The Washington Post devoted the bulk of its front page article on the GM bankruptcy to the pressing question of whether the bondholders are being treated fairly. At one point It noted that Obama had dismissed Chrylser's bondholders as "speculators." There was a good reason for Obama to describe the bondholders, or at least those refusing to accept the government's proposed conditions, with this term: they were speculators. These bondholders had not been holding the debt for years only to find their company going bankrupt. In most cases they had bought the debt for 30 cents on the dollar (the going market rate), with the expectation that they could push the Obama administration for a better deal. In short, these were not long-term lenders but speculators who hoped to make a quick buck. (if you buy debt at 30 cents on the dollar and can push to get 33 cents, this is a 10 percent return on an asset that may have only been held for a few months. That is real money.) This article does make the obvious points as to why the bondholders are not being treated unfairly -- they would get no more money in liquidation and the government, as the last investor, gets to decide how the various claim holders get treated -- but readers are likely to get the impression that the bondholders' claim of unfair treatment is more serious than it is. Just because a powerful interest group can stage an expensive lobbying claim does not mean that its argument should be treated as credible by a serious newspaper.
--Dean Baker