The Oil Drum

Banks Delay Sale Of Chrysler Debt As Market Stalls

Wall Street's corporate-debt machine has helped to finance the increasingly exotic takeover deals of the buyout boom and to shore up some of the nation's ailing industries with cheap loans and bonds. Now, that machine is sputtering.

Yesterday, Chrysler Group became a signpost for the high-yield-debt market's strain as bankers for the ailing auto giant postponed a $12 billion sale of debt to investors as part of a buyout severing Chrysler from German parent DaimlerChrysler AG.

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"For all practical purposes the markets are closed right now," said Chad Leat, co-head of Global Credit Markets at Citigroup.

While you've certainly heard of the big drop in the Dow Jones in the past two days, and probably heard that the housing market keeps on getting worse, the most ominous news are actually coming from a distinct part of the financial markets - leveraged debt.

In previous installments of what is becoming a potted series on economics, Stuart looked at interest, and I talked about demurrage, a kind of money tax that is designed to encourage long term thinking.

Some observers, on seeing the idea of negative interest/a money tax, remark that such a currency would have a hard time competing for users if it were to exist in a free market of currencies as it would be less desirable to hold than a currency that became more valuable over time.

Others point out that it's unlikely such a radical change could be brought about short of revolution. In these uncertain times nothing should be discounted but it is probably more profitable to look at less radical alternatives.