Obama worse than Kissinger?

[Ben Kenobi]

Jon, investors have already given their money to Chrysler. Workers are unsecured creditors in that Chrysler owes them money for their work, they only get paid after the investors get what they can.

I heard that the asset of the company are equal to the liabilities, so everyone should get what they are owed.

[Jon Miller]

This is basically what happens when a company that gets government bailouts continues to be catastrophically mismanaged. Obviously it should be included in stockholder/creditors determinations just as bailouts are.

I agree that it might be best to have neither, but that isn't a possibility in this country (where we have elected senators/etc).

JM

[chequita guevara]

I understand how capitalism works, at a certain level.

The irony is that you let ideology blind you to necessity. (I realize the irony of that statement coming from me). The point being, you berate the government for taking actions that are necessary to keep American capitalism from collapsing, even if they violate some of the basic tenets of free market ideology. You'd rather the whole house of card collapse than see the government not play by the rules.

[Theben]

If the government is involved, yes the standard law can be broken, because the government sets what the law is.

I doubt you feel the same way about "torture" and wiretapping.

That idea works both ways.

[KrazyHorse]

Jon, I think you're misunderstanding us: this has NOTHING to do with what Chrysler (or even the creditors!) "deserves". This has EVERYTHING to do with what will happen GOING FORWARD.

We have tiers of creditor protection because without it we would see more bankruptcies ending in company breakups due to lack of financing as companies become distressed (OR go into bankruptcy from debtors in possession).

We DON'T WANT this to happen because such company breakups are often (but not always!) welfare destroying (the company is worth more as the whole than the sum of its parts).

Tiers of creditor protection give a company a SECOND CHANCE to turn things around as their creditworthiness erodes (or even a THIRD CHANCE in the case of debtor in possession).

By increasing the legal uncertainty of creditor protection the government is almost guaranteeing that IT will have to intervene to prevent welfare-destroying breakups. We've already seen with this auto bailout how poorly they will be managed. I would PREFER that the private sector provide financing for those companies which are worth more than the sum of their parts while allowing those which are worth less to fail and be broken up.

[KrazyHorse]

The irony is that you let ideology blind you to necessity. (I realize the irony of that statement coming from me). The point being, you berate the government for taking actions that are necessary to keep American capitalism from collapsing, even if they violate some of the basic tenets of free market ideology. You'd rather the whole house of card collapse than see the government not play by the rules.

There is no necessity. The overall negative consequences of auto company bankruptcies (and even breakups) have been FAR overstated by those who have the most to gain from bailouts and from strongarming debtholders (in order: unions, management, equity holders).

Right now ALL they're trying to do is steal money from those who have NOT run the firms into the ground (debtholders) and put it into the pockets of those who have (everybody else).

[Jon Miller]

Jon, I think you're misunderstanding us: this has NOTHING to do with what Chrysler (or even the creditors!) "deserves". This has EVERYTHING to do with what will happen GOING FORWARD.

We have tiers of creditor protection because without it we would see more bankruptcies ending in company breakups due to lack of financing as companies become distressed (OR go into bankruptcy from debtors in possession).

We DON'T WANT this to happen because such company breakups are often (but not always!) welfare destroying (the company is worth more as the whole than the sum of its parts).

Tiers of creditor protection give a company a SECOND CHANCE to turn things around as their creditworthiness erodes (or even a THIRD CHANCE in the case of debtor in possession).

By increasing the legal uncertainty of creditor protection the government is almost guaranteeing that IT will have to intervene to prevent welfare-destroying breakups. We've already seen with this auto bailout how poorly they will be managed. I would PREFER that the private sector provide financing for those companies which are worth more than the sum of their parts while allowing those which are worth less to fail and be broken up.

I don't see how this is in any way different from bailouts as far as effecting how things behave in the future.

This counteracts the drop in interest rates and rise in stockprice that use to follow government involvement. In the future, companies will be a lot less inclined to seek government involvement or allow themselves to get into a position where it is necessary.

Government involvement is the FOURTH chance (or later). Just like secured debt changes the way debt gets repayed, similarly government involvement changes the way that debt gets repayed.

Just that unlike other chances (debtor possession/secured creditor), the governments involvement falls outside of the legal rules and gets developed by precident or politics.

This isn't ending creditor protection. It is only making it so that in the extreme case of government involvement, that creditor protection becomes at risk.

Just like when the SECOND chance happens, and those other creditors become less important, similarly here with the FOURTH (or whatever) chance, the previous creditors (including the secured creditors) become unimportant.

The government doesn't have to give anyone anything. It is just deciding how the debt will get repayed, based on politics.

JM

[chequita guevara]

The irony is that you let ideology blind you to necessity. (I realize the irony of that statement coming from me). The point being, you berate the government for taking actions that are necessary to keep American capitalism from collapsing, even if they violate some of the basic tenets of free market ideology. You'd rather the whole house of card collapse than see the government not play by the rules.

There is no necessity. The overall negative consequences of auto company bankruptcies (and even breakups) have been FAR overstated by those who have the most to gain from bailouts and from strongarming debtholders (in order: unions, management, equity holders).

Right now ALL they're trying to do is steal money from those who have NOT run the firms into the ground (debtholders) and put it into the pockets of those who have (everybody else).

The destruction of Michigan's economy over the past few decades as the auto plants moved out shows how wrong you are.

[KrazyHorse]

This counteracts the drop in interest rates and rise in stockprice that use to follow government involvement.

No, Jon. This does NOT counteract a "drop in interest rates".

Much of the debt we're talking about was entered into BEFORE the companies got government financing.

Secured financing provided a reliable means for the company to promise that NEW debt would be treated favorably compared to OLD DEBT (or union contracts!).

Now companies can no longer reliably signal to would-be creditors that their debt would not be contaminated by prior sins. So even if a company has no intention to seek a bailout would-be creditors cannot trust that whatever financing they get will NOT be subject to the arbitrary whims of a government which swoops in in the future with bailout money and which is bound by no contract law.

Legal uncertainty is a BAD THING. This greatly increases the legal uncertainty in debt and bankruptcy law.

It is a HORRIBLE idea.

[chequita guevara]

If the economy is tanking, then corporations should not expect business as usual, but rather extraordinary measures from the government that might throw them under the bus in order to save the whole system. In the long run, it's in the interests of capitalism for the government to run roughshod over individual corporations if it keeps the whole system running. It's the only reason its still around.

[Jon Miller]

Secured financing means that new debt gets favored over old debt.

I agree, this is good.

Government involvement (extreme case), means that the government gets favored over all debt (including secured financing!).

Same sort of behavior. Just that in the case of government interaction it only comes about when the company is so mismanaged that it no longer has a choice.

Bailout money doesn't come unless the company is continually and catastrophically mismanaged.

JM

[KrazyHorse]

The destruction of Michigan's economy over the past few decades as the auto plants moved out shows how wrong you are.

chickie, sweetheart:


a) The very fact that the Detroit automakers have been savaged over the last two decades is PRECISELY why the final failure of a NA carmaker is less important than previously

b) Bankruptcy (and even a fire sale of the company's assets) will not destroy the auto plants currently in existence in Michigan. If Chrysler disappears SOMEBODY IS GOING TO ****ING BUILD CARS FOR PEOPLE TO DRIVE. And they might well choose to do so in Michigan. If they aren't burdened by unsustainable debts to retirees like the current auto companies are.

[KrazyHorse]

Government involvement (extreme case), means that the government gets favored over all debt (including secured financing!).

This is NOT the issue!

The issue is that old debt (union contracts, for example) are being favoured over new debt (secured!)

[Jon Miller]

The government has an overriding interest, due to its involvement.

It can take it all for itself, or if it so chooses (politics!), it can decide to pay off a lower priority debtor instead of a higher priority debtor.

Once more, the government could just take complete control itself. And not pay off anyone.

JM

[Ben Kenobi]

If the economy is tanking, then corporations should not expect business as usual, but rather extraordinary measures from the government that might throw them under the bus in order to save the whole system.

So we have to kill the system in order to save it? Bull****! As I've said before, let them die! If the world doesn't have any use for buggy whips, then it's best to let them perish then spend good money trying to keep them alive.

In the long run, it's in the interests of capitalism for the government to run roughshod over individual corporations if it keeps the whole system running. It's the only reason its still around.

No, it's not. It's in the best interest of capitalism to minimise government interference and allow the market to work. Everything the government has done has been to stand in the way of capitalism! It's in the best interests of Socialism to take advantage of the crisis and take over as much as possible.