Tuesday, March 31, 2009
Most interesting thing I've read on the auto bailout today: Why is it so difficult to get GM's bondholders to take a "haircut"? Tom Maguire explains . It turns out there is a big potential free rider problem: If you hold out, while all the other bondholders settle, you can win big. And it has been done. Recently. To Obama. Hence, the disinclination of GM bondholders to cave, pre-bankruptcy. .... Obama would have to put on a huge show of coldbloodedness and credibly threaten bankruptcy in order to now have a chance at intimidating bond holdouts. And, gee, that's just what we've seen. ... P.S.: Maybe everyone already knows this. I didn't. ... P.P.S.: Extracting concessions from unions, in contrast, is relatively straightforward: Once the union agrees to a giveback, the concession binds all of its members. Individual workers can't hold out for their old deal. (This isn't to say that extracting concessions where there is no union--make that imposing concessions--isn't easier still.) .... 5:45 P.M.