Wednesday, May 20, 2009

Chrysler Bankruptcy Deal Chickens Coming Home to Roost

As a consequence of the new administration's treatment of the bondholders in the Chrysler bailout and bankruptcy, will investors now either avoid similar debt of unionized companies, or demand higher interest payments?

According to Rep. Phil ware, an Illinois Democrat:
Wells Fargo, the fourth-largest U.S. lender, is responsible for Hartmarx’s collapse because it refused to extend credit. Wells Fargo said in a statement the bank wants the suit maker, which defaulted on more than $114 million in loans, to 'stay in business.'

Fund Managers Burned by Obama Now Say They Are Wary -

From the same article, hedge fund manager George Schultze: “Lenders will have to figure out how to price this risk ... 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.”

When you change the rules, or refuse to honor the rules, investors, including lenders, not being fools, will alter their behavior. Bending or breaking the rules has consequences, including some unintended consequences. Unintended consequences have unforseen costs.



At 5:57 AM, Anonymous Anonymous said...

IS VERY GOOD..............................


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