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Government picks Chrysler's $7.5B USD tab

When it comes to saving Chrysler, the cost of trying to revive the troubled company may be a painful one, but it’s one that the Obama administration believes is essential to keeping the economy from a deeper plunge.  Chrysler recently declared bankruptcy.  Under the new plan, majority bondholders (mostly banks) will receive a major equity stake, as will the UAW, reportedly.  The minority bondholders who wanted a sweeter deal than either the unions or the majority bondholders will likely see their debt holdings wiped out.

Chrysler will emerge in a month or two from the Chapter 11 protection, and will try to continue its turn-around.  The first step will be the formal commencement of its partnership with Italian automaker Fiat SpA.  In order to try to make sure that the tie-up succeeds, the government is reportedly giving the pair a big gift -- reportedly forgiving Chrysler's $7.5B USD in loans.

Robert Manzo of Capstone Advisory Group first broke news when he suggested that he had knowledge of the talks and believed that the government would release Chrysler of its financial obligations. A $4 billion bridge loan was given to Chrysler in the closing days of the Bush administration, a $300 million fee on that loan, and the $3.2 billion in financing approved last week by the Obama administration to help Chrysler tackle bankruptcy.  A source in the Obama administration confirmed that Chrysler won't be repaying the loans.

In total, the forgiven debt will equate to approximately $24.50 per U.S. resident (or somewhat more per taxpaying citizen).  The government does hope to recover some of the bridge loan funding from Chrysler Financial, but it won't bother Chrysler about repayment.  Taxpayers do get an equity stake out of the deal, though -- 8 percent of Chrysler.  The government is counting on that equity stake to help repay taxpayers.

States the administration source, "The reality now is that the face value [of the $4 billion bridge loan] will be written off in the bankruptcy process.  While we do not expect a recovery of these funds, we are comfortable that in the totality of the arrangement, the Treasury and the American taxpayer are being fairly compensated."

The Canadian government will similarly forgive $900M USD in bankruptcy funding it is giving to Chrysler.  The U.S. government still expects Chrysler to repay the $4.7B USD loan it plans to give the company when it exits bankruptcy.  Chrysler has said it will also need $1.5B USD in additional funding by June 30, 2010.

Bob Corker, R-Tenn., a vocal opponent of the original Bush administration bailout states, "I've known for sometime that with the capital structure of the company and the situation it was in, we would not be paid back.  There were several secured lenders ahead of us, and they're not getting most of their money."

Meanwhile the government mulls over the problem of GM.  GM has been loaned $15.4B USD, thus far.  And with a possible bankruptcy filing looming, it may need even more funding to guide it through bankruptcy.  It similarly is unlikely to be able to repay its debt obligations, and these obligations will far eclipse those of Chrysler and will likely pose an even greater headache to Chrysler.



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Did anyone doubt this?
By FITCamaro on 5/7/2009 1:08:09 PM , Rating: 5
Anyone who actually believed that Chrysler would be paying back those loans was incredibly naive. So congrats. We just bailed out Chrysler's portion of the UAW health care fund. And gave them control of the company.

Next up, GM.

I'm sure the UAW is thrilled.




RE: Did anyone doubt this?
By Master Kenobi (blog) on 5/7/09, Rating: -1
RE: Did anyone doubt this?
By Ray 69 on 5/7/2009 4:22:11 PM , Rating: 2
Only has to be 2 years. Right now you have a Democrat President and a Democrat majority in Congress so they can do what they want unchecked. Now if in the mid term elections in 2010 enough Republicans are elected it is possible to put the brakes on most of the outrageous Democratic plans. No I'm not Republican, I'm and Independent that realizes if the Demos stay in total power we're in trouble.


RE: Did anyone doubt this?
By s12033722 on 5/7/2009 4:39:09 PM , Rating: 1
Next 4? I suspect more like our lifetimes. The amount of debt that is being built up isn't going to go away when Obama leaves office, and sadly, I doubt the next person will be much better. The last thing the government is interested in is shrinking itself.


RE: Did anyone doubt this?
By FITCamaro on 5/7/2009 5:11:24 PM , Rating: 3
I love a friend of mine who thinks that deficit spending like this is required to get us out of this recession and that the tax hikes that will be the result will only be temporary. Maybe if we don't try to pay off all this new debt.

I'm not looking forward to things 4-8 years from now. But then Obama won't care because he (hopefully) won't get re-elected. And if a Republican candidate gets in, they'll have to raise taxes if Obama doesn't. Then media and the liberals will be like "SEE WHO RAISED YOUR TAXES!!!".


RE: Did anyone doubt this?
By Spuke on 5/7/2009 6:51:28 PM , Rating: 2
quote:
And if a Republican candidate gets in, they'll have to raise taxes if Obama doesn't. Then media and the liberals will be like "SEE WHO RAISED YOUR TAXES!!!".
This is the most crappy part and it's such a double standard.


RE: Did anyone doubt this?
By Laereom on 5/11/2009 5:22:20 PM , Rating: 2
It's true. This is why representative electoral politics are a horrible way to drive decision-making.


RE: Did anyone doubt this?
By Oregonian2 on 5/7/2009 11:21:06 PM , Rating: 3
There's a very easy and fast way to pay off all the public debt in short order: inflation.

Classical.


RE: Did anyone doubt this?
By callmeroy on 5/8/2009 8:08:54 AM , Rating: 1
Exactly. I think, reading through these posts, most of the folks here understand - but the think that bothers me is a large part of America (particularly the Obama cheerleaders) don't. Short term is NOT going to be the "BIG" problem for us. Like recently with spikes of the market and reports that unemployment was less for the first time in April than in the previous 6 months or whatever it was...there WILL be up and down fluctuations in the economy --- SHORT TERM.

It makes me so frustrated when I read reports suggesting "there are hints we might finally bottoming out, with some positive indicators...."

Inflation WILL happen, and it won't be your traditional few % point inflation, it will be unusually high. Given the amount of mess we are in -- amounts so large its hard to fathom, there's going to be many many years ahead of us before we even dent pulling out of the huge pit this spending will have caused when its all done and over with. Yes, as someone pointed out -- the messed up thing is its going to extend far into other administration's terms and THEY will be blamed for the tax burden and drug through the mud over it --- not the folks responsible for it TODAY...RIGHT NOW.....

I hope your kids and possibly grand kids get good jobs folks --- because they will be paying this one off as well....


RE: Did anyone doubt this?
By Manch on 5/8/2009 4:15:16 PM , Rating: 2
I dont know how in the hell they think we can pay this off. Just wait, a damn coke will be 5$ and a fricken happy meal will be 15-20$. Well the happy meal might be more because there will be a fat tax, green house tax, you eat meat tax, etc, etc. Not too long down the road you wont be able to afford these things and you'll have to go hunting for.....oh wait yeah those guns will be gone too and then you'll be arrested for reloading.


RE: Did anyone doubt this?
By someguy123 on 5/7/2009 9:16:17 PM , Rating: 5
oh please. as much as I believe Obama is failing, you would be saying the exact same thing if Mccain was in office unless he pulled a miracle and saved the economy in one clean swoop. "That's what these idiots get for voting republican!"

grow up. if you want to blame something blame the government for not forcing candidates to wear lie detectors at all times.


RE: Did anyone doubt this?
By sprockkets on 5/7/2009 10:48:12 PM , Rating: 3
I'm not for anyone, but c'mon. Bush signed into law to give $700 billion to banks. What Obama did was give 12 billion to Chrysler to survive. 12 vs. 700 billion is 1.7%. You hate Obama for 1.7%? Besides, weren't they taking it from the 700 billion anyhow?

Wake up people. The economy needs 3% growth every year to survive. And the next years 3% is more than last years, since it is a new total. Which means the economy needs to grow exponentially. If you think this is something a particular form of political theory can solve, you are wrong. When gas prices drop +50% because speculators were wrong about predicting the future cost of gas while demand only fell around 10%, something should go off in your head that this economy and how the system works is all bull s---.

"So, what do you propose to do about it?"

Uh, I have no f---ing clue.

"Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist" --Kenneth Boulding


RE: Did anyone doubt this?
By arazok on 5/8/2009 9:43:00 AM , Rating: 2
quote:
I'm not for anyone, but c'mon. Bush signed into law to give $700 billion to banks. What Obama did was give 12 billion to Chrysler to survive. 12 vs. 700 billion is 1.7%. You hate Obama for 1.7%? Besides, weren't they taking it from the 700 billion anyhow?


You’re retarded if you think that the only Money Obama has thrown at failing businesses is 12 billion. Seriousley…you’re retarded.

quote:

Wake up people. The economy needs 3% growth every year to survive. And the next years 3% is more than last years, since it is a new total. Which means the economy needs to grow exponentially. If you think this is something a particular form of political theory can solve, you are wrong.


More correctly, the economy needs to grow on par with population increase (3%) in order for our standard of living to be maintained. It is exponential growth, but it’s not uncontrolled growth. At some point in the future, population growth will stop or even reverse.

quote:

When gas prices drop +50% because speculators were wrong about predicting the future cost of gas while demand only fell around 10%, something should go off in your head that this economy and how the system works is all bull s---.


No, it makes perfect since. Gas (Oil) prices were run up 150% with only a 10% increase in demand, so it’s not surprising to see them fall with a small drop off as well. Especially when you take into account that that price increase was caused by people investing with leveraged money, and not due to market fundamentals. I expect to see gas prices fall further as all this credit is sucked out of the system.

quote:

"So, what do you propose to do about it?"

For starters, I’d probably break up and privatize Fannie/Freedie. I’d abolish the fed (or at least significantly curtail it’s control over the economy). Repeal any legislation that compels banks to lend money to people with bad credit in some twisted attempt to get poor people into housing.

Then I’d get the federal government completely out of Helathcare, education, and anything else that the States should be doing. I’d also make it unconstitutional to run deficits.

quote:
Uh, I have no f---ing clue.


I’ve noticed that about you. ;)


RE: Did anyone doubt this?
By corduroygt on 5/7/2009 11:25:46 PM , Rating: 1
How about each person's vote being multiplied by a number between 0.01 to 100, determined by a quick 30 minute test of their intelligence, knowledge, morals, to determine their ability to properly determine who should be the president? An idiot would get 0.01x, and smarter people would get 100x.


RE: Did anyone doubt this?
By Spivonious on 5/11/2009 1:10:04 PM , Rating: 2
Yep, and the government would administer the IQ test and strangely enough, only those who supported the current regime would get high IQ scores.


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