Re: Chrysler related comments by Professor Bill Black

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>   On Sat, May 2 and 3:48 PM, Bill wrote:
>   I want to amplify a couple of Warren’s points that the media that I’ve seen has
>   missed. To me the key is the internal inconsistency of the Obama
>   administration’s reasoning. Contracts were sacred (AIG bonuses). Now, secured
>   creditors, who negotiated for a lower yield in return for priority (i.e., the prudent
>   lenders), are attacked by the administration as morally evil for not giving up their
>   rights.
>   It’s one thing to use bankruptcy powers against unsecured creditors (and that
>   includes secured creditors to the extent they are undersecured). That’s an
>   inherent risk of being an unsecured creditor, particulary in a nation like the U.S.
>   that allows Chapter 11 reorganizations. (Reorgs may be the interest of unsecured
>   creditors as a class, but they can be hell on particular unsecured creditors.)
>   Secured creditors are not the same, particularly where they are fully secured. The
>   Supreme Court has emphasized that the bankruptcy laws cannot be used to
>   commit a “taking” without just compensation.
>   But the point I want to emphasize is this — why is the same administration
>   refusing to wipe out risk capital (equity and subdebt) in favored banks and instead
>   providing them with myriad federal subsidies while demanding that fully secured
>   auto creditors take a deep haircut? To state the obvious, risk capital has the
>   lowest priority — none. Moreover, it is supposed to be wiped out to create the
>   proper incentives. Conversely, senior debt is not supposed to be wiped out (or
>   extorted into serious haircuts) — that creates perverse incentives. Does anyone
>   seriously believe that if Goldman or Pimco held the large senior debt positions in
>   Chrysler the administration would have extorted and demonized them?
>   Best,
>   Bill