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Articles by Donald E. L. Johnson

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Obama seeks to bully Chrysler’s creditors into accepting drastic changes in bankruptcy laws

When will the stock and bond markets begin to reflect the huge changes in bankrutpcy and contract laws that President Obama has demanded and is demanding from Chrysler’s bondholders?

After reading numerous comments on Chrysler’s filing for Chapter 11 bankruptcy, it’s clear that lawyers, investors and bond buyers are very worried about how the president is blaming and bullying Chrysler’s creditors for the company’s bankruptcy.

The consensus of all but the pro-union and pro-Obama types is that the president’s disrespect for 200 years of bankruptcy law precedent will make it very difficult for companies to sell bonds and borrow money in the private markets. The president is in the process of destroying the credibility of borrowers and the trust that has

made our corporate debt markets work for generations.

Unionized corporations will find it will be especially difficult and expensive to borrow from banks and bond buyers. This is because the unions have so much political clout with Obama and Congress that a lender can never count on the contracts that they write with borrowers being enforced. The Democrats seem bent on rewriting the laws in the favor of unions and at the expense of lenders.

If this nonsense continues, the Rust Belt’s manufacturers are in big trouble. Most depend on selling billions in bonds to the private markets, and they work hard to maintain reasonably good credit ratings to keep their borrowing costs under control.

Now, what happens to a deeply in debt General Electric when it wants to refinance in the bond markets? Why will anyone want to lend to it, given its close ties to the Obama administration, which is known for helping its friends?

Until today, the markets have ignored the implications of the trillions in budget deficits and debt that Obama and Congress are putting in place.

But after a nice 100-point rally this morning, the market faded and closed lower.

Could this be because investors are coming to realize the troubles that the stock and bond markets will be in if corporate America’s borrowing costs are inflated by changes in bankruptcy law and our most powerful politicians’ growing disrespect for contract law?

Look for a bunch of blogs and articles about companies whose ability to borrow will be hurt by the Obama administration’s bullying of Chrysler’s bondholders.

Time to sell corporate bonds?

Read the comments that follow articles about Chrysler’s bankruptcy on http://www.seekingalpha.com, www.wsj.com and http://www.nytimes.com. The unhappy campers are out in force.

U.S. tactics spur worries over lenders’ rights. wsj.com.

A Chrysler bankruptcy won’t be quick. wsj.com.

I don’t own GE. I do own Vanguard’s Total Bond Market exchange traded fund (BND).

Posted by Donald E. L. Johnson on 04/30/2009 at 10:11 PM

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