May 5, 2009

MEGAN MCARDLE: Secondary Markets Are Real Markets.

Plus this: “I recognize that the law is always kind of messy, but as far as I know, this kind of blatant political intervention between debt claims is unprecedented, and worse, it’s a dress rehearsal for doing the same thing at GM. I don’t think this is good for the rule of law, I’m pretty sure it will be bad for capital markets, and I’m nearly positive it’s going to make it hard for any heavily unionized company to get substantial capital for the next decade. And why? It hasn’t exactly enhanced Chrysler’s already dicey chances of survival.”

If I were the Chinese, or other big buyers of Treasury bonds, I’d look at how the Obama Administration is treating corporate bondholders, and wonder why the Obama Administration would treat Treasury bondholders better than it has treated corporate bondholders. And then I’d get out of Treasuries, the way a lot of Chrysler bondholders wish they’d done already with Chrysler bonds. Certainly I wouldn’t want to rely on their belief in the sanctity of contracts, or even their pragmatic understanding of credit markets . . . .

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