note to self: unions, government, always have first lien

blogger Dave Cribbin of TailWind Capital notes:

In the Chrysler deal, the [United Auto Workers] were unsecured creditors and the Chrysler bondholders were secured creditors. The bondholders received 28% of the value of their $6.9 billion in bonds in cash; the Union will receive stock worth approximately $4.2 billion, and a note for an additional $4.58 billion, which represents 82% of the value of their claim. Either the government negotiators have dyslexia and have made a terrible mistake in their paperwork, or this is political payoff writ large. Is this not the equivalent of financial waterboarding?

Hedge fund manager Cliff Assness notes:

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

Law is an interesting subject. The letter, intent, and popularity of the law, all interact in a game with a great deal of strategy. Having been involved in costly litigation, I know the game is anything but straightforward, because if you try to be reasonable in a game with someone who has bad faith, you will lose even more (most litigation involves loss for both parties, it's just damage control once you start). Further, the end-game is hardly limited to what some jury decides, because of the precedent, judge's decisions, the signaling, the costs, and the fact that most disputes do not go to trial.

While this gaming is all unavoidable in a world with people, it is disturbing when something as solid as liability law and throws it out the window (debts used to have an explicit priority).