Why Not Just Bind & Whip The Secured Creditors With Soft Corinthian Leather? Details of Chryslyer Deal as Unappealing as 1975 Cordoba!

Nick Gillespie | June 10, 2009

It's official: Coming-outta-bankruptcy-protection Chrylser will be sold to Fiat under a deal supported (that is, insisted upon) by the U.S. government that puts traditionally front-of-the-line secured creditors back toward the end of the line when it comes to paying out (sorry folks, we had a full boxa donuts here just a minute ago but I guess all the customers ate them already!). The deal was challenged by some of those creditors, including the smart folks in Indiana state retirement and construction funds, who managed to turn 43 cents on the buck into 29 (psst: It's always a good time to buy, especially on a downturn!):

Under the agreement brokered in the days leading up to Chrysler's April 30 Chapter 11 filing, Fiat will receive up to a 35 percent stake in the automaker, in exchange for sharing the technology Chrysler needs to create smaller, more fuel-efficient vehicles.

The United Auto Workers union will get a 55 percent stake that will be used to fund its retiree health care obligations, while the U.S. and Canadian governments will receive a combined 10 percent stake.

Meanwhile, the automaker's secured debtholders would get $2 billion in cash, or about 29 cents on the dollar, for their combined $6.9 billion in debt. Some of the debtholders balked at the deal, saying as secured lenders they deserved more. The Indiana funds involved in the Supreme Court appeal hold about $42.5 million of Chrysler's $6.9 billion in secured debt. They bought it in 2008 for 43 cents on the dollar.

More details here.

Good luck Fiat! And in case you've been wondering why Fiat is interested in Chrysler in the first place, go here. Briefly, the deal costs them basically nothing in terms of cash but gets them back into a North American distribution network and a few other things that they can always walk away from. Chrysler, of course, gets its bailout (now and forever) from the governments of the U.S. and Canada and access to tech that will help them produce smaller, greener, blah-blah cars. And it forestalls liquidation.

Was the bailout of Chrysler, which lead to the gov't stake, constitutional? Damon Root points to the reasons why it wasn't. And Jacob Sullum explained why it wasn't going to matter anyway.

And here's Ricardo Montalban back in 1975, talking up the Chrysler Cordoba in strikingly weird yet mellifluous terms that range from simply nonsensical to ("I request nothing beyond the thickly crucial luxury of seats available in soft Corinthian leather") vaguely psychosexual ("It is on the highway where Cordoba best answers my demands").

In fact, the ad is a great homage to an (Gerald!) Ford era of spectacularly diminished expecations, as the narration emphasizes the benefits of settling for less in a high-inflation, high-unemployment, high-interest-rate America: "I grasp for nothing beyond the quality of Cordoba's workmanship....I have much more in this small Chrysler than great comfort at a most pleasant price...I have great...confidence, for which there can be no price." Comfort? Pleasure? Confidence? For free? Count me in, even though you can just by looking at those massively oversized single car doors that they'd be rusting out the hinges the minute you drive the thing off the lot.

Well, you know what Ricardo? You may be in the donut room of that great Five Star dealership in the sky, waiting for the salesaman to come back to you with his absolute best offer after the manager approves (and really, the rust-proofing is totally worth it, and the paint protection plan too), but down here on earth, Chrysler's comfort and confidence does come with a price: About 29 cents on the dollar. And even that might be too high.

Comments

|6.10.09 @ 8:32AM|#

Many people have said it before me, but I feel it should be noted yet again:

NEVER LOAN MONEY TO OR BUY STOCK IN A UNIONIZED COMPANY. YOU WILL GET RIPPED OFF.

|6.10.09 @ 8:39AM|#

The proletariat is securing the means of production through the courts. I wonder what the will do once the union is a majority shareholder?

My prediction: Orwells vision will be carried out to full effect as the unions roll back worker benefits and protections to make their "investment" profitable.

Four legs good, two legs bad BETTER!

..|6.10.09 @ 8:45AM|#

Nick's posts are snark-infested.

Alan Vanneman|6.10.09 @ 8:46AM|#

Don't be so goddamn negative, Nick! Just sit your ass down on some fine Corinthian leather, and, trust me, all your troubles will go away. You don't even need a damn car! Just the damn seat!

Ricardo Montalbon|6.10.09 @ 8:47AM|#

Hey Nick, the phrase was "RICH Corinthian Leather."

MNG|6.10.09 @ 8:50AM|#

"The United Auto Workers union will get a 55 percent stake that will be used to fund its retiree health care obligations"

OmiGod, one party will have to meet its promises to another! Horrors!

|6.10.09 @ 8:53AM|#

OmiGod, one party will have to meet its promises to another! Horrors!

I take it you aren't referring to the promise made to the secured creditors that their money would be paid back.

|6.10.09 @ 8:55AM|#

Laugh all day MNG. But good luck to any industry that is heavily unionized in getting credit anytime soon or ever. This plan is fucking every unionized company and by extension every union for the next 100 years. If Union leaders were anything but theiving gangsters or cared about anything beyond stealing from their workers, they would be outraged by this. But since they aren't and everyone else who is obstensively cares about unions is too stupid to understand the concept of second order effects, it is going to happen anyway.

Xeones|6.10.09 @ 8:57AM|#

OmiGod, one party will have to meet its promises to another! Horrors!

Meeting a promise is one thing. But when they screw you and me or any other third party in order to do so, yes, that is goddamn horrible.

|6.10.09 @ 8:58AM|#

Don't be silly, domo. Secured creditors are running dog capitalist robber baron labor rapists and the UAW is a stately, well-muscled man who always has the sun glinting off his hammer and sickle as he toils on the behalf of others, never himself.

Bingo|6.10.09 @ 8:58AM|#

The United Auto Workers union will get a 55 percent stake that will be used to fund its retiree health care obligations

And any shortfall of those obligations will be paid for by... ?

|6.10.09 @ 8:59AM|#

Or the promise that they would receive assets in lieu of cash before other creditors in the event of bankruptcy.

Or the promise that the legal system would actually enforce the above committments.

Good luck ever raising capital in this country again. US Corporate bonds are going to be denominated in Swiss in ten years.

|6.10.09 @ 9:01AM|#

Don't be silly

I obviously missed that poster on the way in to work this morning. I'm sure it will be in Union Square by tomorrow.

|6.10.09 @ 9:03AM|#

And any shortfall of those obligations will be paid for by... ?

issueing treaury bills.

|6.10.09 @ 9:04AM|#

domo,

Sorry, I couldn't find one big enough for you to use as a desktop wallpaper.

|6.10.09 @ 9:06AM|#

"Secured creditors are running dog capitalist robber baron labor rapists and the UAW is a stately, well-muscled man who always has the sun glinting off his hammer and sickle as he toils on the behalf of others, never himself."

And don't forget plainly dressed but attractive and sturdy women wielding the sickle, turning the wrench and pounding the hammer. Both sexes are essential to the trampling of the bourgeois capitalist running dogs.

|6.10.09 @ 9:09AM|#

Good luck ever raising capital in this country again.

Check the CUSIP or credit rating on Boeing, General Electric, or UPS today (all heavily unionized) - lets see if your theory holds up.

I won't wait.

|6.10.09 @ 9:10AM|#

Kudos, John. But you forgot to point out she's always in a scarlet headscarf tied under the chin. You wouldn't want to suggest that there was anything even slightly sexual about her.

MNG|6.10.09 @ 9:10AM|#

Look, let's say you think that some promises are "more special" than others and so they should have taken priority here. OK, I understand (don't agree, but understand). But still, there was a promise to the workers, and it's being enforced. That's hardly a horror show.

Unless you just hate unions. Well.

"But good luck to any industry that is heavily unionized in getting credit anytime soon or ever."

Sorry John, I'm not too worried that the same industry that made all those bullshit mortgages won't somehow lend to unionized companies anytime soon...

MNG|6.10.09 @ 9:12AM|#

"Check the CUSIP or credit rating on Boeing, General Electric, or UPS today (all heavily unionized) - lets see if your theory holds up."

shrike, don't tease the classical economists with empiricism, this shit has all been demonstrated on GRAPH PAPER for God's sake! 'Nuff said, end of debate!

MNG|6.10.09 @ 9:15AM|#

"But when they screw you and me or any other third party in order to do so, yes, that is goddamn horrible."

My point exactly. If I make a promise to give you x in return for consideration, and then I turn around and, in a transaction you are not a party too, promise y to shrike in return for consideration, and then tell shrike "oh, and my promise to you is special and comes before my promise to domo" why in the f*ck should you feel that your promise with me is now subordinate? Because me and shrike SAID SO?

Nick Gillespie|6.10.09 @ 9:15AM|#

Ricardo,

For the record, check your own lingo at .24; it's soft, not rich, in the actual ad.

|6.10.09 @ 9:17AM|#

"Sorry John, I'm not too worried that the same industry that made all those bullshit mortgages won't somehow lend to unionized companies anytime soon..."

So there is no such thing as second order effects? Why would anyone invest in a unionized company knowing that if it goes south you can't even get secured capital back? Essentially you have made every debt of a unionized company into an unsecured debt. Yes, people will lend, but it will be at higher rates and only to really stable companies.

Beyond that where do you think the money for these secured creditors came from? Mars? Those secured creditors are pension funds and 401Ks of Americans. You are fucking retirees and savers all over the world really to take care of crooked union bosses. Sorry Grandma you are going to have to lose your pension and go to work. Jimmy Hoffa needs a new Cadillac. But hey, those pensioners probably voted for McCain any way. So fuck them right MNG?

|6.10.09 @ 9:18AM|#

"Because me and shrike SAID SO?"


No because the agreement we all signed said so. You fucking moron.

|6.10.09 @ 9:22AM|#

The mental gymnastics required to equate or prefer an employment contract made under duress for substandard and over-compensated labor to the clearly and legally defined notion of secured credit is quite amazing.

robc|6.10.09 @ 9:23AM|#

Because me and shrike SAID SO?

There are rules for these things. Are the rules necessarily right? No, but they do exist, and if we are going to have bankruptcy at all, they need to exist and then should be followed.

Once we accept that BK should exist, we can argue over the order of claim on assets. This has been done for over 200 years and we have, at the current time, settled on an order. As long as you and shrike follow the settled order, then yes, your say so is good enough. If you dont, it isnt.

The UAW knew where they were in the pecking order. They could have negotiated a "no secured creditors allowed" clause into their contract with Chrysler. They CHOSE not to (for damn good reason, hamstringing Chrysler like that would have killed them off even earlier).

This whole deal violates the concept of Rule of Law. Everyone is supposed to be equal under the law, which means the bankruptcy rules should apply to all companies.

|6.10.09 @ 9:25AM|#

Perhaps the unions bear some blame in this? Maybe like twenty years ago they should have come to the conclusion that if they didn't start signing more reasonable contracts they were going to bankrupt the company and end up with no jobs? I have a hard time having much sympathy for someone who feeds at the trough until they throw up. There are lots of heavily unionized industries where unions understand that it is in their best interest to make the company competetive. The UAW was not one of those unions. And now the creditors and the tax payers are supposed to subsidize their greed.

|6.10.09 @ 9:28AM|#

In Chapter 11 reorganization bondholders have fallen behind SOME unsecured creditors for over one hundred years going back the railroad days.

Search for the Necessity Doctrine or Critical Vendor Doctrine and find out how often this is true.

The Indiana people were not the first vulture investors who bought distressed bonds hoping to have first dibs in a liquidation. Its a perfectly legal strategy but usually fails in an 11 (versus a complete liquidation).

So many "conversatives" don't know a fucking thing about the history of capital formation and dissolution.

|6.10.09 @ 9:31AM|#

As Nick said--twice now--Corinthian leather is neither rich nor fine. It's soft.

I should know, because my family has been making soft Corinthian leather for over two thousand years, based on a process invented by our ancestors in classical Corinth.

Or there's no such thing as Corinthian leather--you make the call!

Joel|6.10.09 @ 9:37AM|#

John | June 10, 2009, 9:18am | #
"Because me and shrike SAID SO?"

No because the agreement we all signed said so. You fucking moron.

Ah, but Obama & Friends say different, so that "agreement" of yours? Not so binding.

You're familiar with "the ultimate argument of kings," right?

|6.10.09 @ 9:38AM|#

Phew!!! That's the SMALL Chrysler???

I like watching that tank roll up a windy mountain road. I would have had more fun in my 87 honda...

robc|6.10.09 @ 9:41AM|#

shrike,

I asked in the other thread and you havent answered:

Which of the US Government/Canada/UAW/Fiat is a "critical vendor"?

Answer: none, because none are vendors.

Some Guy|6.10.09 @ 9:44AM|#

That'll teach 'em to invest in U.S. companies.

Gimlet|6.10.09 @ 9:44AM|#

Don't need the TrueCoat.

|6.10.09 @ 9:46AM|#

Check the CUSIP or credit rating on Boeing, General Electric, or UPS today (all heavily unionized) - lets see if your theory holds up.

Credit ratings are meaningless in terms of the cost of capital. Have been since late 2006. Did you have a CUSIP in mind? I'll be happy to run it through my terminal and confirm any valid conclusion you'd like to draw. Ive had a look, and my preliminary observation is that EXISTING claims for Ford are trading always and everywhere over 10%. They can probably roll over their short term obs at similarly outrageous levels for now - but raising new capital! Seriously? You think they can go out and do that? Because if they could, the government wouldn't be lending them 10bn every month. Puleeze - spare me your mocking tone.

let's say you think that some promises are "more special" than others and so they should have taken priority here. OK, I understand (don't agree, but understand).

I don't THINK some promises are more special, I have a signed contract that all parties agreed to that makes the specialness of my claims legally enforceable (or was supposed to).

I get that you don't give a shit about creditors claims because you have some idealized notion that the holders are all rich dudes living off the sweat of your brow. In reality, the losers are retirment accounts, pension funds, mutual fund investors - ordinary people who saved money for retirement and are having it taken from them to be given as a politically motivated gift to another party, outside the rule of law, who has no similar legal claim. Somehow, this is justice for you, because you like those people more.

PeeDub|6.10.09 @ 9:46AM|#

Also, under the floorboards, there are more eagles.

|6.10.09 @ 9:50AM|#

The Indiana people were not the first vulture investors who bought distressed bonds hoping to have first dibs in a liquidation. Its a perfectly legal strategy but usually fails in an 11 (versus a complete liquidation).

As the claim is freely and legally transferrable, what is your definition of "vulture" investors? What is your argument for treating them any different from other people who held these claims over time?

FLAPPY THE EAGLE|6.10.09 @ 9:57AM|#

"Also, under the floorboards, there are more eagles."

AND WE WANT TO EAT YOUR LIVERS!

Seward|6.10.09 @ 9:57AM|#

Whether this is constitutional or not, legal or not, favoring auto workers in this way is an entirely political maneuver. Of course, in the end it will not matter; Chrysler and GM will rise or fall on their own merits, and there is ultimately nothing that the U.S. government can do about that.

Seward|6.10.09 @ 9:58AM|#

In other words, the U.S. government is impotent with regards to such matters.

|6.10.09 @ 10:03AM|#

We missed you, Flappy!

|6.10.09 @ 10:12AM|#

US Corporate bonds are going to be denominated in Swiss in ten years.

Nope. The yuan is the reserve currency of the future.

f course, in the end it will not matter; Chrysler and GM will rise or fall on their own merits, and there is ultimately nothing that the U.S. government can do about that.

If that were true, they'd already be gone. The government can, has, and will do something about that until the political price is too high.

Seward|6.10.09 @ 10:15AM|#

R.C. Dean,

Or the political price becomes low enough. If GM and Chrysler slowly dissolve into crapitude then they will eventually lose what political clout they have and they will then lose political favor. Innumerable U.S. industries have gone down the drain this way.

|6.10.09 @ 10:15AM|#

If I make a promise to give you x in return for consideration, and then I turn around and, in a transaction you are not a party too, promise y to shrike in return for consideration, and then tell shrike "oh, and my promise to you is special and comes before my promise to domo" why in the f*ck should you feel that your promise with me is now subordinate? Because me and shrike SAID SO?

You original promise to me, did NOT include promising me assets in the event you couldn't pay. This left you free to use those assets in a later transaction with shrike. If I was uncomfortable with this arrangement, I should have negotiated a security interest in the first place - It's patently ridiculous to come in after the fact and claim something of shrikes (that he negotiated and paid for) that I had the first opportunity to obtain and did not.

|6.10.09 @ 10:16AM|#

Which of the US Government/Canada/UAW/Fiat is a "critical vendor"?

Answer: none, because none are vendors.

Check the history of bankruptcy court.

Steelworkers and airline pilots have received favorable status over debt holders in those respective industries.

How could you operate an airline if you stiff the pilots in favor of bondholders?

They have leverage.

Seward|6.10.09 @ 10:18AM|#

Of course, no one really has answered in any useful way why we need to save these companies; except for claims that it will bring a disaster upon us as the parts companies go south. Of course that is exactly what free markets are supposed to do; allow for the destruction of firms which are no longer productive, etc. so that those resources can be applied to a higher, better use.

Seward|6.10.09 @ 10:22AM|#

shrike,

In the case of the steel industry we know that there are plenty of steel making, etc. firms in the U.S., but that they employ far less people than they once did. So if the point was to "protect" jobs (something which is basically impossible to do in any society which is market driven) then it was a failure.

phalkor|6.10.09 @ 10:23AM|#

Secured creditors are running dog capitalist robber baron labor rapists and the UAW is a stately, well-muscled man who always has the sun glinting off his hammer and sickle as he toils on the behalf of others, never himself.

This actually makes a lot of sense. When you look at it in this light it's just a shame that the UAW didn't get 100% of the company.

Capital is an evil, though a necessary one. The real "good" is labor. It's nice to see the bankruptcy mostly falls in line with modern ethics. I hope other industries will follow suit.

|6.10.09 @ 10:25AM|#

How could you operate an airline if you stiff the pilots in favor of bondholders?

How do you think you can borrow money if you never pay it back?

Look, I realize subordinate debt holders have been paid out ahead of senior claimants in the past. Usually it amounts to ransom money - they get something in exchange for going away and not obstructing the process further. This Chrysler deal is unprecedented - legally, and also in the sense that the GOVERNMENT is the one twisting the companies arm under the threat of legislative penalty - not the claimants based on whatever leverage they actually have.

|6.10.09 @ 10:26AM|#

Capital is an evil, though a necessary one.

Can you even define Capital?

MNG|6.10.09 @ 10:28AM|#

"Why would anyone invest in a unionized company knowing that if it goes south you can't even get secured capital back?"

Why would anyone lend money to a buyer of a house who has a high risk of not paying it back?

"The mental gymnastics required to equate or prefer an employment contract made under duress"

It was the company that was under duress? Hilarious. Either way, it was a contractual promise. Just because it happened to be made to workers doesn't mean it deserves the scorn libertarians seem prone to in such matters.

"There are rules for these things."

I dig the rule of law thing. If I had my druthers I would have the law changed, and this deal seems a little fishy. My point is that making them keep their promise either way is hardly horrible.

"I have a signed contract that all parties agreed to"

In my example you do not. Perhaps you don't even know about my deal with shrike. As far as the Chrysler situation, I don't know, did the UAW explicitly agree to have the bondholders in question's claims come before theirs?

MNG|6.10.09 @ 10:30AM|#

Let's wrap our heads around what bankruptcy proceedings are all about.

I make promises to domo, shrike, SF, etc. Then, I go to the government and say "hey, I'm not going to be able to make these promises" and the government decides to only partially enforce the promises. In doing this it at times will favor some promises over other promises, even when some of the disfavored promisees have never agreed to that.

And libertarians, whom I like to tease as "contractarians" since often the love of contractual responsibility trumps expanding freedom of choice on some occasions, are up in arms when that isn't followed to the letter? WTF?

Seward|6.10.09 @ 10:32AM|#

MNG,

...did the UAW explicitly agree to have the bondholders in question's claims come before theirs?

The UAW is a very large firm just like any other large capitalist entity with an army of attorneys and other specialists who advise them on matters associated with their contracts. I would assume that they were aware of all the dimensions of their contracts, etc. Unions of the size of the UAW aren't really any different than the companies which they deal with.

MNG|6.10.09 @ 10:32AM|#

It's also funny how people say "oh my God, if creditors find their promises are unsecured they will never lend credit!" but don't think "oh my God, if workers find their promises are unsecured they will never work". It's almost as if, perfunctory rhetoric aside, you guys devalue the labor equation of business in favor of employers and creditors (hmm, now that's an original criticism of libertarians!).

MNG|6.10.09 @ 10:33AM|#

Seward
So your answer is no. Thank you.

|6.10.09 @ 10:35AM|#

did the UAW explicitly agree to have the bondholders in question's claims come before theirs?

They did not negotiate a security interest for their claims - explicit permission is not in any way required.

You are my gardener. If I borrow a thousand bucks from you, and then go take out a mortgage on a house, you are in no way legally entitled to file a lien against my house that supercedes the banks lien in the event that I fail to pay you off. You would, however, be entitled to one that comes AFTER the bank gets paid - ie. junior.

The point is that if you said "hey, lets agree that you won't go borrow any more money" and we put that in the contract - I couldn't have gotten a mortgage. I also wouldn't have a house, and you wouldn't have a job tending the garden there.

Seward|6.10.09 @ 10:36AM|#

MNG,

...whom I like to tease as "contractarians" since often the love of contractual responsibility trumps expanding freedom of choice on some occasions...

Libertarians talk about contract very little actually in my experience, because they assume that most interactions in a society will be non-contractual. Why? Well, that is easy enough, contracts are cumbersome, expensive to enforce documents, that draw the government into the affairs of the participants. Emergent order is basically a non-contractual concept.

Seward|6.10.09 @ 10:41AM|#

MNG,

No, my answer is yes. I assume that they explicitly knew this.

MNG|6.10.09 @ 10:41AM|#

"If I borrow a thousand bucks from you, and then go take out a mortgage on a house, you are in no way legally entitled to file a lien against my house that supercedes the banks lien in the event that I fail to pay you off."

I'm not sure why mine would have priority, but I don't see why it wouldn't deserve equality. You said you'd pay me the money. You didn't say "I'll pay you the money, but only if I have it after I'm through paying the bank." If you said that, then OK. But you didn't. Now you have two promises. You and the bank pronouncing your promise to it "special" doesn't give it the right to come first, especially if I didn't agree to that.

MNG|6.10.09 @ 10:43AM|#

Seward
That's silly. Take domo's example. If, after taking his mortgage out a neighbor of his told me "you know, that guy made a promise to the bank and they said their promise was special and had priority to his promise to you" how would that make me having agreed to such nonsense?

|6.10.09 @ 10:44AM|#

don't think "oh my God, if workers find their promises are unsecured they will never work".

This is a clever ruse: Workers are free to leave and find new employment at any time - though some would like to ignore this in favor of prtraying them as helpless children.

Bondholders are not free to demand their money back at any time. They can sell their claims on the open market, but cannot enforce their claim on assets unless a covenant is broken.

Moreover, workers, get paid out on their outstanding claims, what, twice a month? Their reward for labor (wages) IS protected above secured creditors. What we are specifically referring to as the "workers claims" are the retiree pension benefits. Not payment for current work, not wages.

robc|6.10.09 @ 10:44AM|#

And libertarians, whom I like to tease as "contractarians" since often the love of contractual responsibility trumps expanding freedom of choice on some occasions, are up in arms when that isn't followed to the letter? WTF?

I already covered this above...Once we accept that BK should exist.

From a pure libertarian standpoint, it might not. Like IP. But, as a, possibly reasonable, exception to natural law, once we choose to do it, it should follow whatever order we choose.

Actually, in a pure libertarian, contract only situation, secured creditors would ALWAYS go first, as they have secured assets to seize. Like in a foreclosure on a house. The unsecured would ALWAYS go last. In BK, that is not the case, as, for example, I think the government gets to go first for unpaid taxes. And other examples.

|6.10.09 @ 10:45AM|#

Look, I realize subordinate debt holders have been paid out ahead of senior claimants in the past. Usually it amounts to ransom money - they get something in exchange for going away and not obstructing the process further. This Chrysler deal is unprecedented - legally, and also in the sense that the GOVERNMENT is the one twisting the companies arm under the threat of legislative penalty - not the claimants based on whatever leverage they actually have.



I agree that TARP made this case unprecedented. That was the angle SCOTUS denied Cert on though. Fair enough.

My consistent point is that the cramdown itself was not unusual. The Delaware courts handle the overwhelming majority of these cases for this reason.

The vast majority of the bondholders accepted the terms of the court and the GM bondholders have already signed on to a pre-packaged 11 even before they knew about last nights ruling.

Applying TARP to auto companies was a Bush decision to kick the can down the road and itself was a political ploy. Has Obama continued the politcal ploys? Of course.

But this hyperventilation on the "destruction of capitalism" is ridiculous.

Seward|6.10.09 @ 10:46AM|#

MNG,

No, you're silly. If there is a lien already on the property then it is your fault for not figuring that out.

MNG|6.10.09 @ 10:46AM|#

Assuming voluntary agreement by the UAW in this matter would be the flimsiest and shammiest of legal fictions...I'm sure you would not apply such a theory to other areas of contracting.

MNG|6.10.09 @ 10:47AM|#

"If there is a lien already on the property then it is your fault for not figuring that out."

Incredible.

Not the promisor's fault?

Simply incredible.

phalkor|6.10.09 @ 10:47AM|#

Can you even define Capital?

I think we all know the answer to this one.

you guys devalue the labor equation of business in favor of employers and creditors

I've gotta admit, that's a fair critique. Nonetheless, this preference exists for a reason.

I think you will always have people seeking employment, just like you will always have people making investments. It is probably easier to scare away potential investors than potential employees because investors have more to lose from the outset.

Real economic power is tied to ownership, not institutions or assemblies. Maybe I'll be proven wrong and the UAW will be an amazing success in the next century. I reserve my niggling doubts and I wouldn't invest.

|6.10.09 @ 10:48AM|#

I'm not sure why mine would have priority, but I don't see why it wouldn't deserve equality.

Let me spell it out: If you HAD insisted on equality or priority in the first place, the whole concern would have never happened in the first place. The original agreement: explicit or implicit was necessary to obtain the needed capital in the first place. Without the priority order that I am suggesting, there would be no GM in the first place. In my example, the bank would have never given me a mortgage if they KNEW your claim would come first (or more realistically, they would insist on a rate that would make my enterprise uneconomic)

MNG|6.10.09 @ 10:49AM|#

Remember in domo's example he got the mortgage AFTER his promise to me was made. Assuming I agreed to the terms of a promise yet to be made to another party without me being involved is, again, an incredible legal fiction deserving of scorn...

Seward|6.10.09 @ 10:50AM|#

MNG,

There is a reason why you do a title search when you buy a piece of property. Caveat emptor.

robc|6.10.09 @ 10:50AM|#

MNG,

You and the bank pronouncing your promise to it "special" doesn't give it the right to come first, especially if I didn't agree to that.

Actually, yes it does, because I promised the bank an asset in case I dont pay. I didnt promise that to the gardener. The gardener is relying on my full faith and credit, not on an asset. This is obviously implicitly agreed to by the gardener choosing not to lien the house at the time of the debt.

IFF (not a typo), the gardner leans the house for 1k, then the bank mortgage becomes a 2nd, no matter how large it is.

robc|6.10.09 @ 10:53AM|#

s/lean/lien/

Sigh, I spelled it right the first time.

MNG|6.10.09 @ 10:54AM|#

"If you HAD insisted on equality or priority in the first place, the whole concern would have never happened in the first place."

Imagine this in other settings. You and I make a contract for you to pay me x for y amount of widgets, which you then plan to sell by putting up for auction. You promise the auctioneer a for his services and additionally tell him that your promise of a to him comes first. They sell for less than you thought, and you can't cover both. So you tell me "sorry, you should have known that the auctioneer was crucial to this coming off and this working out between us, so let's assume you agreed to that promise coming before our promise".

Simply incredible. It's just because there is a union involved that people would even float such nonsense.

|6.10.09 @ 10:55AM|#

Assuming voluntary agreement by the UAW in this matter would be the flimsiest and shammiest of legal fictions...I'm sure you would not apply such a theory to other areas of contracting.

You don't seem to get that they don't NEED agreement from the UAW. They are free to mortgage their assets in any way they like unless prohibited by an agreement - which they were not (for very good reason). My argument is not that the UAW tacitly gave permission (they did or would have, but it doesn't matter) its that they HAVE NO FREAKING CLAIM.

robc|6.10.09 @ 10:56AM|#

MNG,

Assuming I agreed to the terms of a promise yet to be made to another party without me being involved is, again, an incredible legal fiction deserving of scorn...

You are an idiot. It isnt that you agreed to the terms, its that you allowed me to use my asset as security becuase you chose not to use it as security youself. You chose a different asset - trust.

Which, btw, is the same asset that credit card companies use. Creditworthiness is just a "how much do I trust this person to pay me back". It is the whole point of the difference between secured and unsecured loans.

You are trying to turn an unsecured loan into a secured one. But, that wasnt the deal up front. An unsecured loan general commands a higher rate of interest. Now you want the higher rate and the benefit of security. Well, fuck you! You get one or the other.

MNG|6.10.09 @ 10:57AM|#

"The gardener is relying on my full faith and credit, not on an asset."

No he isn't. You said you would pay him x. He's relying on you to pay it, who cares where it comes from? And who cares that he later made a "special" promise that was more specific in where a second x was coming from? What does that have to do with the first promise?

"This is obviously implicitly agreed to by the gardener choosing not to lien the house at the time of the debt."

Again, that is the nuttiest of legal fictions I've heard in a while. He assumed you would pay him x.

Seward|6.10.09 @ 10:57AM|#

MNG,

Actually, it is because a union involved that the deal is working out the way it is. Perhaps under a Republican administration some other party would get special treatment. This just shows how bankrupt the system of U.S. government is.

robc|6.10.09 @ 10:57AM|#

It's just because there is a union involved that people would even float such nonsense.


Bullshit.

Its standard practice that happens every day. See credit cards vs mortgages for a non-union example.

kinnath|6.10.09 @ 10:58AM|#

I saw an online article in some other magazine that said the UAW would be looking to sell of the Chrysler stock as soon as possible to diversify the holding of the pension plan -- cause it's way to risky to invest to heavily in one company.

So now we get to watch older (and therefore vested) UAW members fuck younger UAW members in the ass to protect their future benefits ;-)

|6.10.09 @ 10:58AM|#

You promise the auctioneer a for his services and additionally tell him that your promise of a to him comes first.

It's not about coming first - it's about collateral. The example should be that the widget making machines were promised as collateral. You come in after the fact and say, "HEY, that collateral thingy was a good idea - I should have done that" then you take the machines away from the auctioneer...

|6.10.09 @ 10:59AM|#

You are trying to turn an unsecured loan into a secured one. But, that wasnt the deal up front. An unsecured loan general commands a higher rate of interest. Now you want the higher rate and the benefit of security. Well, fuck you! You get one or the other.

QFMFT - thanks.

MNG|6.10.09 @ 11:00AM|#

"But, that wasnt the deal up front." Only if you assumet his nutty legal fiction. The "deal up front" was simple: you promised to pay the gardner x. End of story. You have to assume that it was the gardner's duty to make his promise equally "special" (by being specific?) and that the promisor is let out of his promise to him because of his failure to do so, because we assume the gardner "agreed" to all of that when he simply said "I will do y if you will give me x". Again, that is incredible.

MNG|6.10.09 @ 11:02AM|#

"The example should be that the widget making machines were promised as collateral."

Who cares if the 2nd promisee made his promise more specific? The first promise was for x. The 2nd promise was for x, to be taken out of y. So what to the first promisor? Why in the world should he be bound by the terms of the second promise?

You have to fall back on your assumption that he agreed to all of this, and I've already said what I have to say about the strength of that assumption...

robc|6.10.09 @ 11:02AM|#

MNG,

Again, that is the nuttiest of legal fictions I've heard in a while. He assumed you would pay him x.


Back when I bought my house in 2007, I had some credit card debt (still do, but wont by next month, but that is of no matter). It existed BEFORE I bought my house. I then got a mortgage. Guess what happens if I go broke? The bank gets the house and the credit card companies get nada. Despite being, timewise, first in line. They never gave me permission to let the bank ahead of them. And yet...they wont bitch and moan about it. Well, they might, but not due to some "legal fiction". They understand they have an unsecured debt and are 2nd in line behind the bank, even though they came first temporally.

It is legal fact, not fiction. Maybe you dont think it is the way BK shoudl work. Hell, you might be right. But, the secured v unsecured is pretty damn straightforward and makes a hell of a lot of sense.

|6.10.09 @ 11:03AM|#

The union hatred is amazing. There is nothing more libertarian than collective bargaining.

The inability to do such comes from totalitarian regimes. Its simply amazing that some libertarians oppose it.

MNG|6.10.09 @ 11:03AM|#

The guy owes the first promisee x. That's what he promised. End of story.

@|6.10.09 @ 11:04AM|#

MNG has proven to be totally immune to reasoned arguments, so why does anyone here bother to continue to engage him.

|6.10.09 @ 11:04AM|#

Imagine this in other settings. You and I make a contract for you to pay me x for y amount of widgets...

I have credit card debt paying 15%. I then take out a mortgage paying 6%. I lose my job, my life goes pearshaped, I declare bankruptcy. The credit card company gets the government to strong arm the mortgage company into preferring their claim (upon which they were getting 15% all along) over the mortgage companies security interest (they were only getting 6%)

And the people that advocate this seriously think that mortgage rates are going to stay at 6%. Now THAT is simply incredible.

MNG|6.10.09 @ 11:05AM|#

"It is legal fact, not fiction."

It's a fact that the fiction is currently enforced at law. But of course, then maybe it won't be in this case, in which case, if all you have to go on is that "it's currently this way" then you will have nothing to bitch about, because if this deal is approved it will be the current way...

But I thought we were talking about what SHOULD be the case.

robc|6.10.09 @ 11:05AM|#

Only if you assumet his nutty legal fiction

Its not a nutty legal fiction. It is the way secured v unsecured debt works. EVERY FUCKING DAY FOR VIRTUALLY FOREVER. Forever being since common law first made the distinction.

You are so obviously trying to defend your position that has been shown to be completely untenable that you wont acknowledge the obvious. Just say "I was wrong" and move on. The more you dig, the stupider you look.

|6.10.09 @ 11:06AM|#

There is nothing more libertarian than collective bargaining.

And there is nothing more unlibertarian than bargaining and using the force of government to change the outcome after the fact.

robc|6.10.09 @ 11:07AM|#

The guy owes the first promisee x. That's what he promised. End of story.

So, if he cant pay, what then?

Do we have BK? If so, how is it determined.

If not, debtor's prison? Is he now a thief?

MNG|6.10.09 @ 11:07AM|#

@
Suck it hard man. If you can't differentiate between someone simply not being convinced and not open to reasoning, then, really, suck it hard and let the big boys play...

robc|6.10.09 @ 11:07AM|#

shrike,

THIS HAS NOTHING WHATSOFUCKING EVER TO DO WITH UNIONS.

Seward|6.10.09 @ 11:07AM|#

shrike,

Ahh, right, this all about "union hatred."

|6.10.09 @ 11:08AM|#

Collective bargaining is great until the government gets involved in jumping on the scales. I think employees should work together to negotiate some things (but not everything, since employees are also competing for their share of the pie), because they have more power together.

|6.10.09 @ 11:09AM|#

But I thought we were talking about what SHOULD be the case.

Thought experiment: Imagine a world where granting a security interest to one creditor over another was essentially impossible. All claims are treated equally under the law - a promise to pay is a promise equal to all others. What are the obviously forseable effects of such a situation?

Serious question, lets go through it.

robc|6.10.09 @ 11:09AM|#

MNG,

Since you can be convinced, do you believe their should be a distinction at all between secured and unsecured debt?

First answer that, so we can proceed from there.

MNG|6.10.09 @ 11:09AM|#

"It is the way secured v unsecured debt works."

Courts carry things out on nutty legal fictions every day. That doesn't make the legal fiction in question any more plausible robc. But perhaps you had yet to read my 11:05 post.

And like I said there, if your criteria is "what courts do" then, well, we'll see in this case, won't we, and you won't have ground to bitch if it comes out my way...

Seward|6.10.09 @ 11:09AM|#

MNG,

What is your argument exactly?

robc|6.10.09 @ 11:10AM|#

If all unions were run like the MLBPA, they might get more respect.

Not that I agree with the MLBPA all the time, but as a general rule, they push for a more free market every contract.

|6.10.09 @ 11:11AM|#

MNG,

Or, re-reading your assertions, perhaps you would prefer to assume a time ordered preference of paying. Whoever lent money first, gets paid first. Either way - just tell me up front which one you want to assume.

MNG|6.10.09 @ 11:11AM|#

robc
Yeeks, hate to answer a first principles question near the end of the debate, but:

No I do not, especially in promises to employees (employment contracts).

I realize that this would make some loaning rates higher. Like you are not to worried that workers will fail to work if their promises are not prioritized, I am not worried that creditors will fail to loan if theirs are not as well.

I gotta run now, back later.

|6.10.09 @ 11:12AM|#

OK - I incorrectly inferred union hatred. Guilty.

But you can't deny that it exists to a great extent.

VM|6.10.09 @ 11:13AM|#

KAAAAAHHHHHHHHHHHHHNNNNN!

robc|6.10.09 @ 11:15AM|#

MNG,

The only thing I can think you mean is that all debts should be secured by all assets of the debtor in order of time. Which was a rejected solution long ago. Now, we explicitly determine what assets are securing what debts via contract and for unsecured debts, the debtee can go to court and get a judgement against the individual, which will then allow certain assets to be seized/liened/etc.

Also, on your death, your estate is responsible for all your remaining debts. Inheritance comes after ALL debts have been paid off.

The only exception is debts legally released, like via BK. BK law could be changed to allow the claimants to still come after the estate. Would you prefer that?

Seward|6.10.09 @ 11:15AM|#

shrike,

I dislike unions about as much as I dislike corporations, and I would say that statement applies to most libertarians. Both (as a general rule) do so much rent-seeking, etc. that it is hard to have any love for either.

@|6.10.09 @ 11:17AM|#

If you can't differentiate between someone simply not being convinced and not open to reasoning, . . .

H&R is littered with ample evidence that you cannot be reasoned with.

It's a fact that the fiction is currently enforced at law.

The difference between "secured" and "unsecured" debt has been part of common law for centuries (if not millenia). You want your own loopy version of "fairness" to trump the entirety of legal precedent so that those poor dears in the UAW can get what you think they deserve.

robc|6.10.09 @ 11:18AM|#

If unions told the government to fuck off, we will handle our negotiations as men via contracts and contracts alone, I would have no problem with them at all.

Seward|6.10.09 @ 11:20AM|#

Khan, you bloodsucker. You're going to have to do your own dirty work now! Do you hear me? Do you?

|6.10.09 @ 11:20AM|#

Remember in domo's example he got the mortgage AFTER his promise to me was made.

But his promise to you was not secured by a lien; you had no claim to the hard assets by contract, but could only have one after getting an executable judgment against the debtor.

His giving a lien to the bank is not a violation of any of your rights (you have no rights to the hard assets, remember?); therefor, the bank's exercise of its lien rights is not a violation of any of your rights. All according to the agreements that everyone made; no "legal fiction" required.

MNG's "first in time" theory for unsecured debt is completely unsupported at every level of the law. Even among unsecured debtors, the one who was first in time gets no priority.

The only place where being first gets you priority is among multiple liens on the same asset, and even then the first in time is determined by when a public filing is made, not on when the debt was incurred.

|6.10.09 @ 11:21AM|#

I realize that this would make some loaning rates higher.

Apparently you're gone, but lets not just let this conclusion sail off into the sunset like so many meaningless numbers. Higher loaning rates restrict growth, make our economy less competative, obstruct the formation of capital, cause an effective tightening of credit, makes fewer business models viable which leads to increased unemployment/lower consumption etc. It makes less capital available for research, which eventually hampers productivity growth. It sucks the life out of the economy right on down the line for everyone. I am not going to say "ZOMG, lenders will never lend again!" But they WILL charge more, and that DOES have a very meaningful impact on every American and their children.

|6.10.09 @ 11:23AM|#

And that is just the pragmatic reason to have secured debt.

phalkor|6.10.09 @ 11:24AM|#

If unions told the government to fuck off, we will handle our negotiations as men via contracts and contracts alone, I would have no problem with them at all.

Now that is fiction. Since when do unions act against their self-interest?

|6.10.09 @ 11:26AM|#

By any measure, domoarrigato, robc and RC Dean demolished MNG and shrike on this issue. In the end, MNG and shrike are left to find more and more tortured and creative ways of expressing the sentiment "we like UAW workers better than fund managers so therefore they should get priority". In the end, that is what this whole thing is about; rewarding politicaly favored parties without any regard to the rule of law or property rights. That ladies and gentleman is called a banana republic.

robc|6.10.09 @ 11:28AM|#

phalkor,

I would argue that using government power is only a short term benefit, it hurts the power grabber in the long term, so it is in the unions self-interest to not use the government.

|6.10.09 @ 11:30AM|#

You're full of shit John.

No one has made the case that the Chrysler cramdown was illegal or unprecedented.

|6.10.09 @ 11:33AM|#

And three sets of independent courts sided with me, John. Hell, talk about a plebeian partisan.

|6.10.09 @ 11:35AM|#

No one has made the case that the Chrysler cramdown was illegal or unprecedented.

Well, actually, you did...

shrike | June 10, 2009, 10:45am | #

I agree that TARP made this case unprecedented. That was the angle SCOTUS denied Cert on though. Fair enough.

GrundleMuffin|6.10.09 @ 11:41AM|#

I would have thought VM would have something substantial to add to this conversation, being an economic genius and all. Guess not.

KAAAAAHHHHHHHHHHHHHNNNNN!

|6.10.09 @ 11:49AM|#

Don't conflate separate issues, domoag.

You know its the cramdown that has so many pissed off.

TARP has always been a legal tangle.

|6.10.09 @ 11:51AM|#

I know he's off to cry and drink himself into a stupor, but I really can't let this pass...

It's also funny how people say "oh my God, if creditors find their promises are unsecured they will never lend credit!" but don't think "oh my God, if workers find their promises are unsecured they will never work".

That's because it is unmitigated bullshit. There are hundreds of thousands of people who would work for a car company without a sweetheart eternal employment contract. THE WHOLE POINT OF THE UNION IS TO INSURE THAT THEY CANNOT.

This undying devotion to labor that is professed is a complete lie. They don't give a shit about non-union labor. We practice "union hate"? Still leaves a better taste in my mouth than the constant blow-job shrike and MNG give them.

|6.10.09 @ 12:00PM|#

Shrike,

Swear all you want. But the thread speaks for itself. In the end, you haven't given one reason why UAW workers should be preferred over investors beyond the fact that for whatever reason you like them. As has been pointed out about twenty times on this thread, all of the cry baby what about the retiree arguments made on behalf of the UAW can be made equally as well on behalf of the funds who are getting screwed. Why does one promise get priority over another? Your opponents on this thread say that the funds should get priority because they had a written security agreement and courts should honor such agreements. You say the workers should get priority because you like them I guess. Whatever your reason, it nothing to do with the rule of law and everything to do with your political sympathies and power. That is the kind of thinking that happens in Banana Republics.

|6.10.09 @ 12:02PM|#

Don't conflate separate issues, domoag.

You know its the cramdown that has so many pissed off.

TARP has always been a legal tangle.

Not so fast, slick - I will quote the whole post (with my post in quotes):

shrike | June 10, 2009, 10:45am | #

"Look, I realize subordinate debt holders have been paid out ahead of senior claimants in the past. Usually it amounts to ransom money - they get something in exchange for going away and not obstructing the process further. This Chrysler deal is unprecedented - legally, and also in the sense that the GOVERNMENT is the one twisting the companies arm under the threat of legislative penalty - not the claimants based on whatever leverage they actually have."



I agree that TARP made this case unprecedented. That was the angle SCOTUS denied Cert on though. Fair enough.

My consistent point is that the cramdown itself was not unusual. The Delaware courts handle the overwhelming majority of these cases for this reason.

The vast majority of the bondholders accepted the terms of the court and the GM bondholders have already signed on to a pre-packaged 11 even before they knew about last nights ruling.

Applying TARP to auto companies was a Bush decision to kick the can down the road and itself was a political ploy. Has Obama continued the politcal ploys? Of course.

But this hyperventilation on the "destruction of capitalism" is ridiculous.


The context of the conversation was discussing the cramdown. I am not conflating the issues any more than you did, or more than what is appropriate given the facts. FYI, pinning it on Bush doesn't get you anywhere, since everyone on this thread consistently opposed it regardless of administration.

JB|6.10.09 @ 1:00PM|#

Look for the union label and sell, sell, sell.

Avoid union products and avoid GM and Chrysler.

MNG|6.10.09 @ 1:10PM|#

"In the end, MNG and shrike are left to find more and more tortured and creative ways of expressing the sentiment"

My argument hasn't changed since the beginning of the thread. But feel free to try to point out otherwise John.

"It's a fact that the fiction is currently enforced at law."
"MNG's "first in time" theory for unsecured debt is completely unsupported at every level of the law."

You guys either didn't see my 11:05 and 11:09 posts or didn't get them...

"There are hundreds of thousands of people who would work for a car company without a sweetheart eternal employment contract."

SF, thanks for agreeing with me that labor is in a weaker bargaining position than employers or lenders of credit.

|6.10.09 @ 1:13PM|#

"My argument hasn't changed since the beginning of the thread. But feel free to try to point out otherwise John."

No it hasn't. It is and continues to be that for some unknown reason autoworkers are more deserving than secured creditors.

|6.10.09 @ 1:14PM|#

"SF, thanks for agreeing with me that labor is in a weaker bargaining position than employers or lenders of credit."


"Weaker bargaining position" is one way of putting it. Or you could say they have no legal claim to the secured property.

Seward|6.10.09 @ 1:21PM|#

MNG,

SF, thanks for agreeing with me that labor is in a weaker bargaining position than employers or lenders of credit.

Apparently not; they were the primary beneficiaries of this deal after all.

Of course, being labor myself I tend to think of my bargaining position being as good as the labor that I do; and that viewpoint jives with reality.

kinnath|6.10.09 @ 1:22PM|#

SF, thanks for agreeing with me that labor is in a weaker bargaining position than employers or lenders of credit.

As they should be.

MNG|6.10.09 @ 1:27PM|#

"It is and continues to be that for some unknown reason autoworkers are more deserving than secured creditors."

No, it is that a promise is a promise, two parties denoting that there's is "special" and has "priority" to other promises made by them should not be enforced by the government.

"SF, thanks for agreeing with me that labor is in a weaker bargaining position than employers or lenders of credit.

As they should be."

Thanks, kinnath, this is the justification for providing more legal protections for workers when contracting. Between you and SF, I don't need to be here ;)

|6.10.09 @ 1:30PM|#

SF, thanks for agreeing with me that labor is in a weaker bargaining position than employers or lenders of credit.

As they should be.

parties are in whatever bargaining position that they are in.

Thanks, kinnath, this is the justification for providing more legal protections for workers when contracting. Between you and SF, I don't need to be here ;)

Defend your unspoken assumption that the government should place all parties on equal footing in all negotiations.

MNG|6.10.09 @ 1:32PM|#

This entire argument has been like this:

Side one: Hey, this is going to let these unsecured unionists get priority over secured bondholder's and that is wrong.
Side two (me): I think that letting either have priority is b.s.
Side One: But this is how the law has worked for a long time.
Side Two: Maybe so, but it shouldn't work like that.
Side One: But it is how it has worked.
Side Two: Like I said, maybe so, but that's not the better view.

Etc., etc.,

|6.10.09 @ 1:34PM|#

MNG,

I too am tired of the back and forth - if you would like to advance the conversation - please refer to my posts @11:09 and 11:11

Seward|6.10.09 @ 1:38PM|#

MNG,

No, it is that a promise is a promise, two parties denoting that there's is "special" and has "priority" to other promises made by them should not be enforced by the government.

Anyone with half a brain knows which promises take precedence. This would include the UAW, a very large capitalist organization again with an army of specialists which help them to negotiate their contracts. They weren't duped or naive or stupid.

MNG|6.10.09 @ 1:38PM|#

"Defend your unspoken assumption that the government should place all parties on equal footing in all negotiations."

Because its
1. Fair
2. Increases utility overall (because more people are workers and in such a weaker bargaining position)

We don't let the physically strong prey on the physically weak, in a society based on bargaining we should not let the stronger bargainers prey on the weaker ones.

Seward|6.10.09 @ 1:40PM|#

What I always love is the notion that large, rich labor organizations are at some sort of disadvantage in the U.S.

|6.10.09 @ 1:40PM|#

"No, it is that a promise is a promise, two parties denoting that there's is "special" and has "priority" to other promises made by them should not be enforced by the government."


So I guess your unsecured credit card should get priority on the sales of the proceeds of your house before your mortgage lender does? That is just laughable nonsense. The "special" and "has priority" debts is called a secured debt. We built the entire economy on it. Those agreements are enforced every day.

More importantly, even if one buys the nonsense you are selling, it only gets you half way. You are not arguing that all debtors get treated equally. You are arguing that the UAW should get preferential treatment. Why? What is special about them other than their political clout?

MNG|6.10.09 @ 1:42PM|#

Seward
The duty of a promisor to fulfill ALL of his promises is certainly superior than the duty of a bargaining party to be "in the know" about what kind of "special" promises the former has been making.

This is a typical strange way that libertarians see the world, demonstrated by you above in your title search comment. Analogized it holds that if I sell you tainted meat and you get sick you are in some way responsible because you should have looked into my background and found out I have a bad rep for that.

Seward|6.10.09 @ 1:43PM|#

MNG,

Why is it "fair?"

Increases utility overall (because more people are workers and in such a weaker bargaining position)

Actually, if it makes lending harder, it could very well decrease overall utility. Particularly if it makes lending to workers harder. Indeed, most of what social democrats does tend to end with that outcome.

MNG|6.10.09 @ 1:46PM|#

"What I always love is the notion that large, rich labor organizations are at some sort of disadvantage in the U.S."

Compared to larger, richer employers, yes. By definition...

Of course, non-unionized workforces have even larger disadvantages.

Seward|6.10.09 @ 1:48PM|#

MNG,

No, if I sell you tainted meat you have the right to sue me. The reason that I am far more responsible for what happens in the property situation is that I am far more capable of making sure that I don't get burned. Unless you stupidly think that doing a title search is a very onerous endeavor.

Your analogy is a pretty stupid one actually.

MNG|6.10.09 @ 1:50PM|#

Seward
Why is it fair to make high school wrestlers only wrestle opponents in their same weight class?

Why is it fair to not let one football team ride motorcycles when they play?

C'mon, you understand fairness.

Seward|6.10.09 @ 1:51PM|#

MNG,

Well, as a member of the non-unionized workforce I have no desire to be part of a union. The fact that more and more Americans have chosen this since 1950 ought to tell us something about the utility of unions.

Also, as a former union member, I know exactly why I don't want to be in a union.

MNG|6.10.09 @ 1:52PM|#

In both cases you put the duty and responsibility (and hence the later harm) on the promisee, rather than the promisor, to assume things the promisor has done.

Goofy.

kinnath|6.10.09 @ 1:52PM|#

Thanks, kinnath, this is the justification for providing more legal protections for workers when contracting.

No it doesn't. I merely reflects the factor that fact that the cost of labor is only a small part of the total cost of running a business. The parties that cover the majority of the cost of running the business (i.e., the owners and the lenders) should naturally have more say in running the business.

No amount of wishful thinking on your part is ever going to change that relationship.

For evidence, refer to the business model employed by the Union of Soviet Socialist Republics.

|6.10.09 @ 1:53PM|#

"We don't let the physically strong prey on the physically weak, in a society based on bargaining we should not let the stronger bargainers prey on the weaker ones."

I would say the American Express company is a hell of a lot stronger party than I am. They have billions of dollars in assets and 1000s of expert attornies in their employ. I in contrast could not afford to hire an attorney. Given you logic, shouldn't I be able to canel my debt with them? Aren't they praying on me? Come on MNG, you have talked yourself into a corner and are now just talking nonsense.

|6.10.09 @ 1:53PM|#

I'm too lazy to read the back-and-forth; has anyone made a "proportionality" argument, yet? The secured creditors seldom, if ever get paid in full while the other parties walk away emptyhanded. They do, however expect to get treated equally to, if not better than, the unsecured creditors, who, according to the law, have a lesser claim on the assets of the bankrupt firm. This is what makes this situation outrageous.

|6.10.09 @ 1:54PM|#

Nick, you need to STFU about the 1975 Cordoba. I'd still be driving one today if the unibody didn't rot out where the leaf springs attach, just like they all did I thought it wouldn't make jerks like you fly off into a jealous rage over my totally cool ride.

It was a pretty cool car to drive. A bitch to park, but rode nice for a "medium" size car...except for that sway in the rear end from the rusted out leaf spring mounts.

MNG|6.10.09 @ 1:54PM|#

"The fact that more and more Americans have chosen this since 1950 ought to tell us something about the utility of unions."

Interestingly, since majorities of workers when surveyed say they would like to join a hypothetical union, and union membership yet falls, that kind of provides the entire argument for things like card check. Obviously workers lower bargaining power and dirty election tricks by employers are playing a huge part.

You guys have got to stop making my points for me!

kinnath|6.10.09 @ 1:54PM|#

Why is it fair to make high school wrestlers only wrestle opponents in their same weight class?

Why is it fair to not let one football team ride motorcycles when they play?

C'mon, you understand fairness.

You are a complete and utter jackass.

|6.10.09 @ 1:54PM|#

Because its
1. Fair
2. Increases utility overall (because more people are workers and in such a weaker bargaining position)

So your position is that in every negotiation, it's in the general interest (and the government's purview) to "level the playing field" completely. If I need a payday loan, the government should force someone to lend to me at a low rate, because "he has the money, and I cant do without it". Or if I agree to rent someone an apartment, and they cant pay - the government should intervene to give them 50% ownership in the property: because they are in too weak of a bargaining position to obtain "fairness" on their own.

1. Fairness is subjective as hell - I think you need to (and can) do better than that.
2. "Overall" utility is about as subjective as fairness. And a lot harder to prove.

The process of bargaining is one whereby two parties acting in their own self interest obtain what concessions they can from the other side based on relative power. It's been pointed out upthread that the UAW is far from weak - but I don't think it matters. Bargaining is not "preying" any more than selling someone something at a higher price than you bought it is exploiting them. Bargaining is the OPPOSITE of preying - it obtains voluntary and willing consent from two parties at mutually agreeable terms. You are simply saying as an uninvolved third party that you don't like the agreement.

|6.10.09 @ 1:55PM|#

Because its
1. Fair

DRINK!

Seward|6.10.09 @ 1:56PM|#

MNG,

Why is it fair to make high school wrestlers only wrestle opponents in their same weight class?

Actually, weight classes have never made much sense in wrestling (little guys often kick the crap of people no matter what their weight class is).

That being said, it is entirely fair for the secured creditor to have precedence, as long as the rules are consistently played that way.

MNG|6.10.09 @ 1:57PM|#

"I merely reflects the factor that fact that the cost of labor is only a small part of the total cost of running a business."

Since labor is integral to any enterprise, a necessary condition of it happening, (labor+capital=enterprise), the fact that so much less is expended on compensating it must reflect what I've been saying: the deck is stacked against it. Again, thanks for the assist kinnath!

|6.10.09 @ 1:59PM|#

"I'm too lazy to read the back-and-forth; has anyone made a "proportionality" argument, yet? "

Only about a hundred times. And it goes right over MNG's head each time.

Samuel|6.10.09 @ 1:59PM|#

Who needs weight classes, when can all carry a 45?

MNG|6.10.09 @ 2:01PM|#

" Fairness is subjective as hell - I think you need to (and can) do better than that."

Not necessarily. It has to do with giving people just desserts. Someone should not be able to dominate someone because they happen to be bigger than them, or have more money than them, or the second party is in more dire need, etc.

""Overall" utility is about as subjective as fairness."

Again, not so much. We all know what "welfare" means.

MNG|6.10.09 @ 2:04PM|#

"Actually, weight classes have never made much sense in wrestling"

Really? You think there should be no weight classes?

How about age classes in little league? 14 year olds vs. 7 year olds? I bet you consider that to be "unfair."

Why?

|6.10.09 @ 2:04PM|#

Interestingly, since majorities of workers when surveyed say they would like to join a hypothetical union, and union membership yet falls, that kind of provides the entire argument for things like card check.

Or, it shows that, while unions sound good in principle, when presented with first-hand information about unions, they don't sound so good.

Or, it shows that people will say one thing in public to placate their listener, and do another in the privacy of the voting booth.

|6.10.09 @ 2:05PM|#

Since labor is integral to any enterprise, a necessary condition of it happening, (labor+capital=enterprise), the fact that so much less is expended on compensating it must reflect what I've been saying: the deck is stacked against it.

Except that the facts don't match your claim: Here you can see that labor's share of national income has remained a relatively steady 70% over decades and decades and decades.

|6.10.09 @ 2:06PM|#

Someone should not be able to dominate someone because they happen to be bigger than them, or have more money than them, or the second party is in more dire need, etc.

This sounds like an excellent argument for me not paying my taxes. After all, the government is bigger than me, has more money than me, and I need my relative pittance more than the government does. Doesn't this make it unfair for the government to tax me?

Seward|6.10.09 @ 2:07PM|#

MNG,

The world would not work in any sort of coordinated or useful way if we were to assume that all parties to an agreement shouldn't watch out for themselves. Indeed, because the nature of the legal system in the U.S. is cumbersome, costly and untimely such an attitude would lead to societal breakdown.

Interestingly, since majorities of workers when surveyed say they would like to join a hypothetical union...

Ahh, not according to this:

As for personal preference, only nine percent (9%) of non-union workers would like to join a union. Eighty-one percent (81%) would not.

MNG|6.10.09 @ 2:07PM|#

"And it goes right over MNG's head each time."

Sigh, it does not go over my head.

I think the secured and unsecured creditors should both have their obligations met, with no priority of one over the other. To the extent this agreement does not do this it is wrong.

|6.10.09 @ 2:08PM|#

Again, not so much. We all know what "welfare" means.

Fairness in a sporting event with arbitrary rules is a massively poor substitute for the real world. You really ought to know that.

In anycase - what you are arguing for is less like putting wrestlers in the same weight class, and more like cutting off the better wrestlers limbs until the expected outcome is a 50:50 proposition.

MNG|6.10.09 @ 2:08PM|#

"After all, the government is bigger than me"

The problem with that RC, is that you ARE the government

(ducks)

MNG|6.10.09 @ 2:10PM|#

No, domo, I don't want equality a la Zamyatin's We. Some inequality is good for everyone. But too much is unfair. So we have some boundaries.

This is why we let the better wrestler beat the lesser one, but we only let people in the same weight class wrestle each other.

|6.10.09 @ 2:11PM|#

I think the secured and unsecured creditors should both have their obligations met, with no priority of one over the other. To the extent this agreement does not do this it is wrong.

But they can't. And one creditor accepted a lower return in exchange for the assurances that they would get priority. Back when things looked rosy, this seemed stupid. Now that their worries turned out to be well founded, you want to screw them out of even what is left.

Seward|6.10.09 @ 2:12PM|#

MNG,

Really? You think there should be no weight classes?

I am skeptical about them being a useful tool for determining the stuff they are meant to determine.

BTW, if you read through that article you will note that most of what people think about how other people feel about unions depends on whether they are in a union, if they are a member of government and what political party they belong to. So people tell stories about other people.

MNG|6.10.09 @ 2:13PM|#

http://www.sharedprosperity.org/bp182.html

|6.10.09 @ 2:14PM|#

Some inequality is good for everyone. But too much is unfair. So we have some boundaries.

And what principle guides the demarcation of that boundary? Because all I see is some airy fairy appeal to something that "we all know intrinsically". I'm guessing that at the bargaining table each party "knows intrinsically" that their positions are "right" The only problem is reality.

Seward|6.10.09 @ 2:15PM|#

domoarrigato,

Well, isn't that what the legal framework allows people to do? Sort themselves according to the risk horizon, or what they see on the horizon that is?

Seward|6.10.09 @ 2:17PM|#

MNG,

How about, you know, an actual polling service?

|6.10.09 @ 2:18PM|#

Seward,

Yes - my point is that the parties did that and now the legal framework is being changed (in ways that MNG approves of and I do not)

Seward|6.10.09 @ 2:18PM|#

MNG,

One final question: do you have any actual, real world experience with wrestling?

|6.10.09 @ 2:21PM|#

"I think the secured and unsecured creditors should both have their obligations met, with no priority of one over the other. To the extent this agreement does not do this it is wrong."

What about IRS leans? Student loans? Judgements related to DUIs or intentional torts? Legal fees? Should those also not get priority and be dischargable?

MNG|6.10.09 @ 2:22PM|#

Ok, Ok, since you asked so nicely!

http://www.aflcio.org/joinaunion/voiceatwork/efca/57million.cfm

Top paragraph

Seward|6.10.09 @ 2:22PM|#

The problem with that RC, is that you ARE the government.

No, the government is a collection of individuals with formal or informal state power who are pursuing their own individual interests.

|6.10.09 @ 2:23PM|#

I think employees should do what we lawyers did--take over means of legislation.

|6.10.09 @ 2:24PM|#

who are pursuing their own individual interests.

Or worse. Some imaginary, ill conceived notion of "fairness".

MNG|6.10.09 @ 2:26PM|#

domo
Some philosophers have supposed that just desserts, or fairness, is a "foundational" concept that cannot be explained at length (lots of concepts are like this, for example, you don't argue at length about whether a wall is red or not, you just at some point have to say "that's red").

But others have tried to specify it, such as Rawls.

Either way, the same thing that makes you rightly think pitting a 200 pound wrestler against a 100 pound one is unfair is at work in my suggesting that allowing a wealthy man and a poor man "bargain" about employment is unfair.

Seward|6.10.09 @ 2:30PM|#

domoarrigato,

Ideology in most cases is a smoke screen.

|6.10.09 @ 2:30PM|#

Either way, the same thing that makes you rightly think pitting a 200 pound wrestler against a 100 pound one is unfair is at work in my suggesting that allowing a wealthy man and a poor man "bargain" about employment is unfair.

That's odd, because above I posted a link explaining that labor share of income is 70% to 30% for capital - That makes me think Labor is the 200 pound wrestler - not the other way around.

(lots of concepts are like this, for example, you don't argue at length about whether a wall is red or not, you just at some point have to say "that's red").

Okaaaay - and then presumably, in 10 years time you would point at a wall of some different color and say "Now THAT'S Red!" And expecting everyone to take you seriously.

|6.10.09 @ 2:30PM|#

I think the secured and unsecured creditors should both have their obligations met, with no priority of one over the other.

Oh, for fuck's sake.

MNG|6.10.09 @ 2:32PM|#

"No, the government is a collection of individuals with formal or informal state power who are pursuing their own individual interests."

And that collection includes you. You can vote.

MNG|6.10.09 @ 2:33PM|#

domo
You don't think we could agree that red is not blue? C'mon.

MNG|6.10.09 @ 2:35PM|#

"Oh, for fuck's sake."

No need to get all sexy P, I gave my reasons for holding that position upthread many times (@ 11:02 among many others).

Seward|6.10.09 @ 2:35PM|#

domo,

That's odd, because above I posted a link explaining that labor share of income is 70% to 30% for capital...

You know, that is something I've always found fascinating.

MNG,

Your link is to the UAW website.

Anyway, it is clear that there is evidence which suggests that your claim about the desire of people to be members of Unions is wrong.

Seward|6.10.09 @ 2:36PM|#

I mean, AFl-CIO.

Seward|6.10.09 @ 2:39PM|#

MNG,

My vote is meaningless and useless, as is true of any voting system that includes lots and lots of people. I mean, once you get over a hundred people your vote is diluted that any single vote is worthless. I really don't buy into the romantic bullshit about the power of one vote, etc.

The political class (most of whom are unelected) - which does not include me - is the government.

|6.10.09 @ 2:41PM|#

You don't think we could agree that red is not blue? C'mon.

You are asking people to redefine blue AS red - because you think its a better way to do things. You are hoisting yourself on your own petard here - you were the one who insisted that 'what used to be the case shouldn't be the case anymore, and that we should change it to what we want' That like saying: 'the fairness/red of the past is irrelevant, embrace the new fairness/red of the future'

Pardon me if I still think the old red is red. But I'm not forceing you down this road - you are the one who said you didn't want to argue about what IS objectively the law. The law WAS written that way because it was fair.

MNG|6.10.09 @ 2:41PM|#

But the AFL-CIO did not do the survey, it lists the polling firm, which is what you requested.

And you have no more or less of a vote than any other citizen that meets the requirements...

|6.10.09 @ 2:41PM|#

"P Brooks | June 10, 2009, 2:30pm | #

I think the secured and unsecured creditors should both have their obligations met, with no priority of one over the other.

Oh, for fuck's sake."


Told ya P. Brooks. It just goes right over his head.

|6.10.09 @ 2:43PM|#

And parties agreed to transactions based on that law with the understanding that the fairness/red/law in place at the time would not be arbitrarily upended at some politically convenient point in the future. That is the whole point of the rule of law.

robc|6.10.09 @ 2:44PM|#

No, it is that a promise is a promise

You have yet to say what should be done if the promise cannot be fulfilled. That is the point. The promise is great when they promise can be filled, but when there are multiple promises and not enough assets to fill them, some sort of selection has to take place.

There are a number of methodologies - are culture has chosen to divide into secured and unsecured - which makes sense since both no UP FRONT what will happen in case of default.

What is your plan for default. A promise is a promise doesnt fly.

MNG|6.10.09 @ 2:46PM|#

domo
Not at all, I'm saying that the way things are being done now is unfair (they are calling something blue that is red).

Well, my main point is that it's based on a simply false legal fiction, that it has no good reason to be the way it is (no good reason to prioritize one promise over another when the three parties were not party to both). But I also think it is unfair in the sense that it gives folks with greater bargaining power an advantage (secured loans can be gotten by already stronger entities, and then they are treated better).

I mean, don't knock fairness, you think this Chrysler deal is "unfair", that's your whole point!

robc|6.10.09 @ 2:46PM|#

Compared to larger, richer employers, yes

UAW
Chrysler
GM

Which is larger and richer?

Heh.

robc|6.10.09 @ 2:48PM|#

Interestingly, since majorities of workers when surveyed say they would like to join a hypothetical union, and union membership yet falls

This is bullshit. I dont know anyone who wants to join a union where they work. I dont mean to sound like the professors who didnt know anyone who voted for Reagan, but considering no one much is moving south to north for jobs, I think my point stands.

Seward|6.10.09 @ 2:51PM|#

Ahh, we can argue fairness till the cows come home.

MNG,

It doesn't matter who did the poll.

robc|6.10.09 @ 2:51PM|#

MNG,

UCF originally had no weight classes. When they started altering their rules (such as disallowing small joint manipulation), they added them in. Many fewer than boxing or wresting have though.

MNG|6.10.09 @ 2:52PM|#

2:07 robc, and I think I said it upthread of that

And, I love UCF!

Seward|6.10.09 @ 2:53PM|#

MNG,

Or to be more plain, I wouldn't use as a source a second party to a poll. I'd go to the poll source itself and quote and link to that. You know, back when I was taking social science methods that what they taught me.

robc|6.10.09 @ 2:53PM|#

secured loans can be gotten by already stronger entities

ANYONE can get a secure loan. All you have to do is file the lien paperwork. Only worth doing it on large dollar amounts, but that is due to government getting in the way. If they only cost was filling out the paperwork, you could even do it on a $20 loan.

MNG|6.10.09 @ 2:54PM|#

"considering no one much is moving south to north for jobs, I think my point stands"

robc, that's a pretty poor argument from one as smart as you. That could indicate that the employers are moving away from the unions more than that people are unwilling to move towards, or to join, unions. C'mon!

robc|6.10.09 @ 2:54PM|#

MNG,

I think the secured and unsecured creditors should both have their obligations met

Your 2:07 makes no sense, they cant both have their obligations met. That is the point of BK.

Seward|6.10.09 @ 2:54PM|#

robc,

A lot of lefty types paternalistically assume that most people want to be part of some sort of union or worker's collective.

|6.10.09 @ 2:56PM|#

that it has no good reason to be the way it is (no good reason to prioritize one promise over another when the three parties were not party to both).

Ok, now we are kind of getting somewhere - see my 11:21 for one reason why issueing secured debt is beneficial to the common good. Add to that the fact that unsecured creditors are compensated for the relatively higher risk. Giving them equal priorty after the fact is essentially compensating them twice by fiat.

But I also think it is unfair in the sense that it gives folks with greater bargaining power an advantage (secured loans can be gotten by already stronger entities, and then they are treated better).

I have provided high quality evidence that labors plight is far from destitute as you claim on a societal level. But even assuming that some players have a bargaining advantage, I don't understand why it's more akin to wrestlers of different weights than of different abilities. Bargaining is a non-violent and voluntary resolution of conflict. The alternative you propose is non-voluntary, and enforcement thereof rests on the tacit threat of violence. How is that more "fair"?

robc|6.10.09 @ 2:56PM|#

MNG,

Employers follow employees. If all employees move to Ohio and Michigan and all employers move to Ga and AL, guess what happens? Some one starts a business in OH and MI and has all the best employees!!!

The fact that Boeing had an engineer's union was enough evidence for me to never apply to Boeing. They were clearly doing something wrong if engineers were willing to unionize.

Seward|6.10.09 @ 3:00PM|#

What I also found interesting is just how many non-Union members are part of the investor class vs. Union members. Significantly more so for the former than the latter.

robc|6.10.09 @ 3:00PM|#

MNG,

What you seem to often fail to understand is people are much more flexible than businesses. Hence, the power is with the employees. An employee can change jobs easily. Can pack up and move if necessary. An employer cant fire all it employees, pack up and move, and hire new one and expect to survive, unless the job is brain dead simple. Even then, well, look at the number of offshored jobs that have been brought back.

As Ive seen both sides, an employee quitting often hurts the company WAY WAY WAY more than than an employee is hurt by being layed off.

robc|6.10.09 @ 3:02PM|#

Seward,

I never understood why unions didnt spend a significant part of their dues on buying the company stock so that they would have a stronger say in management.

MNG|6.10.09 @ 3:02PM|#

Who commissioned the Rassmussen poll?

They don't do those for free.

MNG|6.10.09 @ 3:04PM|#

domo
"unsecured creditors are compensated for the relatively higher risk"

I don't follow. In this case they were promised benefits in exchange for labor, if we treated them as you say they would not get that as promised.

|6.10.09 @ 3:05PM|#

I never understood why unions didnt spend a significant part of their dues on buying the company stock so that they would have a stronger say in management.

Isn't it obvious? They already have a greater say than they could economically obtain in that manner. Labor has massively dispproportionate bargaining power reletive to their stake in the companies future, res ipsa loquitur.

robc|6.10.09 @ 3:06PM|#

MNG,

they would not get that as promised

That is the higher risk.

They got more up front because of the unsecured risk.

MNG|6.10.09 @ 3:07PM|#

"an employee quitting often hurts the company WAY WAY WAY more than than an employee is hurt by being layed off"

In some cases, but in general employees have less resources than employers to fall back on. If it's a contest to see who's savings run out and who gets hungrier faster, I can bet which side that will be...

domo
We are getting somewhere. Lower bargaining power undercuts the voluntariness of he bargain imo.

Seward|6.10.09 @ 3:10PM|#

MNG,

As a media company, we make our money by selling advertising, title sponsorships, subscriptions, and content. One thing we don't sell is polls. Because we value our independence and credibility, Rasmussen Reports cannot be hired to conduct a poll for anyone. For our reports, we decide the questions to ask based upon the needs and interests of our audience. If it's in the news, it's in our polls.

It took me just a few minutes to find that material.

MNG|6.10.09 @ 3:10PM|#

"Labor has massively dispproportionate bargaining power reletive to their stake in the companies future"

Their "stake" in this case is the benefits they plan to live off of the rest of their lives, so it's pretty high domo. And if they had such a bargaining power then why didn't they get their promises secured? As folks have mentioned upthread they are a plenty business sophisticated entity...

robc|6.10.09 @ 3:11PM|#

MNG,

Compare baseball and football contracts.

Baseball contracts are guaranteed. If you sign a 5 year $20 mil deal you are going to get it*, even if you suck or get hurt. The deal may have some variability, but will roughly be $4M per year. In this analogy, it is a secured debt.

Football contracts arent guaranteed. You suck or get injured or just dont fit their cap needs and they will cut you and not owe you any more. So, the deal may be $5M as a signing bonus and then $3M per year. This is analogous to the unsecured debt. In return for the risk of not getting everything you get more up front.

Like all analogies, dont go too deep into it. :)

But, secured debt has less interest than unsecured, all else being equal. Or, in the case of employees, they get a slightly higher wage and get paid every two weeks, in order to compensate for the higher risk of their unsecured debt.



*subject to not doing something Michael Vick like that violates terms of the contract

robc|6.10.09 @ 3:13PM|#

but in general employees have less resources than employers to fall back on. If it's a contest to see who's savings run out and who gets hungrier faster, I can bet which side that will be...

You keep saying this, but it isnt true. Trust me, as a small business owner, there is a reason Im still paying off CC debt.

It is a lot easier for an employee to get enough work to feed himself than for a business to replace them. A fired employee can probably be delivering pizzas by this weekend.

|6.10.09 @ 3:16PM|#

I don't follow. In this case they were promised benefits in exchange for labor, if we treated them as you say they would not get that as promised.

While difficult to calculate directly, the benefits represent a return on Labors contribution to profits. They are treated as unsecured creditors. I am substituting more easily observe rates of return to other unsecured claims.

The UAW negotiated benefits greater than it otherwise could have in exchange for accepting an unsecured claim on them.

{This is not as sloppy as you might be inclined to argue. If they wished to have a secured claim on that return, it follows that that claim would have displaced the companys ability to pledge those assets against other borrowing. Assuming the capital structure of the company was the same, the company would have replaced the secured borrowing that was displaced by the UAW with unsecured borrowing. Thus, granting a secured interest to the UAW would result in a net cost to the company equal to the size of the UAW's secured claim times the difference in borrowing costs between secured and unsecured debt. This cost would have naturally been passed onto the UAW in the form of lower benefits.}

|6.10.09 @ 3:19PM|#

Lower bargaining power undercuts the voluntariness of he bargain imo.

We are indeed: I am purchasing an umbrella. Does the fact that the price is $10 when raining and $3 when sunny undercut the idea that I would pay $10 to not get wet?

MNG|6.10.09 @ 3:20PM|#

robc
You miss the point, maybe the employee can more quickly make eating money than the employer can make up for his loss, but the employer has overall resources on which to live. He can sell the business and the capital therein and have much more than the average employee can get "on hand."

Either way, this has been delightful, but I have to run again. Seward, if you could be so kind to go to the nuclear power thread on H&R, there's question there I've wanted to ask you, and I'd be interested to check your answer later tonight when I check back in.

Abner macGillicuddy|6.10.09 @ 3:20PM|#

I think the secured and unsecured creditors should both have their obligations met, with no priority of one over the other.

There's no one on this board that's commented so far that doesn't think it's a good thing to meet all your obligations, but Chrysler doesn't have enough assets to meet all its obligations. That's why it's bankrupt.

If it had enough assets to meet all its obligations, it wouldn't be bankrupt, it would still be a functioning business.

I'm still trying to understand what you're having trouble with.

The preferred creditors are preferred because their paperwork says they are. The law says in the event of a bankruptcy, they get their money first. That's what "preferred" means. It also means they get all of their money to the extent there are assets to pay. Frequently they don't, they have to settle for a pro rata share.

And fot the umpteenth fucking time they're PREFERRED CREDITORS because their contracts with the debtor say they're PREFERRED fucking CREDITORS!!!

Why are you having so much motherfucking trouble understanding this?

The UAW has no such standing because they never negotiated any such guarantees. Basically the Union Contract says "we'll pay you according to this contract as long as we're in business."

Well, they're not in fucking business any more, they're BANKRUPT, BROKE, BUSTED, KAPUT, KABLOOEY.

THEY FUCKED UP.

And now the Administration comes along and compounds that fuckup by imposing a deal that turns all order and precedent on its head.

And on top of that they're making a deal with a fucked up fuckstain of a company that makes arguably the worst fucking car in the entire fucking universe and turning the company over to them without them putting up so much as one thin fucking dime.

And, of course, what's worst of all is that Chrysler should have been allowed to die thirty years ago when it first went bankrupt. Bailing them out then just prolonged the misery.

|6.10.09 @ 3:20PM|#

MNG, I was typing, but I think your 3:10 is also addressed by my 3:16

MNG|6.10.09 @ 3:22PM|#

domo
I gotta go, and things are getting interested, but let me quickly say that the voluntariness of that bargain is less so when it is pouring, but of course, getting wet is not as bad as not being able to eat or pay the rent. IMO As the need of one party increases the voluntariness of the bargain is undercut. I hope that, all I can supply right now, helps. Maybe more another time.

|6.10.09 @ 3:23PM|#

At anyrate - i am about tapped out on this thread as well - I'll check back later to see if MNG has anything to rebut with. Has been fun...

Seward|6.10.09 @ 3:23PM|#

And, of course, what's worst of all is that Chrysler should have been allowed to die thirty years ago when it first went bankrupt. Bailing them out then just prolonged the misery.

It is a waste of resources that only governments can undertake.

Abner macGillicuddy|6.10.09 @ 3:24PM|#

"I never understood why unions didnt spend a significant part of their dues on buying the company stock so that they would have a stronger say in management."

They'd rather just have the government steal it for them like they do in Germany and Sweden.

|6.10.09 @ 3:25PM|#

IMO As the need of one party increases the voluntariness of the bargain is undercut.

I could just as easily counter that the utility gained by purchasing an umbrella in the rain is greater than if its dry. worth every penny, imo - but maybe later bud.

Sean W. Malone|6.10.09 @ 3:33PM|#

Wow... All I've gotten from this thread is that Shrike is still retarded and MNG still doesn't understand the difference between secured & unsecured debt and that each is a choice that participants make knowing full well their implications... and that, still, neither gives a shit about contract enforcement so long as the people they think they like benefit.

*Snooze*

Brutus|6.10.09 @ 3:54PM|#

Hey, Nick, that's "fine" Corinthian leather...
Ricardo wasn't about soft!

My only question: what is that great enginnering titan Fiat is going to do for Chrysler that Mercedes couldn't?

|6.10.09 @ 3:57PM|#

Dude, he says soft in the video! Soft! Soft!

But, soft! what light through yonder window breaks?

Lexington Green|6.10.09 @ 3:59PM|#

Where has the dream gone? The LIFE depicted in the commercial, to BE Ricardo Montalban, as he was then, gazing out over the ocean, his bitchin' ride and his hispano-magnificent mansion, his lapels ... .

I still want it.

|6.10.09 @ 4:05PM|#

Why should the foot race always be won by the swift? It's just so unfair.

Abner MacGillicuddy|6.10.09 @ 4:11PM|#

What's fascinating is that the UAW could have negotiated a contract with Chrysler that would have fully funded pension and healthcare benefits.

But that would have required Chrysler forking over the cash either to the union or a third party every years so that it could be managed in a responsible way.

Naturally, this would required a less ambitious pension scheme and lower take home pay. Just as the preferred creditors sttled for a lower return on their investments.

So we see, that the Union preferred to appear to be the great benefactor to get the workers support rather than to be the actual responsible servant. And someone was telling us the other day about businessmen going for the short term return.

The funny thing is there have been those who have been questioning the sustainability of this model since at least the sixties. And the response was similar to shrike's. "You're just anti-union."

|6.10.09 @ 4:11PM|#

I used to be Barry's childhood invisible friend.

|6.10.09 @ 4:31PM|#

Why should the foot race always be won by the swift? It's just so unfair.

"The race is not always to the swift, nor victory to the strong. But that's the way you bet."*

-Damon Runyon

*something close to this

|6.10.09 @ 4:42PM|#

I think the secured and unsecured creditors should both have their obligations met, with no priority of one over the other.

So, in other words, there should be no such thing as a secured creditor. Because that's what a secured creditor is, the person with a priority claim on the assets securing their loan.

Apparently, prohibiting secured loans should be done because it is more "fair". Not fair to the borrower, or the lender, but to third parties. And not just to third parties who the borrower owes money to when the secured loan is made, but to anyone who might become a creditor of the borrower later.

Is that about it, in a nutshell?

|6.10.09 @ 4:44PM|#

ANYONE can get a secure loan. All you have to do is file the lien paperwork.

Well, and you have to get the borrower's agreement.

|6.10.09 @ 4:45PM|#

And I still haven't seen a reason why taxation shouldn't be invalidated as grossly "unfair" given the disparity in size, power, and wealth between me and the government.

Vanessa|6.10.09 @ 4:46PM|#

"Ricardo Montalbon | June 10, 2009, 8:47am | #
Hey Nick, the phrase was 'RICH Corinthian Leather.'"

Indeed, it was.

It saddens me that the generations following mine will never even know what Corinthian Leather is.

BTW,

The Meatmen: Kisses In The Sunset

Oh my pet, my pet, your eyes are like two
limpid pools of 10W40
your skin is like rich Corinthian leather
your lips are like two nightcrawlers
making love in a pink bog
and your bush, your glorious gravy boat
feels like crushed velour
your breasts are like two mounds of Haagen Dazs French Vanilla ice cream
How I long to plunge head long
into your flaming pit of desire
driving, pounding, thrusting, sweating, stinking,humping, forcing myself on you
like a Spanish stallion in the throes
of a sexual feeding frenzy
oh, my love kitten
I long to thrust your face with my manhood
wegding, fudging, we are as one
come to me, with me
as we savor our kisses in the sunset

|6.10.09 @ 4:48PM|#

And I still haven't seen a reason why taxation shouldn't be invalidated as grossly "unfair" given the disparity in size, power, and wealth between me and the government.

Mr. Dean for the win.

The losers? Everyone who insists that it's not "soft Corinthian leather."

ChrisO|6.10.09 @ 4:52PM|#

Where has the dream gone? The LIFE depicted in the commercial, to BE Ricardo Montalban, as he was then, gazing out over the ocean, his bitchin' ride and his hispano-magnificent mansion, his lapels ... .

Generally speaking, the dream got snorted away a few years later. Not speaking about Mr. Montalban, of course.

I'd love to have a Cordoba, but then I'm a sick bastard. The Dodge Magnum version was even groovier. In reality, they were nothing more than two-door versions of the Plymouth Fury (the police car in every '70s movie) with a bunch more chrome tacked on.

|6.10.09 @ 9:31PM|#

So the UAW gets the dividends of the preferred stock to pay its health care obligations. And then Obama gives us socialized medicine. So it's pure windfall. Rich union executives rolling around naked in benjamins.

I feel f***ed already and didn't even get dinner and drinks out of it.

|6.10.09 @ 9:33PM|#

The tragic thing is that there is no such thing as a green pimpmobile. I should buy a land yacht while I can.

Keep your pimp hand strong.

|6.10.09 @ 10:33PM|#

@MNG: This is not imaginary matter of an opinion. It is not a picture in a coffee table book, or a bar bet. The rights of a secured creditor come in the BLACK letter of the law at the federal level. They are not invoked until bankruptcy. Bankruptcy is an exception to the procedure when dealing with unsecured creditors, but it is the very circumstance that triggers the procedure when dealing with secured creditors. That's why they're called that, (secured.)

See for yourself.

http://www.law.cornell.edu/uscode/uscode11/usc_sec_11_00001129----000-.html

Namely this bit:

(7) With respect to each impaired class of claims or interests-
(A) each holder of a claim or interest of such class-
(i) has accepted the plan; or
(ii) will receive or retain under the plan on account of such claim or interest property of a value, as of the effective date of the plan, that is not less than the amount that such holder would so receive or retain if the debtor were liquidated under chapter 7 of this title on such date;

Unless written law, passed by our elected legislators via due process, as in the same kind that they throw you in jail if you break when you steal from someone, doesn't mean what it says, in very specific terms, then I'd say there should be no debate here.

You can assert, as long as you have sufficient evidence that this doesn't mean what it says, but what you ARE doing, asserting that "it shouldn't mean that" is ridiculous. Fiction?

|6.11.09 @ 12:49AM|#

@MNG,

The difference between secured credit and unsecured credit is not only a legal reality, it's also FAIR!

Here's why.

There's a risk premium differential between secured and unsecured credit. When you make a promise to pay back a loan, but provide no collateral, the lender assumes that there is additional risk that you might not pay back the loan. As compensation for that additional risk, you pay more interest than you otherwise would -- even if you completely fulfill your commitment to pay back the entire loan.

However, if the lender demands that you provide collateral to secure the loan, you get to pay less interest. The lender isn't taking as big of a risk that you won't pay the money back, because he can essentially force you to pay it back by taking the collateral if you don't pay willingly.

These two promises to pay are not equal, but are each "special." In one case, the promise is special because the lender gets more money back in exchange for more risk, which he freely accepts. In the other case, the promise is special because the lender gets paid back no matter what (usually).

Now your suggestion is that the parties should not be able to make such different types of promises. That everyone must accept the same level of risk at any given time depending on previous lenders, which would mean charging the same premium, based on when they lent the money, how much collateral existed, etc. How is THIS either fair, or libertarian?!

Now what has happened is that a politically favored group has managed to avoid the consequence of the risk that they took in exchange for the premium that they received, while the other group is forced to bear the consequences of risk they were not compensated for taking. It's no different than if the government had seized a secured bondholder's bank account and turned it over to the UAW. How is that fair?