Wednesday, May 20, 2009

Violating APR part 2

As I said a couple of days back, the Government was wrong to violate the priority rules of bankruptcy and favor Chrysler's union over its creditors. In doing so, the administration created the credible threat that they would do this again, and thus also created a disincentive for lenders to lend to unionized firms that are in financial difficulty.

My prediction has come true. George Schultze, manager of Schultze Asset Management LLC says:

Don’t lend to a company with big legacy liabilities or demand a much higher rate of interest because you may be leapfrogged in a bankruptcy.