What has wreaked havoc with Chrysler have been unrealistic pension plan agreements, the effects of which have more recently led to a need for chapter 11 restructuring. The recent planned-economy-style taxpayer propping up of Chrysler has served to treat the symptoms but not to cure the disease.

The accusation recently leveled by Obama suggests that the fund managers should have acted in the national interest rather than in their shareholders interest (USNews). The idea seems to be that once the government has doled out taxpayer money to prop up a failing business, all interested parties are obligated to play along—whether or not they were recipients of that money. In the case of the Chrysler lenders who have already accepted TARP money, this may not be an altogether unreasonable expectation, but shouldn’t the lenders who have kept themselves clear of bailout money have the right to turn down what they perceive as a bad deal (WSJ)? In light of the recent firing of Bank of America’s Ken Lewis, who was reportedly let go in part for acceding to governmental pressure to not report losses of BoA’s acquisition Merril Lynch to shareholders (Bloomberg), it would seem as though the hedge fund managers were in an impossible position. They could go along with the government’s plan (wherein they claim that their offers to take a 40% hit on their investment were rejected) and risk the fury of the shareholders, or they could respect their obligation to the shareholders and risk the censure of the president. Being free-market proponents, they seem to have chosen the latter.

Chrysler and GM have been badly in need or a Chapter 11 restructuring for some time. It’s unfortunate that the large amount of public money that has been thrown at Chrysler has in the end failed to keep them out of bankruptcy, but the hedge fund managers in this case have really done nothing wrong.
Source(s):
http://www.usnews.com/articles/news/obama/2009/05/01/obama-points-to-new-vi...
http://online.wsj.com/article/BT-CO-20090430-725024.html
http://www.bloomberg.com/apps/news?pid=20601103&sid=aGZ2d._AnS_s&re...

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