What Are They Thinking?

To those Senators and Representatives who are opposing the draft legislation agreed between the Bush Administration and Congressional Democratic leadership to provide a bridge loan for the auto industry — have you forgotten that the bravado chorus in mid-September to “let Lehman go under” wound up costing the country a $700 billion bailout of the entire financial system, plus another $100 biliion or more to bail out AIG which was going belly-up precisely because it was on the hook for insuring (without reserves or offsetting derivatives) Lehman Brothers’ debt?

Do you really want to play roulette with the entire financial system again, this time for real money?

Do you not realize what will happen in bankruptcy to the unsecured creditors of these companies, whose debt is now trading in the open markets at levels as low as 20 cents to the dollar of principal?

Do you understand who holds this debt — your pension funds and mine, your insurance companies and mine, not to mention the entire financial system, which will be forced to take another gigantic round of write-offs, thus further impairing their capital and restricting their ability to lend to Main Street or mortgagors?

Do you not understand that the problem with companies being “too big to fail” is that we let them get that big in the first place, and that it is no solution to that problem to go ahead and let them fail no matter the consequences to anybody else or the overall economy?

 Do you understand that the Federal Government itself will be on the hook for hundreds of billions or dollars in pension claims if these companies go into bankruptcy, and that these billions will not be loans, as currently contemplated in the bridge legislation, but outright payments right off Uncle Sam’s bottom line?

Do you not understand that no one but the US Government would possibly contemplate extending  credit during bankruptcy proceedings to the “debtor in possession” of the car companies, and that those credit lines from the taxpayer would have to far exceed the $15 billion in the bridge loan legislation?

Do you not understand that without such a line of Federal credit during a Chapter 11 restructuring, the companies will be forced into Chapter 7 liquidation and then the whole economy  will be at profound risk and we really will see again what a Depression looks like?

Do  not understand that the only consumer who would buy a new car from a bankrupt company would be the same person who would take an appointment to the US Senate today from the current Governor of Illinois?

Is there something about basic reality that you don’t understand; or are you just off in ideological Fantasy Island  — as you were in September when it  looked so easy to let Lehman go down?

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