Professor Elam

While we are used to such pleas by the ‘homeless’ this is the first we have seen this sort of plea from GM and Ford.  On the front page of the Wednesday Nov 15, 2006 WSJ, Ford and GM are having to actually pledge their plants and equipment to secure loans.  This is a HUGE departure for firms that have routinely been able to sell commercial paper without any backing in the market.  Now the lenders are demanding first mortgage rights.  But that is what J P Morgan and Credit Suisse are demanding in return for lower interest rate loans. 

IN intermed accounting I we just studied the entries for pledging accounts receivable to obtain financing. Here the companies are not pledging short term assets but their apparently the most valuable thing left, land, plant and equipment.  Question, okay, suppose they default and J P Morgan and Credit Suisse have to foreclose and they end up as landlords, then what?  I suspect this would be the ultimate example of the dog catching the car it chases.  That would make for Strange bedfellows indeed.