In the end, the Chrysler hedge funds can’t be too surprised at how politicized and tilted the Chrysler bankruptcy became.
Just a few months ago, there was an obvious precursor to this event.
Anyone remember Republic Windows?
That was the Chicago window factory that almost shut down in December after its lender, Bank of America (BAC) refused to extend it any more credit. The workers staged a sit-in and Rod Blagojevich (just days ahead of revelations that would end his political career) said that Illinois would stop doing business with BofA unless they relented.
In the midst of a crisis caused by bad loans and over-extension of credit, the public was furious at a bank for exercising stringent lending standards when it there was obvious pain to organised labour.
In the end, BofA relented, in a move that was hailed as a “win for the little guy”.
But the message was clear: If you’re a lender, don’t even think about not giving in to a company with a strong blue-collar presence. And if you’re labour, then howl like crazy, stage a strike and a sit in, and politicians will side with you.
That story faded pretty quickly, as Blago’s own political collapse and the transition of Barack Obama into the presidency superseded anything else.
But the Chrysler story, as John Carney clarified, followed almost exactly the same pattern. organised labour is the good guy, and the TARP banks, eager to stay on the good side of politicians were forced to relent to a crappy deal.