White House bullied hedge funds

Discussion in 'Economy' started by jreeves, May 4, 2009.

  1. jreeves

    jreeves Senior Member

    Feb 12, 2008
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    Hedge funds bristle at being portrayed by Obama as villains - Los Angeles Times
    President Obama's harsh attack on hedge funds he blamed for forcing Chrysler into bankruptcy this week sparked cries of protest from the secretive financial firms that hold about $1 billion of the automaker's debt.

    Hedge funds and investment managers were irate at Obama's description of them as "speculators" who were "refusing to sacrifice like everyone else" and who wanted "to hold out for the prospect of an unjustified taxpayer-funded bailout."

    "Some of the characterizations that were used today to refer to us as speculators or to say we're looking for a bailout is really unfair," said one executive who spoke on condition of anonymity because of the sensitivity of the matter. "What we're looking for is a reasonable payout on the value of the debt . . . more in line with what unions and Fiat were getting."

    George Schultze, the managing member of the hedge fund Schultze Asset Management, a Chrysler bondholder, said, "We are simply seeking to enforce our bargained-for rights under well-settled law."

    "Hopefully, the bankruptcy process will help refocus on this issue rather than on pointing fingers at lenders," he said.

    "In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout," Obama said. "They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them."

    Geffner added that Obama's remarks made it difficult for the lenders that rejected the offer to speak publicly for fear of appearing "anti-American."

    Indeed, a group of lenders issued a statement this week -- but did not identify its members. The group said it included approximately "20 relatively small organizations" that represented "the country's teachers unions, major pension and retirement plans and school endowments who have invested through us in senior secured loans to Chrysler."

    The funds hold about $1 billion in Chrysler bonds and have turned down the government's terms.

    The government would have paid just under a third of the value of those bonds.

    However, many funds bought the bonds at deep discounts from other investors who feared the bonds might ultimately be worthless.

    But other observers said that the hedge funds were oblivious to Americans' worries about jobs.

    More on White House's Strong-Arming of Chrysler Hedge Fund Hold Outs -- Seeking Alpha
    In an interview of momentous importance, WJR's Frank Beckmann interviews Tom Lauria, the Head of Restructuring at top five law firm White & Case, in which the lawyer, who represents Chrysler hold-out hedge funds Stairway Capital and Oppenheimer Funds, discusses on the record the amazing treatment by the White House of Perella Weinberg, which initially had been a transaction hold-out but after threats by the White House (not my words) was forced to drop their objection and go with the administration. Says Lauria:

    One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight...That was Perella Weinberg.

    In the clip below, fast forward to the two minute mark, where the Obama administration's negotiating tactics become very, very clear.

    What is very odd is that Perella Weinberg could possibly have veered away from the administration's path in the first place: Zero Hedge readers know that P-W is the very firm advising the rapidly sinking FDIC "on transactions and strategies to stabilize the banking system, and also on the proper way to dispose failed institutions and how to handle delinquent securities assumed from banks, as well as the creation of the aggregator bank."

    This leads to the conclusion that this was really the work of one Dan Arbess, who runs the recently acquired by P-W, Xerion Capital, but nonetheless does not explain the lack of strategic integration at this most critical of advisors to Sheila Bair, and by implication the U.S. administration. How is it possible that one's core advisor would go against its client, even if offset by a Chinese Wall, is likely the big story here, and speaks volumes about the chaos behind the scenes currently occurring with regard to Wall Street's sentiment for the ruling administration.

    Incidentally, Zero Hedge is considering launching a FOIA to Ms. Sheila Bair
    to disclose the compensation structure for Perella Weinberg as it continues to advise the FDIC on the "proper" shuttering and liquidation of bank after bank. After all, we have already seen 31 bank failures for 2009 , a number that will likely hit the 100s, and it is every taxpayer's right to understand the motivations behind Perella-Weinberg's recommendations to the FDIC and to the White House, especially ahead of next week, when the stress test results could potentially lead to the closure of some of the "too big to fail" systematically important financial institutions.

    Accept less money than your entitled to under bankruptcy law or the Obama Adminstration will sick his cronies, the White House press corp, on you. WTF Obama now negotiates bankruptcies?

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