Playing Hardball With Car Bondholders Isn't Like Hardball With The Banks

Some folks, looking at allegations that the Obama administration used some aggressive tactics to get Chrysler bondholders to fall in line, responded: Well good, finally the administration is playing some hardball in these negotiations. Now if only they’d do that with the banks.

We’re all for hardball, and certainly the hedge funds investing in car company debt knew that they were getting involved in a match of political football.

But to say that the treatment of Chrysler bondholders is somehow a model for the banking situation misses the point by a mile.

Up until this point, the bank bondholders — because they’re structurally critical institutions like insurance companies and pension funds and the like — have been actively coddled, protected from the haircuts they’d be required to take had the chips simply fallen where they may. The thing is, the administration doesn’t need to play hardball with the bank bondholders. They don’t need to publicly scold bank bondholders if they want to make them take some pain. They could just step out of the way.

In the case of Chrysler, it’s exactly the opposite. To get the admired end, they needed (at a minimum) to get the Cajoler in Chief to make some noise (how much is a matter for debate).

And while we can debate the legitimacy of how the administration handled the matter, it’s certainly no template for the banks.

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