OK, call me a genius, but I think I’ve figured it out. Here’s the situation: there is a small, but nevertheless quite large, car company called Chrysler. Their revenues can’t possibly keep pace with their operating costs and their contractual obligations to retirees and bondholders. They face imminent bankruptcy. This would be costly for many parties, so the government has been trying to find a way to avoid it. The UAW has agreed to substantial concessions, but the bondholders are holding out. Even though Chrysler’s debt is trading at 15 cents on the dollar, the bondholders are demanding 4+ times this. Unless an agreement with them can be hammered out, Chrysler is headed for the junkyard.
So who are these bondholders? Financial institutions primarily, most of whom are recipients of direct or indirect bailout support from the taxpayer. This suggests a solution: give the bondholders all they want, 100% if need be. Then deduct that money from the bailouts in some way that roughly distributes the cost across these same firms, and give it to Chrysler. You want shell games? We can do shell games.
Yes we can.