Obama worse than Kissinger?

[Jon Miller]

Let's do a thought experiment.

Lets say that a coporation has expected future profits A. So corporations lend out A to them.

This corporation has assets B. This means that the corporation can, after is has already received all it can based on expected future profits (the amount A), take out a secured loan for B based on its assets.

This allows the corporation to take out A+B, which is greater than the expected future profits.

Now, A was lent with the thought that with the A loans, the expected future profits would be realized.

But lenders who leant B didn't have to care about that, they just had to care about the assets worth B.

JM
(Obviously I have approximated a bit.)

[KrazyHorse]

Nothing wrong with collatorized loans.

Just something wrong with collatorized loans invalidating old loans.

WTF? A collateralized loan doesn't INVALIDATE an old loan.

Holy ****, Jon. If I have a credit card balance then my credit card company doesn't get to tell me I'm not allowed to take out a mortgage on my house.

[KrazyHorse]

Jon, I'm not discussing this with you any more. You obviously have no idea what the **** "junior" and "senior" debt means.

Unsecured loans are UNSECURED. Secured loans are SECURED.

Unsecured lenders lend money with the knowledge that secured debt can trump them at any time.

Lets say that a coporation has expected future profits A. So corporations lend out A to them.

No.

Why would you equate these two?

[Jon Miller]

Obviously the thing that decides how bad it is is how much the first set of corporations will lend.

But they are expecting profits, so should lend a decently large portion of the expected profits.

But for a corporation that acquires lots of assets, the second group of lenders will just lend based on those assets, because they are secured they don't have to worry about expected profits.

JM

[Dinner]

I'm glad Obama did it. Automakers are ket national assets which we need to preserve so I'm not going to cry that some money man didn't get to torpedo the whole process just for some extra cash.

[DinoDoc]

I'm glad Obama did it. Automakers are ket national assets which we need to preserve ...

Is that why he's selling them to Italy?

[Dinner]

Jon, this is a ridiculous argument. Chrysler's bondholders bought bonds (i.e. lent the company money) at the interest rate they did because they were making secured loans. This means that under the law they had first claim on Chrysler's assets in the case of any bankruptcy. Now, the government is changing the rules by putting political pressure on bondholders to accept less than they are entitled to, under the law.

Ever heard of buyer beware? The survival of the automakers is intensely political and always has been thus it should be no surprise that politicians come in playing hard ball. Yes, it's a little unfair that law makers can threaten to change laws but that shouldn't surprise anyone.

[Drake Tungsten]

I love that abuse of executive power is simply "unfair" now in the Hopenchange era.

[KrazyHorse]

It's far less objectionable morally than nabbing a bunch of suspected terrorists and torturing them. And I reject the very notion of "fairness". My problem is that this has obvious terrible consequences for future decision-making by lenders. And that these consequences go FAR beyond the negative impact of subsidizing the auto companies in the first place.

[Drake Tungsten]

It's far less objectionable morally than nabbing a bunch of suspected terrorists and torturing them.

It's more objectionable legally. We're also still nabbing suspected terrorists, but we're letting the Egyptians torture them for us now. Change...

[Dinner]

I love that abuse of executive power is simply "unfair" now in the Hopenchange era.

You see abuse, I see an executive welding all of his legal power and influence for a valuable national goal.

[Dinner]

Is that why he's selling them to Italy?

About 1/3 to a private Italian firm and, yes, keeping them in business even with partial foreign ownership is much better then forcing them out of business just to maximize the capital recovery of a few money men.

[Drake Tungsten]

You see abuse, I see an executive welding all of his legal power and influence for a valuable national goal.

Hypocrisy

[Jon Miller]

I admit that I am not as knowledgable as some about lending practices.

However, it does seem to me as if too often large corporations, particularly ones with large ammounts of assets, end up with more liabilities (debts + contracts + etc) then their future profit.

This seems to me to be a problem, and one that should be fixed.

JM

[DinoDoc]

About 1/3 to a private Italian firm and, yes, keeping them in business even with partial foreign ownership is much better then forcing them out of business just to maximize the capital recovery of a few money men.

God damn Rule of Law. How dare it get in the way of saving Italian investments and the valuable goal of shipping jobs to Mexico and China!