Go to the NYTimes business section and you’ll see a picture of some (understandably) sullen Chrysler workers watching a TV as Obama announces that their company is going into Chapter 11 bankruptcy. Between Obama’s rhetoric and this, the narrative is clear: A few greedy hedge funds pushed the whole firm into bankruptcy, potentially costing Americans jobs.
But first, let’s stop thinking about hedge funds as representing the interests of a few rich oligarchs. That’s how they’re presented, but if you’re a teacher or any state employee or anyone who has money in a pension or gets money from an endowment, there’s a decent chance that you’re invested in a hedge fund. So you’re among the greedy bastards.
And though the President referred to the hedge funds as just a few holdout stragglers, they were the senior lenders and had a right to first claims on the company’s assets. As Breakingviews argues, the precedent of putting them behind the UAW in the name of political expediency would’ve been dangerous. It should certainly make anyone think twice before lending money to a company with a strong union.
What’s more, as both Breakingviews and Felix Salmon are saying, the real albatross around Chrysler’s neck is the dealers and without bankruptcy there can’t be much movement on that front. At this point, they’re probably a much bigger deal than the union. Without fixing that, Chrysler’s prospects are extremely poor. They need to become a smaller company. And if they’re going to do that, a bankruptcy that creates the indented UAW-Fiat alliance, while changing their agreements with the dealers (tough) is the best shot.
Score one for hedge fund greed.