WHY GOD GAVE US THE NUCLEAR OPTION:

Is Chrysler's bankruptcy cloud becoming GM's silver lining?: Now that Chrysler is in bankruptcy, bondholders at GM may see that threat as real, and be willing to negotiate a deal as the firm tries to reduce obligations to the union and creditors. (Ken Bensinger, May 4, 2009, LA Times)

GM Chief Executive Fritz Henderson said in an interview Monday that he expected a deal with the union, but he admitted that the bondholders posed a bigger hurdle.

Negotiations with those creditors have gotten nowhere, and until late last week, signs pointed to the possibility that GM would have no choice but to appear before a judge to wipe away its $27 billion in debt.

Then Chrysler went into bankruptcy.

By pushing the smaller automaker into Chapter 11, restructuring experts argue, the Obama administration sent a strong message to bondholders that the nuclear option is indeed on the table.

Since the GM bonds those groups hold are unsecured by collateral -- unlike in the case of the owners of secured Chrysler debt, who could recover money through asset sales -- they stand to lose nearly the entire value of their investment if forced to go to court.

"I now believe it is more probable that a GM filing can be avoided," said Van Conway, of restructuring firm Conway, MacKenzie and Dunleavy in Birmingham, Mich. "There was a feeling by some that the government was bluffing on bankruptcy. But now it's clearly real."

If only the UR would learn the lesson he's just taught, that using your nukes on one party makes the others play by your rules. Nuke North Korea's facilities and everyone else will fall in line.

Posted by Orrin Judd at May 5, 2009 8:01 AM