Gravedigger

What if Chrysler Holdouts Overhedged with CDS?

They just paid too much and don't want the loss. Their position is not lost yet. The issue whether this deal can be implemented through a Section 363 sale is not a "no-brainer". Until the order is entered authorizing the sale, they can bargain to extract a douceur in return for withdrawing their objection. Pricing of the douceur depends on whether some other similarly situated party files a timely objection, thus diluting the play.

Loan Modifications Don't Work: Here's a Better Idea

The argument that the various schemes represent a transfer of economic wealth from lender to homeowner is fundamentally wrong. The proposition which you draw from that misapprehension is likewise incorrect. Both parties have lost the "wealth" already; it's gone. If the lender forecloses in the present climate, it can only recover by selling the property again. It will not recover more than the market value. Unfortunately, the market value has been trashed by the rush to foreclosure by all of the lenders, and is not likely to recover in the near term. Failed restructurings are evidence that neither the borrower nor the lender recognize, or are willing to recognize, the full extent of the reduction in market value. The phenomenon has nothing to do with moral hazard, but rather with the lingering fantasies of both parties. Since neither is likely to give up their fantasies in a reasonable timeframe, what is the harm of getting some cash flow from 54% and full cash flow from 46% until the lenders wake up and begin lending to qualified buyers? And in the meantime, families have a roof over their heads, which is sound public policy.