Sticking Up for the Little Hedge-Fund Guy

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Joe Perella of Perella Weinberg Partners: Villain or scapegoat? Photo: Patrick McMullan

After it was announced yesterday that lenders had failed to agree on a way to salvage Chrysler and the automaker would be forced into bankruptcy, Obama castigated a handful of hedge funds — "a small group of speculators," he called them, who he claimed were responsible for blowing up the deal with their greedy demands. "While many stakeholders made sacrifices and worked constructively, I have to tell you some did not," he said, sternly. "They were hoping that everybody else would make sacrifices, and they would have to make none. I don't stand with them. I don't stand with those who held out when everybody else made sacrifices." The speech made us kind of uneasy. Even though it seemed like bankruptcy was the best option for Chrysler, the tone of the harangue made it feel like the president's decision was emotional or political rather than rational.

It seems the Times was bothered, too, for this morning's business section took an unusually pro–Wall Street stance, arguing that the bankers were not only legally entitled to argue for better terms, they were right to.

As Chrysler’s fate hung in the balance Wednesday night, this group refused to bend to the Obama administration and accept steep losses on their investments while more junior investors, including the United Automobile Workers union, were offered favorable terms ... It was, they argued, simply unfair.

Moreover, the hedge funds were the only people at the table who could protest said unfairness. Most of the other lenders at the table were TARP-infused banks — JPMorgan, Citigroup, Goldman Sachs — who are more or less beholden to the government.

For the banks, defying the administration was never a serious option, according to people close to the talks with lenders, who asked not to be identified because they had signed confidentiality agreements.

It's all starting to feel like so much Wall Street scapegoating. The AIG bonuses, the threat of salary caps, now this. Just because financiers make more money than most people, it doesn't just mean they should automatically be forced to lose, especially when, ultimately, it's we who are losing: Not only do U.S. taxpayers lose another $8 to $12 billion in bailout money going to Chrysler, we lose money on the hedge-fund side.

The dissident creditors said they had a fiduciary responsibility to seek the best possible returns for their own investors — which, the group said, include teachers’ unions, pension funds and endowments.

The small group of speculators, it turns out, really isn't that small at all.

The Lenders Obama Decided to Blame [NYT]