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Chrysler in the hedges

April 30, 2009 - Paul Giannamore

As I write this, we're about 90 minutes away from President Obama's statement regarding a Chapter 11 bankruptcy filing by Chrysler.

One thing is clear so far from statements from the White House: Hedge funds that have refused to walk away with less money than they think they could get in a Chrysler bankruptcy are going to be demonized.

The White House issued a statement to the effect that the hedge funds are failing to act in their own or the nation's best interest.

Four major banks that hold most of Chrysler's $6.9 billion debt have agreed to take less and walk away, including a little sweetner added by the U.S.
Treasury. The four financial institutions are JPMorganChase, Morgan Stanley, Citigroup and Goldman Sachs. If that rogue's gallery sounds familiar, remember, they're all in bed with the federal government for TARP money. So, should it be any surprise they'd walk away as the feds meddle in Chrysler's future?

Meanwhile, smaller hedge funds, which hold private investments from all sorts of wallets, small and large, want to get the maximum return on their failed Chrysler investment. Walking away would be irresponsible to the investors.

Locally, we've been through similar situations with the steel industry. It's not realistic to expect investors to walk away just because it would be in the "national interest" to keep a failing company afloat for awhile longer.



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