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December 09, 2008


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Where is the game of chicken? If I am senior secured creditor, why don't I accelerate immediately to be paid off with the new cash advanced by the government? The government is then compelled to advance more money to pay off all the senior secured debts that have been accelerated or risk the borrower going under despite the federal loan. On this view, the purpose of the provision granting seniority to the government debt is to lay the groundwork for a much larger federal loan later.

That being said, I haven't read the bill, so is there something in it that would suggest a different outcome?

Jeong Chun phuoc

“The Anti-competitive Bailout Bill”


The car bailout bill is a classical example of using legal strategy for economic mileage. It is a clear case of abuse or in other words represent a subtle form under anti-competitive practice.

The bailout bill should not have been where it is now at all. When the economic fundamentals are based on mismanagement, Chapter 24 may be a way out. But by utilising a bailout bill, it certainly creates animosity between competition advocates and anti-competition surrogates.

Jeong Chun phuoc
[email protected]


I think under those circumstances, the secured lenders would have almost a civic duty to accelerate, unless they see fit to reach some sort of accord with the government.

However, the secured lenders could presumably de-accelerate if that turns out to be advantageous. This was not an option for the secured noteholders in Solutia, because the de-acceleration would have violated the automatic stay. But in a phantom bankruptcy, there's no automatic stay to violate, so maybe it's easier to accelerate and de-accelerate at will. So I really think we face a dangerous situation where doctrines that are well-understood in bankruptcy turn out quite differently in the phantom bankruptcy (not that de-acceleration is a great example, it's just one that comes to mind).


My simple plan is for the government to make a large prepaid purchase of energy efficient cars and trucks. I don't know how many cars and trucks the government buys every year, but if we include state and local government it has to be a huge number. I suggest that the cars all run on natural gas and the trucks on bio-diesel. Perhaps Detroit isn't ready to produce those kinds of vehicles, but a big prepaid order together with the already appropriated energy money should let them recall laid-off workers to tool up.

Plus, this would be a great first step in my energy plan which is to have the government lead not by regulation but by example. If the government were to become a major purchaser of alternate energy devices, it would produce economies of scale for the manufacturers which would drive down the prices for the public.


I would think "senior to all unsecured loans" is the best they can or should do -- in any case, it would very much violate my sense of fairness if they did come in and trump the secured creditors -- in which case the fed's AIG "comprehensive floating lien" would accomplish that. That doesn't prevent fallout from unsecured covenants, but the secured debt shouldn't be affected.

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