ECN 211 Assignment 5

ECN 211 Assignment 5 - bankrupt wont hurt them at all. In...

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Wayne Kocher ECN 211 – McHenry 5-9-09 Blackboard Assignment #5 Daniel Gross’s article “The Scary Rise of the “Empty Creditor”” discusses different companies with debt and how the company they owe money to isn’t really worried whether they get paid back or not. I believe the concept of rational self interest plays an integral role in the actions of the creditors. The article first discusses the situation between AIG and Goldman Sachs. When the government gave AIG billions of dollars, a substantial portion of it went to Goldman to settle credit-default and securities-lending obligations. Since AIG gave them the money, it pushes them closer to filing Chapter 11 bankruptcy. The reason that Goldman forced them to pay back some of the debt is because they have an insurance policy on the loan, therefore AIG going
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Unformatted text preview: bankrupt wont hurt them at all. In fact, the company is better off if they do go bankrupt. Simply put, Goldman could care less if AIG survives or not, they are simply rationally acting on their own self-interest. The other situation Daniel describes is the financial state of Six Flags. In this situation, the bondholder would rather Six Flags go bankrupt than settle out of court for reasons possibly being greater financial gain. This instance also centers around rational self-interest. The bondholder is acting rationally based on its best interests. In either situation, the outcome is unfortunate. These so called empty creditors are affecting the balance of the system. I guess in the end, no matter what side of the coin you are on, going bankrupt is the best option....
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