THE DOMINOS START TO FALL - WHAT VALUES WERE VINDICATED, HERE?
I remain intensely skeptical about this move. I view it as a failure of negotiations and the government's foresight and ability to muster enough external leverage.
The Treasury will supply endless financing, while the bond-holders try to sweeten their deal in court. That's ridiculous, right?
...
It's problematic that debt-holders may own an incentive [a CDS] to put a company out of business ...
The Treasury will supply endless financing, while the bond-holders try to sweeten their deal in court. That's ridiculous, right?...
It's problematic that debt-holders may own an incentive [a CDS] to put a company out of business ...
Bond holders think they are going to get a claim that is senior to people's pensions and health care? In this environment? File that under 'what were they thinking'. On the other hand, anyone who thought that bankruptcy would favor the unions was wrong. What are they going to do in round-2, if they don't like the results of round-1 (bankruptcy)? Strike?
This is a disgusting slug-fest, and someone arguably should have sought bigger levers to force an out-of-court, pre-packaged deal.
The first sign that it couldn't be done, without Congress getting involved to get some more leverage, was that Rick Wagoner failed to make it happen. He's a persuasive and well informed guy, so ....
WHAT TO DO, WHAT TO DO
We are setting up a registry for credit-default swaps. Maybe, we ought to get one for the market failures, like this bankruptcy, that are a function of the OTC bond market.
Second, it should become clear what happens to default-swap protections, when it makes sense NOT to take a company into bankruptcy. It's problematic that debt-holders may own an incentive to put a company out of business, especially one that has enormous economic knock-on effects.
