Obama worse than Kissinger?

[Jon Miller]

Is it good to give catastrophically mismanaged companies credit just because their assets creates a floor so that secured creditors will give them credit anyways?

This doesn't seem to be good capitalism to me.

JM

[KrazyHorse]

Secured debt of companies that are catastrophically mismanaged shouldn't be, and isn't, risk free.

JM

It ISN'T risk free, Jon.

The bankruptcy would have cost the bondholders something.

The point of having legally secured debt (and especially debtor in possession financing) is that without these levels of legal protection we'd have FAR MORE BANKRUPTCIES, as well as FAR WORSE ONES, as private companies who are in any trouble would have a much harder time securing financing.

[chequita guevara]

Bull****. When the **** was the last time a developed nation experienced a successful, violent revolt of the proletariat?

We're still working on it. Generally, when it starts to look like ti could happen, one of two things happens. Either the capitalists start to mollify the workers with some reforms or they take the leash off the dogs and let fascism grind the workers into paste.

[Drake Tungsten]

We will see MORE BANKRUPTCIES because of this.

Not only that, but we'll see fewer successful restructurings in bankruptcy thanks to the effect on DIP financing. We're going to see more failed companies and probably more government bailouts.

edit: Damn, beat me to it.

[Jon Miller]

I am arguing that catastrophically mismanaged companies had too easy a time acquiring a line of credit due to assets (acquired under better management) and that this encouraged catastrpohic mismanagement to continue.

Additionally, the possibility of government bailout surely has in the past positively effected the ability of a company to acquire credit/stockholders/etc.

This provides a damper on that positive effect. If the government can break the rules to give a bailout, it can also break the rules to change payout.

JM

[Jon Miller]

It ISN'T risk free, Jon.

The bankruptcy would have cost the bondholders something.

The point of having legally secured debt (and especially debtor in possession financing) is that without these levels of legal protection we'd have FAR MORE BANKRUPTCIES, as well as FAR WORSE ONES, as private companies who are in any trouble would have a much harder time securing financing.

Only private companies that are 'too big to fail' and that are being catastrophically mismanaged. You don't have this risk for a company that isn't like that.

And these companies have been allowed to continue their poor operation for too long under the current practice (which includes bailouts).

Since bailouts are legitament, so is this.

JM

[KrazyHorse]

Can't continue this. Have some work to do. Drake, keep laying the smackdown on Jon.

[Jon Miller]

Bailouts are already considered when companies agree to lend to mismanaged/etc company. Or when people look to buy stock.

Having the government do something like this should also be considered.

JM

[Drake Tungsten]

Drake, keep laying the smackdown on Jon.

I don't think I have the will to do so. It's making me sad that otherwise intelligent people don't have the first damn clue about how capitalism works...

[KrazyHorse]

He honestly did not understand how fractional reserve banking worked until I explained it to him a couple of weeks ago.

I think he understands that now.

Explaining the practical justification of legal tiers of creditor protection is going to be a bit more difficult, but may be possible.

[chequita guevara]

I don't think I have the will to do so. It's making me sad that otherwise intelligent people don't have the first damn clue about how capitalism works...

Irony

[Drake Tungsten]

I understand how capitalism works, at a certain level. I just happen to like capitalism, unlike you.

Explaining the practical justification of legal tiers of creditor protection is going to be a bit more difficult, but may be possible.

I'm going to go do some reading. Maybe later...

[Ramo]

The argument that Chrysler appears to be making is that absent its alliance with the UAW, it's not getting a bailout. So the UAW has specific leverage over bondholders entitling their claims priority. Yes, the UAW is probably getting a bigger slice than they deserve. And sure, it's kind of ****ed. But it's no more ****ed than the auto bailout as a whole.

[Drake Tungsten]

Ramo

But it's no more ****ed than the auto bailout as a whole.

Which is pretty ****ed.

[Jon Miller]

I acknowledge that I could be wrong. I definitely was earlier with KH, I didn't understand what I read meant.

Basically, my point is that bailouts and the possibility of bailouts artificially lowers interest rates and raises stock for a company.

Government bailouts are artificial and breaks the standard operating procedure. This is the result of continual catastrophic mismanagement and is another example of artifical government interference. It breaks the standard operating procedure in relation to legal teirs.

This second possibility will raise interest rates and lower stock price, which will be what the corporate entity that continues to be catastrophically mismanaged deserves.

JM