Thursday, October 24, 2002
Once again, Brad DeLong addresses the telecom problem, this time specifically regarding WorldCom. Again, the economics of the situation are clear, but WorldCom appears to have been seriously fraudulent. Without the fraud, it would never have achieved the market position it did, because no one would have lent them the money to build out their network.
Now, if allowed to come out of bankruptcy debt-free, or nearly so, it will certainly bankrupt Sprint (probably doomed anyway) ATT, and possibly the Baby Bells. Is this really a desirable outcome? Is it fair? What will the impact be on future investment in this sector?
On the other hand, the bondholders would probably be better off with the company as a going concern than
if the parts are sold off, and there is no reason to punish the bondholders. Except that they invested in what appears to have been a criminal enterprise. They didn't know that at the time, but neither did the shareholders.