How AIG is driving GM into Bankrupcy

[watermock]

How AIG Is Driving GM Into Bankruptcy (AIG, GM)
Joe Weisenthal|Apr. 1, 2009, 3:48 PM|23
PrintTags: Economy, Bailout, GM, AIG


AIG Apr 8 2009, 07:34 PM EDT
1.08 Change % Change
+0.03 +2.86%

GM Apr 8 2009, 07:32 PM EDT
1.93 Change % Change
-0.07 -3.50%
GM (GM) has 58 days to negotiate to convince bondholders to take a major haircut or debt-for-equity swap. But it doesn't sound like it's going to happen.

Why not?

Because the bondholders don't seem interested in taking the ridiculous haircut that would be necessary for GM to be viable.

Why won't they take this haircut? Because many of the same bondholders presumably own credit default swaps on GM debt with AIG. And the US government has already made clear that it will cover those CDS's at 100 cents on the dollar. In other words, if GM goes bankrupt (defaults), the bondholders may be assured of getting all their money back!

Karl Denninger explains:

The government has provided a history now that says that if you are a holder of CDS written by AIG, you will get 100 cents on the dollar, even if the notes don't default. In addition that 100 cents is above what you would normally get even if there IS a default, because normally you have to tender the defaulted bond or the payout is limited by the recovery, and recovery on a defaulted bond is almost never zero.

So in this case the winning play, if you're a big bondholder, is to tell GM to suck eggs; you'll get paid 100 cents on your CDS even though AIG has no money, because the taxpayer will make you whole on those CDS, even if the bonds have a recovery in bankruptcy.

In other words you could conceivably get more than 100 cents if you hold those bonds - so long as you also hold a CDS as a hedge.

It must be nice to be able to screw the taxpayer for more than a 100% payout, right?

The bondholders "committee" is all made up of big players who presumably are hedged, ergo, this has to be assumed to be part of their "thought process" - if not the controlling factor.

Read the whole thing >

BTW, Lou Dobbs(CNN) has formally requested how much AIG has involved in guranteeing these bondholeders and has Bernake will not respond.

[watermock]

GM is likely finished.

April 1 (Bloomberg) -- General Motors Corp.’s 60-day deadline to restructure is unlikely to be extended because the U.S. won’t repay $1 billion in convertible notes maturing June 1, according to a person with knowledge of the discussions.

This is basically the government telling GM that either they get the bondholders to agree to whatever is necessary, or they're dead.

They're dead, and here's why.

Back on Monday I wrote about the Automakers and said this in closing:

And then there's the nearly $1 trillion in CDS that will trigger. There is no accurate way to know what the net exposure is on those, but I'd take the "over" on $100 billion, focused in you-know-where.

Here's the problem - I'm willing to bet that a huge percentage of those were written by AIG.

The government has provided a history now that says that if you are a holder of CDS written by AIG, you will get 100 cents on the dollar, even if the notes don't default. In addition that 100 cents is above what you would normally get even if there IS a default, because normally you have to tender the defaulted bond or the payout is limited by the recovery, and recovery on a defaulted bond is almost never zero.

So in this case the winning play, if you're a big bondholder, is to tell GM to suck eggs; you'll get paid 100 cents on your CDS even though AIG has no money, because the taxpayer will make you whole on those CDS, even if the bonds have a recovery in bankruptcy.

In other words you could conceivably get more than 100 cents if you hold those bonds - so long as you also hold a CDS as a hedge.

It must be nice to be able to screw the taxpayer for more than a 100% payout, right?

The bondholders "committee" is all made up of big players who presumably are hedged, ergo, this has to be assumed to be part of their "thought process" - if not the controlling factor.

Small bondholders on the other hand (who have no hedge, unless they were smart enough to buy lots of PUTs a few months ago) are just going to get plain old-fashioned screwed.

Since the only way GM survives is for it to get the bondholder committee to agree to restructuring it therefore follows that the only way this can happen is if the administration (and Fed!) makes very clear that all funding to AIG has been cut off and therefore no further "pass through" payments will (or can) occur.

That is, The Obama Administration has to bankrupt AIG to save GM, or we will instead see the banks again rip off the American Taxpayer through yet another "passthrough" CDS payout stream AND GM will go bankrupt.

Get ready America - you're about to get it in BOTH holes this time.

This is analysis and deduction based on the available and public facts - I have no proof - but I'll bet this is exactly how this deal will go down, and why.

PS: Every firm in America that has a significant amount of CDS outstanding is potentially subject to this same attack. It's all very nice that our government is permitting banks to rob the citizens like this, isn't it?

http://www.businessinsider.com/aig-is-driving-gm-into-bankruptcy-2009-4

[Garcia Bronco]

GM should go under, and I feel terrible for all the folks that are going to lose their jobs, but they'll be better off in the long run.

[El Guapo]

I'll probably be losing mine because of it. joy.

[TailgateNut]

GM should go under, and I feel terrible for all the folks that are going to lose their jobs, but they'll be better off in the long run.


Ask anyone who loses their job, and they'll tell you, "I'll be better off in the long run".LOL

[Garcia Bronco]

Ask anyone who loses their job, and they'll tell you, "I'll be better off in the long run".LOL

It's all about a postive outlook when you need it most. I've been laid off almost a half dozen times and everytime I ended up better off.

[TailgateNut]

It's all about a postive outlook when you need it most. I've been laid off almost a half dozen times and everytime I ended up better off.


Considering the current employment/ un-employment picture and the present state of the economy, I can't see the positives about losing a job.

Granted there are a few fields/ professions which are not as affected by the economy, but those are few and far between.

[ak1971]

Considering the current employment/ un-employment picture and the present state of the economy, I can't see the positives about losing a job.

Granted there are a few fields/ professions which are not as affected by the economy, but those are few and far between.


I would tend to agree. However, I lost my job in 2007, and it ended up being one of the best things that ever happened to me. In a way better career path now. What's the saying 'cant see the forest for the trees'? definately opened my eyes.

[Garcia Bronco]

Considering the current employment/ un-employment picture and the present state of the economy, I can't see the positives about losing a job.

Granted there are a few fields/ professions which are not as affected by the economy, but those are few and far between.

Well in all fairness my unemployent has happened over the past 8-10 years, but I was laid off twice during the recession in in 01. I had to change careers. Ultimately we are talking about the good for all. This is at least the 3rd time in my life time GM has been needed to be bailed out. They can't compete because they are a dinosaur. They can't move with the times. They are strung up by the own ingrained business practices and unions. They literally run a retirement business with a side business that happens to be a failing auto business. Our auto industry needs new blood and the dinosaur needs to become extinct.

[Bob]

I think the article should ask the broader question of whether AIG, GM, CITI, etc, are going to bankrupt all of us in Congress' effort of rewarding their bad choices, through bailouts?

[Bob]

Well in all fairness my unemployent has happened over the past 8-10 years, but I was laid off twice during the recession in in 01. I had to change careers. Ultimately we are talking about the good for all. This is at least the 3rd time in my life time GM has been needed to be bailed out. They can't compete because they are a dinosaur. They can't move with the times. They are strung up by the own ingrained business practices and unions. They literally run a retirement business with a side business that happens to be a failing auto business. Our auto industry needs new blood and the dinosaur needs to become extinct.


Ding, ding, ding -- we have a winner!

[watermock]

This about the "pass thru" bailout profits going directly to fed banks like J.P. Morgan/Chase from AIG and Bernake refusing to acknowlege it.

[NaptownChief]

I'll probably be losing mine because of it. joy.




Certainly hate to see it and I was pretty sure you had your job on the line when you kept saying "it is a loan and they will pay it back" despite all the financials screamed they were already dead and buried.

[Bronco_Beerslug]

Well in all fairness my unemployent has happened over the past 8-10 years, but I was laid off twice during the recession in in 01. I had to change careers. Ultimately we are talking about the good for all. This is at least the 3rd time in my life time GM has been needed to be bailed out. They can't compete because they are a dinosaur. They can't move with the times. They are strung up by the own ingrained business practices and unions. They literally run a retirement business with a side business that happens to be a failing auto business. Our auto industry needs new blood and the dinosaur needs to become extinct.Ignorant people like you toss human life aside like another piece of trash. Maybe someday you will among the millions of future workers (like former GM workers) who lose their life savings and retirements that they worked for their entire lives because your former company deems "you need to become extinct".