Distressed Lending
May 15, 2009
A few weeks back, I wrote of what appeared to be a promising development, one that saw the hedge fund world defending itself against a government that seemed hell-bent on overturning decades of established bankruptcy law (in the case of Chrysler) for the purpose of ... well, you can decide for yourself.
Maybe I spoke too soon.
For those in need of a refresher, here's a recent comment from some analysts at Barclays: "Our primary concern is that the unique preference afforded junior creditors at the expense of secured lenders could become a precedent that influences future bankruptcies."
Sadly, the band of money managers who last week had the gumption to point out that they were being fleeced has lost its voice this week, admitting that bumping heads with the government just was not worth it. Despite their place at the front of the line, they are walking away.
But it got worse. No sooner had the fight come out of the more-senior lenders than Goldman Sachs caved in to the State of Massachusetts regarding so-called predatory lending practices. The company got off easy -- to the extent it did anything wrong -- by paying $50 million to knock down the principal on mortgages for about 700 borrowers.
No big deal, right? A rounding error for Goldman on a handful of now-fortunate homeowners who are going to have their principal cut by 30% (and by half for second mortgages).
But as in the case of Chrysler, the precedent is mind-boggling.
If the dissident group of lenders to the automaker had seen their effort through, there's a reasonable shot a judge would have sided with them. Instead, they limped away, and one of the few places on earth where contracts and business law were ironclad got one step closer to saying goodbye to all that.
Goldman's decision to settle makes perfect business sense from its standpoint, but the firm surely did not make any friends at Countrywide, Bank of America and Citi, which presumably had their hands in on plenty more than 700 mortgages.
Remember that this settlement was for just one state. Imagine the visions of "lender liability" dancing through the heads of the legal community.
And imagine the outrage that would have poured forth from these shores if another country had perpetrated the same shenanigans just committed against the Chrysler debtholders. You can bet your unsecured, second-lien you-know-what that the cries of foul play would have been loud and clear. But not now, and not here, apparently.
0 Comments
Be the first to comment on this post using the section below.
Add Your Comments...
Already Registered?
If you have already registered to Money Management Executive, please use the form below to login. When completed you will immeditely be directed to post a comment.
Not Registered?
You must be registered to post a comment. Click here to register.