The Art of Vulture Investing: Adventures in Distressed Securities Management

CHAPTER 6

Fighting Over the Carcass: Chrysler

The bird immediately swoops down upon its prey and is followed by every vulture within sight. They may not see the dead animal, but they know that when a vulture swoops it has seen food, and so they follow it. Each follows its predecessor many miles around, so that the breath is scarcely out of an animal before a flock of vultures has assembled round it. Indeed, the birds do not always wait for the death of the animal. Should it be merely disabled and abandoned, the vultures will attack it, invariably beginning with the eyes.

—Reverend John George Wood, Birds and Beasts

Finance and politics are never a good mix. I found this out the hard way when involved in the 2009 bankruptcy of Chrysler Automotive—whose Chapter 11 filing was announced by the sitting U.S. president, Barack Obama. I lost a fair amount of money on an investment in Chrysler’s distressed debt because I assumed that normal bankruptcy processes and legal precedents would apply. Obviously I was wrong, and governmental interference with the normal path of corporate restructuring was the cause.

The government’s involvement in Chrysler’s bankruptcy marked the second time it intervened to save the company, an economic icon and important U.S. military supplier. The government famously bailed out the auto giant in 1979 with loan guarantees supporting Lee Iacocca’s massive—and ...