Academic

MEGAN MCARDLE: More automotive bankruptcy strong-arming, though happily this time undone by a judge?

By Glenn Reynolds

MEGAN MCARDLE: More automotive bankruptcy strong-arming, though happily this time undone by a judge. “If true, this is an even more heavy-handed intervention than Chrysler, and considerably more disturbing. Debtor-in-Possession financing, or DIP, is the financing that allows companies to reorganize in bankruptcy. It’s senior to everything else because if it weren’t, no one would be willing to lend money to companies that definitionally have a high probability of failure. Stiffing those creditors in order to make GM, or even Delphi, better off, is incredibly short-sighted. It also has some potentially scary implications for our political economy. The quasi-legitimate argument in favor of the government’s interventions in favor of the UAW was that Uncle Sam was the only available debtor-in-possession financier, and therefore had a right to call the tune. Screwing over the DIP providers would, of course, make it harder for other companies to get DIP. What new rights could the government discover in those bankruptcies?”

Full post as published by Instapundit.com on June 15, 2009 (boomark / email).