Economic Math Vs. Obama's Speech

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Think of all the small business people whose credit is being destroyed right now? How likely is it that they will get credit for new businesses any time soon?

Also, the cramdown is going to change the fabric of lending forever if it happens. The only reason a bank extends terms on a 30 year mortgage is predicated on the belief that the rules of the game will not change dramatically over that time horizon.

The cramdown is a bullet fired once that cannot be put back in the gun. Forever forward banks will treat bankruptcy laws as a moving target. That is a new risk worth a risk premium on any capital loan, even those that are technically not dischargeable debts.

Read the full article at: U.S. News and World Report

Date published: Feb 25, 2009

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