I know I sound like a gloom and doomer, but there are so many problems with the economy that it is really hard to ignore. On Sunday I pointed out the credit card market and why the problems there will escalate. Today, I want to point out the next potential catastrophe on the horizon.
Chrysler. Chrysler is in negotiations with their lenders to take 15 cents on the dollar for their loans. The banks are not even remotely interested and want the full 100 cents on the dollar via cash and preferred equity in the company. Apparently the banks loaning to Chrysler don't get it.
These banks have no reason to take the Chrysler offer of .15 on the dollar because they have TARP money to replace the lost Chrysler money. It is simple to say no to such an offer. The banks want close to .70 on the dollar in cash and the rest in guarantees of future payments or company equity.
It really makes me sick to my stomach. Chrysler, on May 1, will file for bankruptcy due to the banks not playing the game. The banks will get about .10 on the dollar via bankruptcy so the gap is very small. But the jobs that will be lost are enormous, not to mention pension programs, insurance benefits and the massive increase in unemployment and GDP this will cause. The banks do not care. They will get money from Timmy and Ben no matter what.
If you have not read up on the Chrysler situation, you really need to. They are too big to fail unfortunately but they will and I think they need to. Even so, the way the banks are handling this is very much un-american. Apparently the gov't is good at giving out money to banks so they can pay big bonuses but the gov't is not good at making these same banks help bailout the auto industry.
May 1. Put it on your calendar. It could be the beginning of a very ugly cycle in the economy.