The Promise Of Shifting Alliances
In the wake of the Napoleonic Wars, and after the conclusion of the Treaty of Chaumont by the Quadruple Alliance1 the Congress of Vienna sought to reorganize Europe in the face of Napoleonic consolidation. Depending on where your sentiments lie, Tsar Alexander I was either an enlightened sovereign of these times, or an expansionist opportunist. Our contemporary understanding of the Polish-Saxon Crisis- a Russian-Prussian grab for large parts of Poland for Russia and effectively all of Saxony for Prussia- suggests that the latter interpretation is closer to the mark.
Charles Maurice de Talleyrand-Périgord, the First Sovereign Prince of Beneventum and noted French diplomat of the times, managed to persuade the Austrians, British and the French to conclude a secret treaty vowing war if necessary to frustrate the Russo-Prussian plans. In the interim, attempting to lend authority to the Russian and Prussian claims, Tsar Alexander I is remembered to have implied Saxony's sovereign, King Frederick Augustus, a traitor to the cause of Europe for having rejoined Napoleon in the middle of 1813. Talleyrand, doubtless referring to the fact that Frederick William II of Prussia, Francis I Emperor of Austria, and even Alexander himself via the Treaty of Tilsit, would likely have failed the same standard, is said to have commented, "That, Sire, is a question of dates." While this exact quote is almost obviously apocryphal, what is certain is that Talleyrand, often referred to as the "Six Headed Diplomat," was well-known for his ability to play all sides, even France itself, against the middle. Standing in a room with the man is said to have been a lesson in multifaceted reflection and refraction. It is not entirely impossible, for instance, that he played a personal role the kidnapping and execution of the Duke of Enghien in 1804, but it is nearly certain that he was a shameless womanizer and the attribution for his more cynical quip "La parole nous a été donnée pour déguiser notre pensée,"2 is above reproach. He stands as a reminder that nothing is as it appears when powers clash. Reflecting on this, sage readers of finem respice might find a return to old treatments somewhat useful.
In this connection one might see that it has been easy to spend a lot of time focusing on Chrysler's Non-TARP lenders. This, I think, unduly takes the focus away from those wards of the Executive Branch, Chrysler's TARP lenders. In particular, JP Morgan as the lead secured creditor. A careful look at the timeline of Chrysler's
BataanU.S. Bankruptcy Court for the Southern District of New York Deathmarch over the last 48 hours has brought up some interesting questions likely to see treatment in several entries in the days to come. Initially, however, it is interesting to step back a little bit and recognize exactly how well the likes of JP Morgan made out in this process.
It is no secret that JP Morgan looked like it was playing hardball in the weeks leading up to the April 30th announcement that Chrysler would file for Chapter 11 protection. That position faded into agreement right near the end and as a more detailed timeline emerges here at finem respice so does the sneaking suspicion that it has a lot to tell us about the players behind the scenes.
Consider for a moment what JP Morgan achieved:
- Chrysler was forced to file for protection under Chapter 11
- On the theory that JP Morgan was holding credit default swaps that paid in the event of a filing, they either held to the end or sold just prior to easing off as their incentive structure no longer required a bankruptcy filing3
- The provision of a "they forced us to file" scapegoat for the government.4
- All of the political blame was shifted away onto parties easy to demonize and nearly unable to defend themselves: smaller hedge funds.5
Though Dimon is certainly no Talleyrand, he clearly outclasses the present administration and, any way you book that trade, JP Morgan was in the black.
- 1. Britain, Russia, Austria, and Prussia's 1813 pact opposing France in the final phase of the Napoleonic Wars.
- 2. "We were given speech to hide our thoughts."
- 3. Several unsupported assumptions are required here, particularly the exact terms of any credit default swap with particular attention to the definition of "default." It is somewhat difficult to imagine that Chrysler wasn't already in "default," for the purposes of any CDS agreement. Even so, the certainty of a filing may well have pushed CDS prices up further, that is if JP Morgan even held any, and provided they were in notional amounts worth considering.
- 4. It is not hard to imagine savvy negotiators like JP Morgan cynically and somewhat duplicitously using difficult minority holdouts to their advantage. Siding with a vocal minority at the far end of the negotiating spectrum for a time to accomplish your negotiating goals before quietly and suddenly switching sides is a time-honored strategy. JP Morgan is highly likely to have realized that that the government would need a scapegoat to cover for a filing that Chrysler almost certainly needed to make anyhow to quash dealer contracts and clear the way for the Fiat deal. They certainly also understood the new nature of finance: that the Government's goodwill is a currency far more valuable and important to them as TARP wards than being repaid $2.5 billion in Chrysler debt- and that the government had been nearly shameless in signaling this. Consider the President's speeches before negotiations began in earnest and after negotiations concluded.
- 5. Perella Weinberg seems to have been the quickest reacting of the funds, realizing just in the nick of time what was happening and jumping ship. They have, accordingly, about broken even in the political blame game. One wonders what (or who) tipped Perella Weinberg off.