Cogressman cannot resist meddling in the TARP program

[Viking Prince]

Bold shows why government has botched the whole bailout plan of the banks and auto makers. For every dollar of help it is going to cost these zombies more than a dollar before this is finished.

Chrysler has estimated that if it liquidates, the recovery for the senior secured lenders would be between 11 cents and 43 cents on the dollar, according to the viability plan it submitted to the government in February.
With Chrysler bank debt trading at around 12 cents on the dollar, the government view has been, "why offer more than 15 cents?" said a person involved in the talks.

But some of the senior secured lenders think that is a low-ball estimate and say recoveries could reach 70 cents on the dollar in liquidation, said another person familiar with the talks.

Chrysler said in its February plan that the company had identified $1 billion worth of noncore assets that could be sold and had sold $700 million of those assets, such as the Chrysler Pacifica Design Center.

In addition, the lenders say there is value in the Jeep brand. Aside from the vehicle sales, the brand generates $500 million a year in royalty revenue for sales of everything from bicycles to strollers.

It is the value of Chrysler in liquidation that prompted many of the secured lenders to buy the company's debt. Those lenders are distressed-asset buyers and hedge funds that haven't received federal assistance.

But the largest portion of the company's debt is held by banks that have received federal assistance, such as J.P. Morgan, Citigroup, Goldman and Morgan Stanley. Michigan Gov. Jennifer Granholm and one of the state's congressmen have suggested that lenders that have received funds under the Troubled Asset Relief Program should have to write off their debt to ensure the future of Chrysler.

http://online.wsj.com/article/SB123932022474406925.html

[BNS]

Well that is the moral hazard one gets into when you are trying to prop up zombies left and right. This only impedes reinvestment and a better use of those resources. The waste that can come out of this only shows the shortsightedness of politicians and central planners on manners of the economy. I was amazed however that Chrysler was left to go bankrupt, if only somewhat now.