The WSJ’s "USA Inc" series continues today with detail on how the US got secured lenders to abandon their fight to get paid more than 30% of their claims, as against giving more than half the company to unsecured workers. Which prompts this zinger from Larry Ribstein:
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.
The Journal report quotes one anonymous -- but asinine -- Obama administration official as opining that:
"You don't need banks and bondholders to make cars," said one administration official.
As Larry's observation suggests, that official -- who's probably never run any business more complicated than a lemonade stand -- will soon discover just how wrong s/he was. It's called CAPITALism for a reason, after all.
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.
Indeed, this particular chicken may come home to roost almost immediately. the Business Law Prof observes:
... when the government got tough it did so by threatening to bring nasty public pressure on the creditors. Creditors that were already on the government dole with TARP money caved immediately; hedge funds held out a bit longer - took incredible public heat - and eventually caved as well. The hedge funds, by the way, are the players the government needs to get into it public/private partnership program and its TALF program for either to succeed. So the government ended up ripping players it needs to play in the future for the success of its programs.
Like most bullies, the Obamabots seem unable to realize that their conduct may have long-term consequences.
Pondering all this, it occurs to me that the single most patriotic thing one could do right now, if one is in the market for a new car, is to buy a Ford. In today's Journal, Paul Ingrassia writes that:
While General Motors and Chrysler will emerge from the government restructuring wringer with significantly reduced debt, Ford will still likely be obliged to repay its lenders. This could put Ford at a competitive disadvantage -- an unfortunate irony for the one Detroit car company that has gotten the decisions mostly right in the last few years. ...
Ford has about $26 billion in automotive debt -- about the same as GM's $27 billion. Ford's debt is secured by its assets. And secured lenders must be repaid -- unless they happen to be Chrysler lenders and get clipped by a company bankruptcy plan that's backed by President Obama.
So Ford is like a homeowner who planned prudently and can pay his mortgage, while his spendthrift neighbors get their mortgage reduced by some new federal program.
All of which creates a potential win-win. Ford is finally producing some cars that even a gearhead like me might want to buy. The Fusion hybrid gets better gas mileage than the Toyota Camry hybrid. The Focus has gotten a ton of positive reviews. The new Taurus is impressive and the 2010 Taurus SHO should give sports sedan enthusiasts soemthing to seriously consider. In sum, if I were in the market for a car, I'd probably get a Ford. It'd be a good car for me, it'd reward Ford for staying out of Obama's clutches, and it'd spank everybody associated with the CM and Chrysler debacles.
Update: If you liked this post, be sure to check out this one before you leave.
