Hedge Fund Manager George Schultze Cries Over Obama Treatment in Chrysler Bankruptcy

Hedge Fund Manager George Schultze is complaining because the government's bankruptcy settlement for Chrysler puts the worker's underfunded pension obligations above his bond investments.  He claims that he'll have to think twice before lending money to a unionized company.  In a Bloomberg article, he says:

"Lenders will have to figure out how to price this risk,” Schultze, 39, said in a telephone interview from his office in Purchase, New York. “The obvious one is: Don’t lend to a company with big legacy liabilities or demand a much higher rate of interest because you may be leapfrogged in a bankruptcy.”

How about an even more obvious one: do your homework and don't lend to a company that's going bankrupt or might go bankrupt.

What Schultze is really complaining about is that the public won't bail him out yet again for an awful investment he made in Chrysler.  The government has already pumped $7 billion into Chrysler to keep it afloat and benefit bond holders like Mr. Schultze.  Like the banks, the general public's money is on the hook to help make the hedge fund managers and banks happy.

From the same Bloomberg article:

"Chrysler lenders might have recovered nothing if the government hadn’t poured billions of dollars into the carmaker, said Gary Hindes, managing director of distressed investments at Deltec Asset Management LLC in New York. The hedge fund firm didn’t buy the company’s debt or GM’s, in part because of the risk the government’s involvement would damp returns, Hindes said.

“If you’re being paid more than what you would be paid in a liquidation, then the contractual obligation has been met,” said Hindes, whose firm oversees about $526 million, according to a regulatory filing. “It’s still very disturbing to see the government basically strong-arm people into this.”

Gary Hindes was smart.  He realized Chrysler was a bad investment and kept his money away.

What particularly irks me about Schultze is his threat not to invest in particular companies because of the government action.

“It’s terrible precedent,” said Schultze. “The sad thing is it impacts the manufacturing sector and the companies that have legacy liabilities directly. It will be nearly impossible, or much more expensive, to get secured financing for these type of companies.”

It's the same language we hear from banks about employee compensation.  "If we can't pay our employees $100 million per year we won't be able to retain them."  Give me a break.  Keep your threats to yourself.   I don't know about you but I'm not interested in subsidizing the cost of capital by backstopping the loans of every hedge fund out there. Hedge funds that many feel have brought more trouble than their worth.

The backlash against banks is broadening to include the hedge funds that many feel helped precipitate the banking crisis. 

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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  • Steve Nova

    February 09, 2010

    Schultze didnt cry when he stole the paychecks from Tweeter employees during its bankruptcy. I guess what goes around come around. Suck it up you whiny little man.

  • Joe P

    March 19, 2010

    Not only did he theive paychecks, he also flat out stole money from Tweeter customers. I agree with his premise on the Chrysler issue, but before you go crying about yourself, think of what you have done to other people with your actions.

  • bent over by tweeter

    August 01, 2010

    this guy needs to "take it like a man", he put down tweeter like a dog, and left employees locked out with personal property still inside, not to mention customer's "PAID" merchandise!!!!!!!!!!

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