Comments on: Protecting GM from Credit Default Swap Holders

By: deadissue34

deadissue34 — Fri, 15 May 2009 05:16:49 +0000

GM doesn’t owe anything to buyers of CDS protection…only the counterparty that sold the protection. So how can anyone protect GM from either party in a CDS contract? The buyers of protection, whether they are “naked” or not, still paid a quarterly premium to a counterparty…they entered into a contract. AIG blew up because it was that counterparty that sold CDS protection, and when the buyers of those contracts were in line for a payout from AIG, the company didn’t have enough capital to make good on their end.

Government manipulation of the markets have saved sellers of Bear Stearns CDS protection from having to pay up, but not those who sold protection on Lehman Bros.

IF the government orchestrates an end to GM that doesn’t trigger the default requirement on those contracts, it will just be a repeat of what happened w/ Bear…however it goes down, with our without the contracts paying out, it doesn’t matter in the grand scheme.

The economic decay and subsequent need to hawk US brand names and assets to foreigners…the loss of jobs and the loss of another piece of our manufacturing sector…that is the historically significant outcome here.

Shotgun blasts and waged fingers in the direction of something abstract and off to the side…like two parties betting on whether GM will default…is a genuine torch and pitchfork mob mentality. CDS swaps seem ripe for burning at the stake, or waterboarding perhaps…but in my opinion, if Gore had been chosen by the Supreme Court to be President instead of Bush, the final few years of stupidity that reigned supreme in the US auto industry may have been marked by a strategic change instead…

By: sunshine

sunshine — Fri, 15 May 2009 04:51:26 +0000

Is it possible that Fidelity Inv., the co. that holds and sends the auto workers retirement checks, retirement funds, and insurance, one of these bond holders? They deal with stocks. And I could certainly see why they would want to keep that quiet. I do not know and it has bothered me through the Crysler negotiations. Has any one checked this out? That would be just too creepy and morally wrong that holders of the auto workers retirement checks and retirement 401k’s were bargaining against them (and against GM) while holding their retirement money and retirement 401k’s.

Fidelity made those who held GM stock sell it last month. They also tried to get some to sell it last summer. Who the heck bought all those shares that Fid. had GM workers/retirees (and GM executives)sell at those low prices? Who bought them and why? 154 Million shares were sold April 27, 100 million May 12, 99 million May 13.

By: Synoia

Synoia — Thu, 14 May 2009 22:50:03 +0000

“Beats me” sounds like code for “Fuck You”.

I’d cite him for contempt on the spot.

By: ferrarimanf355

ferrarimanf355 — Thu, 14 May 2009 22:37:00 +0000

GM is going to go bankrupt by June 1. Even the CEO is all but conceding defeat.

Ford will be the last one standing…

By: masaccio

masaccio — Thu, 14 May 2009 21:45:22 +0000

The interesting thing about the naked CDSs is that they don’t affect the bankruptcy directly. The thing that matters is that bondholders who hold CDSs don’t need to cut a deal with the government for less than 100%, because if GM files bankruptcy, the CDS will pay them in full.

Holders of naked CDSs are at risk, because right now GM CDSs are really valuable, in the sense that there are prices quoted, but no guarantee that you could find a buyer. But, if a deal gets cut and no bankruptcy happens, they may find themselves with worthless promises. Generally, bankruptcy triggers the payment obligation. Without a bankruptcy, it isn’t clear that the CDS writer will have to pay. It depends on whether there is another trigger event besides bankruptcy.

If there is a bankruptcy, or some other trigger event, the protection writer of the GM CDSs will become a bondholder. That will happen because the holder of protection will most likely have to tender bonds in exchange for the payoff under the CDS. They will be able to participate in the bankruptcy, but they will just be part of the creditor group.

By: Watt4Bob

Watt4Bob — Thu, 14 May 2009 21:00:55 +0000

Does our whole rotten situation end up being a desperate fight over who’s going to get paid for their naked CDSs’ before they’re finally all declared null and void?

If that’s the case, why not declare it so and be done with it.

By: masaccio

masaccio — Thu, 14 May 2009 20:52:15 +0000

I think it means these arrogant slugs don’t think they have to say anything about their boyz club.

By: bobpine

bobpine — Thu, 14 May 2009 20:40:16 +0000

All these job losses,foreclosures etc.And the politicians are just watching it all go up in flames.TRAGIC,to say the least.

By: Hugh

Hugh — Thu, 14 May 2009 20:35:04 +0000

Even if Liddy really were only being paid a dollar, he is still being vastly overpaid.

By: Hugh

Hugh — Thu, 14 May 2009 20:32:11 +0000

Buyers of naked CDSs who then bought bonds should get either what they paid for the bonds or what the bonds are currently worth on the market whichever is less.

This is a point that needs to be made often. In a bankruptcy proceeding the judge is going to ask bondholders if they have a credible alternative to the government’s plan. They don’t know how to run an auto company and they won’t put more skin in the game so really the answer to this is no.

And seriously getting anything out of a government deal, even 10-15% is better than what they could do in a liquidation. You know anyone other than the government in the market for an auto plant that makes cars that can’t be sold?

There are Keynesian reasons for why the government should save the auto industry but as for bondholders, all they did was make a bad investment decision, one that they should not be rewarded for.