To hell with the consequences
May 10, 2009
Bishop Hill in Economics

President Obama continues to horrify many Americans with his apparent disdain for business and investors. His plans for putting the tottering Chrysler corporation back on its feet look to be another step on the road to a full-scale depression:

Unlike a traditional reorganization, in which the parties negotiate the terms of a restructuring that is then voted on by each class of creditors and shareholders, the administration plans to quickly sell Chrysler’s most important assets to a new entity—“New Chrysler”—whose stock will be owned by Chrysler’s employees and Fiat. The senior lenders who objected to the government’s offer (which amounted to little more than 30 percent of their claims) will not have any vote on the sale. Their only option is the one they have pursued: objecting to the sale, and praying that bankruptcy judge Arthur Gonzalez takes a hard look at its terms even while the government is breathing down his neck and saying in a sense, he better approve or else.

If investors think their assets are going to be handed over to insiders by the bankruptcy courts then they are simply not going to invest in the American economy. That's a recipe for full-scale depression.

And if there's to be a depression in the US, the effects will surely be felt on this side of the Atlantic too.

More here.


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