DIP Loans and the SIFI Problem

Word on the street is that the company formerly known as TXU – now known as Energy Future Holdings – is lining up the biggest private DIP loan ever. About $9 billion.

Still substantially less than the $33 billion that GM needed, and that is still much, much less than a global SIFI might need upon failure. A few years ago I suggested that number might be as high as $300 billion.

So why do we continue to pretend that private DIP lending can work in SIFI resolution? Do we really think the DIP loan market will provide more lending than usual during times of financial stress?