The Wall Street Journal’s front page story about how the Obama administration got secured lenders to abandon their fight to get paid more than 30 cents on the dollar leaves out most of the discussion of the gory details of threats that were detailed here last week. But it quotes an anonymous Obama administration official who reveals the attitude that no doubt encouraged the White House to be so high-handed with creditors.
“You don’t need banks and bondholders to make cars,” the administration official.
Oh, really? Then how is it Chrysler found itself needing to borrow so much money?
“In fact, we know from experience that over the last 2 decades, firms are more likely to use debt than equity when relying on external financing. If creditors get tired of getting screwed, the Chrysler debacle and the looming repeat at GM may mark a major shift in the ability of American business to finance operations and growth,” UCLA law professor Stephen Bainbridge explains.
University of Illinois law school professor Larry Ribstein is even more direct:
As the government takes over more of the economy, these pressures on formerly free markets will intensify. The problem for government is that it is running out taxpayer money for buying the economy. The sources of private money will long remember what happened to Chrysler’s lenders.
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