Saturday, May 2, 2009


Expect to hear more in the next few weeks that some of the holdouts in Chrysler's bank group were also holding Credit Default Swaps that may make them at least whole on their debt holdings. One side of the argument will be that these vultures precluded Chrysler from doing an out-of-court restructuring so that they could collect on their credit default swaps and make themselves whole or even a profit.

The other side of the argument will be that the Government should have been aware of this in its negotiations and provided a deal that would have made such debtholders' shortfall less than the proposed deal.

Perhaps even more intriguing will be the identities of the issuers of the related credit default swaps. Can you say, AIG? Maybe even Lehman? Certain TARP beneficiaries? If you start to identify where the Government stands in all this, it gets a little crazy.

Let's see, the Government owns a piece of or has significant loans to:

1.Chrysler received billions from the Government before filing for bankruptcy.
2.The PBGC is on the hook for a certain amount of the UAW pensions.
3. Medicare takes a hit if the retiree health benefits are eliminated.
4. Government lent billions to Chrysler's debt arrangers and majority holders, Goldman Sachs, Citibank, Morgan Stanley and JPMorgan Chase.
5. The Government effectively owns AIG which probably stands behind Chrysler credit default swaps.
6. The Government has a program to assist auto suppliers through loans.
7. More involvement that I am sure exists, that I am not aware of.

Maybe if the Government gave the debtholder group more in Chrysler, it would have lost less from AIG covering the credit default exposure to the same lenders? It does make you wonder. Confused yet?

Cheers, Mike

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