Stag Be DamnedBy CarryTrade • May 8th, 2009 • Category: The Thinking Room
Our love-affair with sub-optimal outcomes continues. Who needs a big juicy stag, when you can get something much worse? Rousseau knew what he was talking about, and the Chrysler bondholders are a great case study.
When they first asserted themselves (anonymously), the arguments were strong. Negotations were only being conducted with TARP-money-holders, so their cooperation was already assured. The Adminstration was bypassing bankruptcy law (sound familiar?), holdout funds had a fiduciary responsibility to their investors, the process was rushed, and the game was clearly fixed. Not since the torture memos made their way around the White House has the law been so breezily interpreted.
But then the holdouts had to identify themselves in court filings. And the coalition came undone. Fearful for being labeled un-American and even worse, being labeled as a hedge fund, the group gave up and the President had his way.
True, the holdouts’ holdings were not big enough to block the Chrysler agreement. They didn’t control more than 50%. But they could have cooperated and at least come closer to the stag. Instead they went their own way and are now stuck with a measely rabbit. We’ll see what precedent this sets for GM, a.k.a. the WWII to Chrysler’s Spanish Civil War.