Saturday, May 02, 2009

Chrysler Fund-Objectors: Just Capitalist Swine?

Several investors refused to take a major haircut on their first-lien Chrysler paper.

...other creditors said no to that deal, gambling that they’d get more from a bankruptcy judge. They may be right: Fitch Ratings estimates that bondholders could get 50 to 70 percent of their money back if Chrysler liquidates, and a bit less if Chrysler emerges as a going concern. In either case, that’s a better outcome for creditors than the 33 percent return they would have gotten under the government’s offer...

...much of the money is invested on behalf of pension funds, mutual funds, and the retirement accounts of ordinary Americans. Should they really accept a deeper loss because the government asked them to?

Some of those pension funds are for retired State, local, and educational employees.

Pay attention, class!!

Remember that most State, Local, and Educator retirement plans are "fixed benefit" plans--that is, the retiree gets $X/month based on years-of-service and last-5-years-earnings.

So if those pension funds take a haircut, it makes no difference at all to the retirees--they will still get their fixed payout.

But it WILL make a difference to state and local taxpayers, who will have to make up for the shortfall in Chrysler funds.

HT: Lott

1 comment:

steveegg said...

The pols don't care. Not only do they see us as the golden goose, they ignore the fact that, without those eeeeeeevil hedge funds, Chrysler would've went under years ago.

Contrast what the private sector is getting with what the government and the UAW is getting. For nothing but loans, the Feds are getting 8%, the Canadian govt. is getting 2%. Meanwhile, the UAW is getting 55% of the company for $4.2 billion.