"Credit Crisis II" feared if U.S. automakers fail

Source: Reuters

Wed Dec 10, 2008 10:01am EST

WASHINGTON (Reuters) - Dire warnings of lost jobs and fading U.S. industrial might are driving the Detroit bailout bandwagon, but there's a little-noticed passenger quaking in the backseat -- the credit markets.

A bankruptcy or failure of General Motors Corp, Ford Motor Co or Chrysler LLC would threaten billions of dollars of financial instruments, with untold consequences, say credit market analysts and some pro-bailout lawmakers.

"A collapsed U.S. auto industry would lead to defaults on over $1 trillion in corporate bonds, credit default swaps and other financial instruments," Michigan Democratic Sen. Carl Levin said in a statement provided to Reuters.

"Major additional damage to U.S. financial institution balance sheets would result, and another grenade would be tossed into our credit markets," Levin said.

The threat is so serious that "Credit Crisis Part II" looms if the government doesn't come to the aid of GM and Ford, said J.P. Morgan analyst Eric Selle, author of a research report that pro-bailout Democrats like Levin are citing.

Some Republicans remain skeptical and continue to oppose a bailout, even as the White House and Democratic negotiators are trying to hammer out a loan plan valued at about $15 billion.



Read more: http://www.reuters.com/article/newsOne/idUKTRE4B940420081210

Nobody buys a long term asset from a company they don't think will be around to live up to its warranty obligations or provide them with replacement parts.

Chapter 11 only works if there is a bridge loan, or operating funds, while reorganization is underway. Under the current circumstances, opponents in Congress want to deny the bridge loan money. Without funding, Chapter 11 becomes Chapter 7 overnight.

Chapter 7 bankruptcy is the equivalent to death. That is total liquidation of all assets. The companies would cease to exist.

is that the new term for the upcoming Depression II?

Depression 2.0

They just turned Bethlehem Steel's old plant into a Casino...isn't that great.

The company that built America's main plant is now a slot parlor.