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    Kansas City Fed president Thom..., 2009-05-03 18:55:54 | Main | but that explains a lot..., 2009-05-04 18:38:48

    looking the gift-horse in the mouth:

    I find it interesting that the same people screaming about the budget deficit are simultaneously demanding that the government's $13 billion issued to Chrysler get wiped out and go further in hock covering every last red cent of the $7 billion in secured debt. Deficits don't matter so long as we're engaging in crypto-feudalism, I guess.

    Chapter 11 says senior creditors are obligated at least the liquidation value, but the hypothetical liquidation value of an un-liquidated firm undergoing reorganization would seem to be whatever the hell the bankruptcy judge says it is. The administration offered - at taxpayer expense - $2 billion, which is coincidentally the same number Chrysler claims is its liquidation value. That's probably a lowballed figure for the firesale auction of Chrysler's $37 billion in book valued assets (against some $50 billion in debts), but with the national interests the administration will argue are at stake there's every reason to expect the judge to go with a lowballed figure.

    At that, the longer the "dissenting non-TARP senior creditors" keep this in bankruptcy court the smaller the ultimate return on their pending claims could become. Operating loans provided to a firm in Chapter 11 take super-seniority and subordinate the pre-bankruptcy secured creditors. To keep Chrysler a going concern the government has been providing them almost $2 billion a month. At that rate the senior creditors could be wiped out completely against the lowballed liquidation value by June, and their entire $7 billion dollar secured claim against Chrysler subordinated by the government's super-senior DIP by August.

    I would expect that they'll get the 30 cents on the dollar from tax payers they were offered in the first place - which, if you picked up the bond at 15 cents like Chrysler debt was selling for on the secondary market, is a pretty handsome handout for the trouble - but there's no legal reason they why should end up with anything at all by the time this is over, and they should be praising the administration for being such accommodating tools for the oligarchy.

:: posted by buermann @ 2009-05-04 14:54:14 CST | link

    go ahead, express that vague notion

    your turing test:

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