Bond Holders as Traitors
Chrysler, a deal that will change U.S. capital markets for the worse. If you lend while Obama rules and the borrower won't pay you back you will be called a traitor if you refuse to allow the lender to repay their debts as Obama wishes. Look at it this way: From now on secured debt is worth whatever the bankers, government, or IRS says it is. Secured debt is no longer secure which means capital will be awfully difficult to obtain. Who will loan (buy a bond) from any corporation any more without demanding usurious interest. Put it on a personal level: suppose you lend me $100 which is secured by a rare gold coin that I have in the vault that I promise to surrender if I can't pay either the interest on the loan or the loan itself. When I can't pay you back, instead of collecting that gold coin, the government can step in and demand you accept $65 (or $10) and fuck you. This is a double disaster in progress.....
BUT
Suppose the value of my gold coin plummets and I can't pay you the value of the bond. What then? You can demand the coin but your loss is then guaranteed. This works out that I have what is in effect a no interest loan and when I can't pay it back I walk away leaving you holding an asset that is decreasing in value each day and therefore impossible to sell except at an even bigger loss. Under bankruptcy law I can collect through your other assets.
The Chrysler plants and equipment are worth bupkis. If the secured bond holders took everything over (the security) they would have zero, zillions of dollars of stuff that cannot be sold or used effectively.
I think this deal will affect all bond issues across the board. And make raising capital almost impossible.
1 comment:
Why are you surprised? When the feds nationalized the banks, what made you think it would stop there? For those who have money think Switzerland. The deposit does not have to be in Swiss Franks but they do offer their own version of FDIC for up to one hundred thousand dollars per account. Contacting a few banks there about the mechanics of it and the fine points of their FDIC coverages. They don't run deficits in trade or in budgets. Something to think about. Don't have to be a millionaire to do this. Just paranoid about these communist clowns. Remember one of Obama's campaign advisors advocating nationalizing everyones 401K plans. Who is to say soon there won't be capital controls or restrictions on withdrawals if the government hits a wall on being able to borrow and can't raise enough in taxes?
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