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Five Things: Barfight for Keys to Chrysler


Non-TARP lenders stand up to automaker's new lease on life.

1) Non-TARP Lenders Battle Chrysler's "New Lease on Life"

President Barack Obama last Thursday pledged to give Chrysler LLC "a new lease on life," by which he apparently meant ushering the automaker into a bankruptcy reorganization that essentially puts Italy's Fiat SpA in charge.

It was a classic case of government-coercion and arm-twisting. And here's what really happened: the lenders with Chrysler exposure who have received Troubled Asset Relief Program (TARP) money – lenders the government now basically has the power to order around at will as a result of their agreeing to accept TARP money, such as JP Morgan (JPM) and Citigroup (C) and Goldman Sachs (GS) - all agreed to essentially give up their rights as secured lenders to allow the "surgical bankruptcy" to proceed.

Meanwhile, according to Bloomberg, a group of Chrysler's secured independent lenders, mostly institutions and hedge fends, is seeking to block the sale to Fiat SpA on the grounds the move "improperly attempts to extinguish their property rights without their comment."

Also at issue, according to Bloomberg, is Chrylser's request for "debtor-in-possession financing," the terms of which, according to the group, essentially re-directed $25 billion into the hands of other claimholders - yes, including, notably, the TARP-recipient lenders. In fact, the lenders group is specifically referring to themselves as "non-TARP lenders."

"The proposed transactions improperly override "the contractual rights of the Chrysler non-TARP lenders and reverses the priority scheme" of the bankruptcy code, the lenders argued," according to Bloomberg.

So what does all this mean? First, it means the Chrysler plan is going to be hotly contested, which will delay a resolution. Second, this is - somewhat ironically - being viewed as a positive by credit market participants who were appalled at what the government was trying to do.

But these are short-term issues. The reality is that despite the pie-in-the-sky promise of a "new lease on life" for Chrysler, and presumably the economy, we still have the following:

One, too much debt in an economy that is not producing enough real income to service it, while two, the government, doing its level best to ignore number one, continues to try and force still more debt into a system that is both unable (and unwilling) to accept it, even as three, the government is attacking lenders and bondholders for standing up for their rights to be paid back.

2) Headlines vs. Math

Headlines this morning are screaming with some rather bullish notes on the market's rally off the recent lows. But it's a classic case of bullish headlines versus mathematics.

Headline: Stock Market Up 31% Since Bottom Eight Weeks Ago

Math: This simply means if you were down 57% as of eight weeks ago... you are now only down 44%.
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No positions in stocks mentioned.

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