Some GM bond holders are insured and would be better off if GM files for bankruptcy. So credit default swaps may cause GM's bankruptcy filing.
Put it this way: Treasury wants to get about 90% of the bondholders to take the debt-for-equity exchange. So you only need about $2.8 billion worth of debt in the hands of people who also own the swaps and a few others who won't take the deal to hold things up.
There are some $2.7 billion worth of GM credit default swaps swimming around in the market, says Tim Backshall of Credit Derivatives Research.
The Obama Administration would like to screw the bond holders to the extent possible in order to give more GM stock to the UAW for their medical retirement benefits. But in bankruptcy will bond holders or union medical retirements benefits hold more weight in the eyes of a US federal judge? Anyone have a good understanding of that one?
|Share |||By Randall Parker at 2009 April 25 09:45 AM Economics Credit|