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No one likes a bankruptcy -- unless you have a massive insurance policy that will pay you more than debts owed. It's akin to taking out an insurance policy on your house that will pay you back three times what its worth. But that's the contention of Rolfe Winkler, a blogger and CFA who publishes the often astute OptionArmageddon site. Winkler contends that, even though the big banks that were the primary creditors of Chrysler had signed off, the smaller guys likely had Credit Default Swaps betting against Chrysler.These swaps would likely only pay out if Chrysler went down. These are the same Credit Default Swaps that decimated insurance giant AIG after a rogue office in London wrote hundreds of billions of ill-advised CDS to the likes of Goldman Sachs and UBS, among others. If this is true, then it's entirely possible that other bond holders with General Motors might be more interested in tipping the biggest carmaker into bankruptcy, as well. The administration's hands might be tied.
Alex Salkever is the Director of Research at Piqqem.com, a stock community powered by crowd wisdom.
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Reader Comments (Page 1 of 1)
4-30-2009 @ 6:58PM
Bill Smith said...
Why does it have to be so complex?
Some secured creditors thought they could do better than 33 cents on the dollar.
And the CDS will have paid out most of what buyers of protection were going to get already as they are marked to market - every day.
5-01-2009 @ 6:33AM
Danny L. McDaniel said...
The only thing Chrysler is doing is shedding bon-a-fide investors to make room for UAW benefits. This is crazy. Chrysler still hasn't taken care of the "legacy cost." It is a sad day in America when a union can asset strip the company that feeds it. Sort of like reading the book "Animal Farm."
4-30-2009 @ 9:52PM
BBBAAAHHH!!! said...
Wall street is still A$$ raping the Country and the goverment is just letting them do it. The wall street guys are marching to NWO Drum and the american people will be the losers, We will end up Enslaved by our creditors as they pick the country clean and then leave the corpse to rot.
5-01-2009 @ 7:17AM
TX CHL Instructor said...
Chrysler's biggest problem is the same as GM's: Bloated union overhead.
Any "solution" that does not get rid of that problem just delays the inevitable. And apparently that delay is going to cost the taxpayer a LOT.
--
www.chl-tx.com -- Thanks, BHO, for the fantastic boost you have given my business!
5-01-2009 @ 8:35PM
BWare said...
Here's an intriguing subplot in this Govt v. Auto Bondholders game...
I would really like to believe that the govt did its due diligence and examined all conceivable possibilities before dragging Chrysler into bankruptcy court, but what if AIG wrote the CDS trades to the belligerent hedge funds and other bondhold(out)ers?
If that's true, then the govt may stand to pay out more in CDS claims than if they just caved in to the holdouts' demands. More importantly, such a scenario would almost certainly cause Ed Liddy's and Tim Geithner's heads to roll.
I'm sure the good bondholders over at GM can't wait to see what comes of this potential circus...