finem respice

The Mercurian Dealmaker

Submitted by ep on Mon, 05/04/2009 - 16:51
slippery dealmaker

Sometime blogging colleague of finem respice and Going Private before, "The Epicurean Dealmaker" (hereinafter "TED") takes a number of exceptions to a number of issues surrounding Chrysler's bankruptcy and a number of related events occurring over the last few weeks. TED elucidates in the recent entry "You Realithe, Of Courth, Thith Meanth War." To wit:

But now that the patient has been wheeled into the operating theater, where a bankruptcy judge will soon commence the drawn-out and delicate procedure of reconstituting Chrysler into a viable new company which will magically produce vehicles irresistible to all those consumers previously inured to their temptations, I have begun to take notice of a certain strain of commentary which I feel compelled to address.

This commentary seems to issue primarily from Chrysler's secured creditors and their supporters, apologists, and fellow travelers. I believe one can fairly characterize the essence of this commentary as

"Waaah! The Government is Picking on Me!"

TED includes among these, of course, those recalcitrant creditors of Chrysler who have not been all together happy with the proposals submitted to them. Sayth TED:

...a self-described group of Chrysler's smaller secured creditors, who objected in print and in public last week to what they perceived as President Obama's rather shabby treatment of them in the whole mess. In their communiqué, they whined about being shut out of direct negotiations with the government, groused about dramatically lower recoveries on their debt than secured lenders at General Motors, and wrapped themselves in the saintly robes of Sanctity of Contracts and Fiduciary Duty. And, knowing full well that the government would do it for them, they pompously proclaimed that they would never push Chrysler into bankruptcy.

There are some interesting turns of phrase in this passage, many that deserve some scrutiny. For instance:

  • The phase "...a self-described group of Chrysler's smaller secured creditors...." Of course, "a self-described group" is more than a bit gratuitous here, unless some of these facts (smaller, Chrysler's secured creditors) are somehow in dispute.
  • Diminishing the creditor's complaints with: "...what they perceived as President Obama's rather shabby treatment of them..." would seem to suggest that being publicly called out for "endangering Chrysler's future by refusing to sacrifice like everyone else," because they had offered "only" a 40% haircut- still substantially less than they are entitled to collect by law- is something other than "shabby treatment.' Not to mention being blamed for forcing Chrysler into bankruptcy1 when in fact Chrysler was going to have to file for Chapter 11 protection no matter what to deal with its dealer contracts- a prerequisite for a deal with Fiat.
  • Then there is the charge that "...they whined about being shut out of direct negotiations with the government...." In fact, their primary concern in this respect seems to have pointed to the fact that they were forced to act through intermediaries with significant conflicts of interest (TARP institutions) and that these institutions, therefore, don't represent the true interests of creditors. Reducing this issue to a "whine" is either a bit of disingenuous gamesmanship, or betrays on the part of the author a rather serious misunderstanding of the criticality surrounding conflicts of interest within a creditors' committee.
  • Finally, the apparently sarcastic phrase "...and wrapped themselves in the saintly robes of Sanctity of Contracts and Fiduciary Duty," exposes something resembling total ignorance with respect to the potential civil liability for secured creditors acting as fiduciaries who, at the urging of a third party, discard the "Sanctity of Contracts and Fiduciary Duty," or perhaps the author simply hopes the reader will not be well enough versed in concepts like fiduciary duty to notice the glaring error.

This is a bit of cheap quackery on the part of the author, plain and simple. It is also surprising as this work marks a significant low water mark relative to the author's traditionally well-composed and cogent prose. It also betrays a peculiar brand of Aeron Chair Socialism, in other words, the attitude that those senior creditors possessed of the temerity to expect the terms of the debt instruments they hold to be honored or carried to the full extent possible in good faith, or to harbor the absurd fantasy that the proper forms of bankruptcy and pre-bankruptcy would be followed and the poor taste to express shock and surprise at being called out as the cause of Chrysler's bankruptcy from the bully pulpit and on national television by a President who knows damn well that he has to throw Chrysler into bankruptcy anyhow to restructure the company's burdensome dealer contracts and thereby keep Fiat from running with unfathomable haste away from the deal, these senior creditors- excuse me, greedy speculators- should just wait to be told what will be given them and then smile, pose for a publicity photograph with the Vice President and be on their way quickly and quietly so as not to disturb any other residents of the 20500 zip code.

On the contrary, it is the height of fantastic, audacious and poor taste to suggest that any of these creditors have anything to apologize for at all when they seek to enforce the terms of the instruments they hold, much less resort to rather a rather thick bit of argumentum ad hominem to try and make the point.

Unfortunately, it falls to us the rather absurd circumstance of having to defend from the "front lines of capitalist hysteria"2 positions already firmly enshrined both in common law and federal statute.

But this is not all. Apparently we are given to understand that the phrase "I was under a lot of strain," has some sort of legal significance (other than during sentencing to establish Diminished Capacity within the meaning of §5K2.13 ("Diminished Capacity") in the United States Sentencing Commissions Guidelines Manual in support of a downward departure). To wit:

Think about it. The political stakes for the Obama Administration in the Chrysler fiasco are monumental. Barring the ongoing clusterfuck in the finance industry—which is arguably a legacy problem inherited from the previous bumblefuck administration—Chrysler is Obama's first big test to fix an incredibly hairy political, social, and economic dilemma. I would be shocked—shocked!—if every member of the Administration charged with its resolution was not under tremendous personal and professional pressure. In such circumstances, I think it is the height of folly not to expect a great deal of vituperative language, threats, and other nastiness to come spilling out of the mouths of such individuals. Is such behavior right, proper, or even polite? Of course not. Should allowances be made for it? Yes indeed.3

Not only is such behavior to be ignored where possible. It is expected.

I suspect, at some level, there is simply no common ground to be traveled with someone like to hold the position that "allowances be made for" a senior member of the Executive Branch of the United States Government who uses or threatens to use the Internal Revenue Service, the Securities and Exchange Commission to intimidate an organization or individual who is not willing to "sacrifice" sufficiently in the absence of any legal requirement to do so in order to enable the administration's plans.

If I needed reminding on this "no common ground" point, TED was kind enough to leave me a personal editorial note:

Editorial note to Equity Private: Stressed out, hyperaggressive former investment banker and private equity professional reaming hedge fund guy a new asshole during bankruptcy negotiation : Deliberate government swerve toward "Fascism" :: Bouncing a check to your local laundromat : Lehman Brothers' bankruptcy. I don't care how many academic or pseudoacademic definitions of fascism you provide, you have well and truly jumped the shark with this post.4

I'm not quite sure how to address this personal missive except to hope that I am not the only one possessed of the belief that the described behavior, when emanating from a public official, should result in an immediate dismissal.

Also, this might be an opportune time to point out that influencing or seeking to influence of the outcome of a civil action (say, oh, I don't know, bankruptcy?) via the threat of criminal prosecution and/or investigation is illegal. More directly, there is a statute that bears directly on the IRS issue:

Any officer or employee of the United States acting in connection with any revenue law of the United States--

(1) who is guilty of any extortion or willful oppression under color of law; or
(2) who knowingly demands other or greater sums than are authorized by law, or receives any fee, compensation, or reward, except as by law prescribed, for the performance of any duty; or
(3) who with intent to defeat the application of any provision of this title fails to perform any of the duties of his office or employment; or
(4) who conspires or colludes with any other person to defraud the United States; or
(5) who knowingly makes opportunity for any person to defraud the United States; or


(9) who demands, or accepts, or attempts to collect, directly or indirectly as payment or gift, or otherwise, any sum of money or other thing of value for the compromise, adjustment, or settlement of any charge or complaint for any violation or alleged violation of law, except as expressly authorized by law so to do;

...shall be dismissed from office or discharged from employment and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both. The court may in its discretion award out of the fine so imposed an amount, not in excess of one-half thereof, for the use of the informer, if any, who shall be ascertained by the judgment of the court. The court also shall render judgment against the said officer or employee for the amount of damages sustained in favor of the party injured, to be collected by execution.5

These references are the result of only the most basic search on the topic.

Finally, if someone is distressed that the actions of their elected officials starkly resembles the definition of "fascism" as elucidated by several well-known and widely accepted historical texts, third parties should be worried, I think, if the immediate response is to attack the researcher who uncovered these definitions, and the definitions themselves.

Very slippery stuff.

  1. 1. "I know that there are some who will insist that bankruptcy, even for these limited purposes, is a step that should not have been taken. But it was unsustainable to let enormous liabilities remain on Chrysler's books, and it was unacceptable to let a small group of speculators endanger Chrysler's future by refusing to sacrifice like everyone else. So I recognize that the path we're taking is hard. But as is often the case, the hard path is the right one." Conor Clarke "What Obama Said About Chrysler," The Atlantic (April 30, 2009).
  2. 2. "You Realithe, Of Courth, Thith Meanth War," The Epicurean Dealmaker (May 3, 2009).
  3. 3. Ibid.
  4. 4. Ibid.
  5. 5. 26 USC 75 § 7214 - Offenses by officers and employees of the United States.
[Art Credit: Unknown Artist "Untitled," Photograph (Unknown Date), Unknown Provinance. Mercury, Hg, 80.]

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