Chrysler is finally going into Chapter 11 bankruptcy protection.  See the NYTimes guide to understand the basics.

The major backstory is what the secured creditors will get for their bonds.  We are led to believe that the protagonists are led by the the large creditors who received TARP funds because they are agreeing to the government’s demands re value and owernship stake.  Meanwhile the antagonists are the evil holdout hedge funds who refuse to accept the government proposal, thinking they should be getting more value.

Just so we’re clear: Chrysler had the opportunity to declare bankruptcy months ago.  The government delayed this eventuality by taking a large stake in the company, achieved through several transactions since late 2008.

Now that bankruptcy is finally upon us, the United States Government is using the stake it only picked up recently to force the other creditors to accept its terms.

The government thinks it has the whole negotiation wrapped up.  First, they are ensuring cooperation from the larger creditors by doling out hush money via the TARP.  Second, the Administration is waging all-out publicity war against the holdouts, hoping to bully them into accepting the bankruptcy terms.

On top of that, these holdouts who are unbeholden to the government because they did not take/need TARP money had to use the TARP holders as their representatives during negotiation with the government.  Good luck getting your interests represented there.  You basically have a negotiation carried out between the government on one side, and creditors on another who are forced to agree with the government in the first place.  Talk about stacking the deck.

Is President Obama auditioning for the role of Gordon Gecko in the Wall Street?  I think Michael Doublas already has it locked up…

Those who say that the holdouts have no business claiming fairness as a defense do not understand the issue.  The claim is not based on fairness, it is a fair argument that the US Government is trying to illegally force them to accept terms worse than they think they could get in a normal bankruptcy situation.  It’s not about fair or not, it’s about the law.

The FT makes a good point that it is these funds fiduciary responsibility to their shareholders to avoid getting the raw deal.  Yes, some of these funds may have recently taken the debt positions on a speculation basis, but that’s when they were under the impression that the laws of the land still applied and that the US Government wouldn’t be playing judge, jury, and jailer.