharply criticized the hedge funds and other lenders that rejected Chrysler LLC’s proposed debt reduction deal, but said the beleaguered auto maker is in position to emerge from bankruptcy in a stronger, more competitive position.
Were the hedge funds wrong to reject the deal?
These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:
Chrysler LLC is teetering on Chapter 11, and the federal bailout illustrates how government efforts to rescue failing businesses often fall victim to crass political considerations.
Chrysler must persuade its bank creditors to swap what they are owed for common stock. That equity would have uncertain value because the banks don’t know the final details of a new union contract governing wages, benefits and work rules. Also, they don’t know how many shares will be issued to the union for unfunded retiree health benefits and to Fiat SpA for providing plans for new small vehicles.
By Neil King Jr. and Naftali Bendavid
(From THE WALL STREET JOURNAL)
WASHINGTON — The ouster by the government of General Motors Corp. Chief Executive Rick Wagoner could put pressure on the Obama administration to deal more aggressively with the management of banks receiving federal aid.
Since the financial crisis bloomed in September, the Bush and Obama administrations have replaced management only in cases when they took control of struggling companies, such as mortgage giants Fannie Mae and Freddie Mac and insurance concern American International Group Inc.
Citigroup Inc., by contrast, has received three government rescues since October, under which the U.S. will own up to 36% of the company’s stock. Officials have in the past considered removing CEO Vikram Pandit, but demurred, in part because of the paucity of candidates to replace him, people familiar with the matter say. A spokesman for Citigroup couldn’t be immediately reached for comment.
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