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Non-Tech : Derivatives: Darth Vader's Revenge
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To: Worswick who wrote (1324)4/22/2009 7:32:40 AM
From: axial1 Recommendation  Read Replies (3) of 2794
 
The old joke about life insurance is that we're worth more dead than alive... what happens when that applies to companies employing hundreds of people?

The Rise of the 'Empty Creditor'

They'd rather drive good companies into bankruptcy than save them. Why?

"...But if a lender or creditor believes it can profit more from a complete failure—i.e., if it has an insurance policy that pays off only in the event of utter devastation—that creditor might be more inclined to push a company toward bankruptcy. And thanks to the financial innovations of recent years—the rampant use of hedging and credit-default swaps, the ability of investors to purchase insurance on debt—that's exactly what seems to be happening. Creditors are acting to protect their economic self-interest by encouraging companies to destroy themselves...

... You can't blame empty creditors for wanting to see companies in which they hold debt go bankrupt. They had the foresight to purchase insurance on their investments. But for all the other people tethered to troubled companies—managers, employees, suppliers, and customers—the presence of empty creditors may make the process of restructuring debt more lengthy and expensive."

More: newsweek.com

Jim
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