Lawyer: Chrysler bondholder "was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal"

Speaking of the politicized auto bailout, here's ABC News correspondent Jake Tapper, reporting on a claim of White House arm-twisting of Chrysler creditors:

A leading bankruptcy attorney representing hedge funds and money managers told ABC News Saturday that Steve Rattner, the leader of the Obama administration's Auto Industry Task Force, threatened one of the firms, an investment bank, that if it continued to oppose the administration's Chrysler bankruptcy plan, the White House would use the White House press corps to destroy its reputation. […]

Thomas Lauria, Global Practice Head of the Financial Restructuring and Insolvency Group at White & Case, told ABC News that Rattner suggested to an official of the boutique investment bank Perella Weinberg Partners that officials of the Obama White House would embarrass the firm for opposing the Obama administration plan, which President Obama announced Thursday, and which requires creditors to accept roughly 29 cents on the dollar for an estimated $6.8 billion owed by Chrysler. […]

Perella Weinberg Partners, Lauria said, "was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under the threat that the full force of the White House press corps would destroy its reputation if it continued to fight. That's how hard it is to stand on this side of the fence."

Lauria's story was denied by the White House. And, as of Thursday, by Perella as well, who fired Lauria and suddenly decided that maybe the White House deal wasn't so bad after all.

Whole thing here. For some valuable critiques of the auto bailouts, I recommend Mickey Kaus. I debated lefty economist Dean Baker about the bailouts over at the L.A. Times last month.

Comments

[Pro Libertate]

Power is a terrible drug.

[Pro Libertate]

Sorry, I misquoted. Power is a hell of a drug.

[High Every Body]

if it continued to oppose the administration's Chrysler bankruptcy plan, the White House would use the White House press corps to destroy its reputation. [...]

Oh, this must be made up! The White House Press Corp is completly unbiased and neutral. They keep saying that themselves.

[John]

why would this guy make up a lie that would get him fired? Why did the law firm fold so quickly? This whole thing is really sinister. I keep saying we have a state run media now. If this is true, that statement is no longer an exageration.

[robc]

Note to self: record all conversations with the Obama* governement.

*and all others too

[High Every Body]

why would this guy make up a lie that would get him fired? Why did the law firm fold so quickly? This whole thing is really sinister.

Remember, it was all inherited from Bush.

[Lester Hunt]

"Perella ... fired Lauria and suddenly decided that maybe the White House deal wasn't so bad after all"

Wow, this really stinks. We're in for an increasingly evil four years, at least.

[Citizen Nothing]

"I keep saying we have a state run media now. If this is true, that statement is no longer an exageration."

WTF?
It was ABC that exposed the Obama pressure tactics.

[brotherben]

So you got racist publications in Ron Paul's name and you jump through a million hoops to distance Paul from those publications. But you have a rumor, based on hearsay, that is anti-Obama and you believe it immediately?

Faith is a fickle mistress ain't it?

[R C Dean]

There is just no way that Perella didn't catch a phone call from somebody in the administration when this story broke.

In some ways, the implausibility of a threat to sic the White House press corp on somebody makes in all the more believable that a threat was made.

You can bet that the GM bondholders are watching all this very carefully.

I have to believe there would have been suits for breach of fiduciary duty against the officers and directors who agreed to the government offer in Chrysler. There should have been. I'm sure the firms holding GM bonds are pondering that issue right now.

[R C Dean]

It was ABC that exposed the Obama pressure tactics.

As far as I can tell, Tapper is the only member of the White House press that has a single cojone to his name.

[John]

"I keep saying we have a state run media now. If this is true, that statement is no longer an exageration."

WTF?
It was ABC that exposed the Obama pressure tactics."

It was one member of a whitehouse press corps of 100s who was willing to report it. The others ignored it. The Whitehouse threatening people with the media unless they play the game. That is what tinpot dictators do with state run media organizations.

[GG]

The smart money's on Lauria as the one who's telling the truth.

[High Every Body]

That is what tinpot dictators do with state run media organizations.

But Chavez is no tinpot dictator, he is Progressive!

Oh, this is about Obama?

[Jeff P]

Dis is a nice Restructuring and Insolvency Group ya got here, bub. Be a shame if anything happened to it...

[Naga Sadow]

But HEB, Chavez was democratically elected.

[High Every Body]

NS,

Yes! See! Just like Obama!

No tinpot dictators to see around here. Move along.

[Some Guy]

The White House was going to go around telling everyone that these guys won't bow to government pressure to throw away their clients' investments in order to help the UAW?

"Oh no, not that! Anything but that!"

[JP]

Just to be clear, it appears that Lauria (the lawyer and whistle-blower) was "fired" by his client (Perella). Lauria didn't lose his job with his law firm, White & Case.

[High Every Body]

JP,

Would that be like a guy being strongarmed by the mob firing the lawyer who went to the press and the cops about it?

[JP]

HEB -- Oh, I'm not suggesting this was an innocent event or anything. I just wanted to clarify that Lauria still has a job and that it wasn't his law firm that caved to pressure.

[John]

"Just to be clear, it appears that Lauria (the lawyer and whistle-blower) was "fired" by his client (Perella). Lauria didn't lose his job with his law firm, White & Case."

Why fire your lawyer for defending you in public? You only fire him if you are worried about Obama and his crew.

[P Brooks]

the threat that the full force of the White House press corps would destroy its reputation

As worded, this is laughable.

The White House Press Corps is coming to GIT YOU.

Boogaboogaah!

This does not mean I don't think they were directly threatened by the Ascended One's minions; I suspect this wording was lawyerly (personal) ass-covering.

[Blue]

"Oh no, not that! Anything but that!"

I've been wondering about that. Hedge fund managers sell the fact that they will squeeze every red cent for their clients. Having it publicly known that you went head-to-head against some block-headed political thugs can only be used as a selling point.

Now, block-headed political thugs might think that is bad press, but they aren't known for their depth of knowledge of ... well anything.

[jsh]

Threatening anyone with pitchfork wielding mobs is bad for business. We're talking about people who can rile up people to the point that death threats get issued if they so desire.

[lc]

An important point about this is that Perella Weinberg does a lot of work with the FDIC on the current slate of banks going into insolvency.

Their position in Chrysler bonds was (I believe) a result of their purchase of Xerion capital. This is of lesser economic importance to them then their relationship with the FDIC.

So from a strictly selfish point of view, it is important to them to keep a strong relationship with the government.

Also, as someone who is married to a corporate lawyer. Let me say this. Lawyers will twist every fact to their advantage, make hugely pedantic arguments and the like.

When a high-end lawyer (and White and Case is a good firm) makes a clear statement like this you can be sure that it is almost surely true.

[jsh]

Like this:

http://www.politico.com/news/stories/0409/20871.html

But President Barack Obama wasn't in a mood to hear them out. He stopped the conversation and offered a blunt reminder of the public's reaction to such explanations. "Be careful how you make those statements, gentlemen. The public isn't buying that."

"My administration," the president added, "is the only thing between you and the pitchforks."

[JP]

Also, as someone who is married to a corporate lawyer. Let me say this. Lawyers will twist every fact to their advantage, make hugely pedantic arguments and the like.

Define "fact."

😉

[Dello]

Blue,
"I've been wondering about that. Hedge fund managers sell the fact that they will squeeze every red cent for their clients. Having it publicly known that you went head-to-head against some block-headed political thugs can only be used as a selling point."

Not if your fund is hit with an IRS audit for things it doesn't even do, which it then has to spend time and resources to prove it doesn't, for the rest of your life.

Folks might shy away.

[High Every Body]

Also, as someone who is married to a corporate lawyer. Let me say this. Lawyers will twist every fact to their advantage, make hugely pedantic arguments and the like.

All wives are like that.* They don't have to be lawyers.

*If you think your wife is not like that then she really has you fooled.

[brotherben]

Highnumber, the only thing I would add is that all women are like that. Married or not.

[PR]

like jsh said, the administration's denial would be more believable if they weren't always trying to get the villagers to storm Castle Frankenstein

[lc]

No its cool.

My wife convinced me that everything she says is correct. My opinion is accurate as long as it doesn't disagree with hers, otherwise I am wrong.

[brotherben]

lc, so she's a libertarian?

[jsh]

they weren't always trying to get the villagers to storm Castle Frankenstein

A riot is an ugly thing...and I think its about time that we had one!!!!

[JB]

So when is the MSM going to come out of the closet as nothing but an extension of Obama's propaganda team?

Cock-suckers.

[lc]

"lc, so she's a libertarian?"

As long as the Libertarian view agrees with her own. For example, her view is that the best cut of meat is Filet Mignon and should be eaten at least twice a month. I am not sure if this is a Libertarian view.

[meerdahl]

White & Case is a top level firm, and this guy is head of their insolvency practice. He would not have said this unless 1) he had approval from the client, and 2) he either heard this himself or his client informed him of this.

Sounds like the investment firm was threatened (again) after this came out, and had to get rid of their lawyer to mollify the govt.

[Naga Sadow]

lc,

Perhaps she has not had Kobe beef.

[lc]

"Perhaps she has not had Kobe beef."

Actually she tried a $50 Kobe Steak at Grill 23 in Boston...she sent it back because it was too well marbled. Tasted like delicious to me, but there you go.

I felt real bad about that, but amazingly they didn't charge us. To compensate them I drank a few extra martini's to help balance the check.

[High Every Body]

Perhaps she has not had Kobe beef.

This fresh after finally getting through the zillion comment weekend thread where MNG did not attempt to solicit sex from you? Trying to summon the joe impersonator or something?

[High Every Body]

Tasted like delicious to me, but there you go.

She has not completed your training yet.

[Paul]

Power is a terrible drug.

No, Pro L, the quote for Obama is "Power is a helluva drug..."

[Paul]

I debated lefty economist Dean Baker about the bailouts over at the L.A. Times last month.

Do you find it ironic that the lefties are defending [more] corporate welfare?

[Paul]

Crap, sorry Pro L, missed your correction...

[Paul]

You only fire him if you are worried about Obama and his crew.

The term is 'posse'. Get it right.

[Naga Sadow]

HEB,

Too true, my friend. What's strange is that until the last month, MNG and I would argue a bit but it was cordial at least. He's been on the temper tantrum path recently.

[brotherben]

It started on 4/20, if I ain't wrong.

[Naga Sadow]

Word?

[High Every Body]

It started on 4/20, if I ain't wrong.

Another amazing Hitler connection . . .

[Pro Libertate]

Paul,

It doesn't matter--I blew the joke. May Rick James forgive me.

[brotherben]

Rick James. What a freak

[High Every Body]

Rick James. What a freak

Super.

[lc]

This is a bit long, but a pretty terrific read.

Unafraid In Greenwich Connecticut
Clifford S. Asness
Managing and Founding Principal
AQR Capital Management, LLC

The President has just harshly castigated hedge fund managers for being unwilling to take his administration's bid for their Chrysler bonds. He called them "speculators" who were "refusing to sacrifice like everyone else" and who wanted "to hold out for the prospect of an unjustified taxpayer-funded bailout."

The responses of hedge fund managers have been, appropriately, outrage, but generally have been anonymous for fear of going on the record against a powerful President (an exception, though still in the form of a "group letter", was the superb note from "The Committee of Chrysler Non-TARP Lenders" some of the points of which I echo here, and a relatively few firms, like Oppenheimer, that have publicly defended themselves). Furthermore, one by one the managers and banks are said to be caving to the President's wishes out of justifiable fear.

I run an approximately twenty billion dollar money management firm that offers hedge funds as well as public mutual funds and unhedged traditional investments. My company is not involved in the Chrysler situation, but I am still aghast at the President's comments (of course these are my own views not those of my company). Furthermore, for some reason I was not born with the common sense to keep it to myself, though my title should more accurately be called "Not Afraid Enough" as I am indeed fearful writing this... It's really a bad idea to speak out. Angering the President is a mistake and, my views will annoy half my clients. I hope my clients will understand that I'm entitled to my voice and to speak it loudly, just as they are in this great country. I hope they will also like that I do not think I have the right to intentionally "sacrifice" their money without their permission.

Here's a shock. When hedge funds, pension funds, mutual funds, and individuals, including very sweet grandmothers, lend their money they expect to get it back. However, they know, or should know, they take the risk of not being paid back. But if such a bad event happens it usually does not result in a complete loss. A firm in bankruptcy still has assets. It's not always a pretty process. Bankruptcy court is about figuring out how to most fairly divvy up the remaining assets based on who is owed what and whose contracts come first. The process already has built-in partial protections for employees and pensions, and can set lenders' contracts aside in order to help the company survive, all of which are the rules of the game lenders know before they lend. But, without this recovery process nobody would lend to risky borrowers. Essentially, lenders accept less than shareholders (means bonds return less than stocks) in good times only because they get more than shareholders in bad times.

The above is how it works in America, or how it's supposed to work. The President and his team sought to avoid having Chrysler go through this process, proposing their own plan for re-organizing the company and partially paying off Chrysler's creditors. Some bond holders thought this plan unfair. Specifically, they thought it unfairly favored the United Auto Workers, and unfairly paid bondholders less than they would get in bankruptcy court. So, they said no to the plan and decided, as is their right, to take their chances in the bankruptcy process. But, as his quotes above show, the President thought they were being unpatriotic or worse.

Let's be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable with their own money, and many are spectacularly so, but if they give away their clients' money to share in the "sacrifice", they are stealing. Clients of hedge funds include, among others, pension funds of all kinds of workers, unionized and not. The managers have a fiduciary obligation to look after their clients' money as best they can, not to support the President, nor to oppose him, nor otherwise advance their personal political views. That's how the system works. If you hired an investment professional and he could preserve more of your money in a financial disaster, but instead he decided to spend it on the UAW so you could "share in the sacrifice", you would not be happy.

Let's quickly review a few side issues.

The President's attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to "sacrifice" some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power.

Let's also mention only in passing the irony of this same President begging hedge funds to borrow more to purchase other troubled securities. That he expects them to do so when he has already shown what happens if they ask for their money to be repaid fairly would be amusing if not so dangerous. That hedge funds might not participate in these programs because of fear of getting sucked into some toxic demagoguery that ends in arbitrary punishment for trying to work with the Treasury is distressing. Some useful programs, like those designed to help finance consumer loans, won't work because of this irresponsible hectoring.

Last but not least, the President screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large. Find me a hedge fund that has been bailed out. Find me a hedge fund, even a failed one, that has asked for one. In fact, it was only because hedge funds have not taken government funds that they could stand up to this bullying. The TARP recipients had no choice but to go along. The hedge funds were singled out only because
they are unpopular, not because they behaved any differently from any other ethical manager of other people's money. The President's comments here are backwards and libelous. Yet, somehow I don't think the hedge funds will be following ACORN's lead and trucking in a bunch of paid professional protestors soon. Hedge funds really need a community organizer.

This is America. We have a free enterprise system that has worked spectacularly for us for two hundred plus years. When it fails it fixes itself. Most importantly, it is not an owned lackey of the oval office to be scolded for disobedience by the President.

I am ready for my "personalized" tax rate now.

[Naga Sadow]

Hey it was a celebration then. And the prophet Rick James said "Enjoy yourselves . . . bitches."

[brotherben]

Naga, and I did, as she was once, twice, three times a brickhouse. That's why I'm easy.

Easy like sunday mornin'.

[Pro Libertate]

Don't cross the Richie and the James streams, please.

[SugarFree]

Don't cross the Richie and the James streams, please.

There is no Ritchie and James... there is only CAMEO!

[Naga Sadow]

Pro Lib,

Are you a god?

[Naga Sadow]

Whats the word. Word up. Everybody say . . .

[Pro Libertate]

Naga,

Naturally. Though I'm only a minor deity, with invites to Olympus only on holidays and that sort of thing.

[brotherben]

This is america dagnabbits. I'll show me some Commodore/Ritchie love all I want. Bitches.

[Naga Sadow]

Unfortunately you are correct Brotherben. Free will brother. You just can't mess with it. You just can't.

[JP]

lc -- Thanks for posting that.

[crimethink (d/b/a Egon)]

Don't cross the Richie and the James streams, please.

But that's the only way to kill the Stay-Puft Marshmallow Man!

[meerdahl]

Once this story turns out to be true, we'll hear...

"That's not the Steve Rattner I knew..."

[Brian Courts]

I have to believe there would have been suits for breach of fiduciary duty against the officers and directors who agreed to the government offer in Chrysler. There should have been. I'm sure the firms holding GM bonds are pondering that issue right now.

R.C. is right. Any fund managers and firms that go along with the President's plan should be sued by their investors. This is why I'm sure it won't be long before we'll be seeing Obama "urging" congress to pass retroactive immunity for fund managers who go along with his plan.

[P Brooks]

Retroactive immunity for everybody!*

*except civilians

[meerdahl]

It was the prospect of having to defend the democrats in stories like this that drove Joe from this website.