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GM Bankruptcy = Another Financial Panic?



April 21, 2009 – Comments (4) | RELATED TICKERS: GM

According to a newswire story, Chrysler bondholders (some of which are well known mutual funds) are only offering half of what Uncle Sam wants in debt for equity exchange. The writer theorizes that they are being so intransigent because they might have already bought default swaps.

The alarms and red lights went off in my head. Wasn’t this how we got into trouble in the first place? LEH went bankrupt, triggered massive CDS payouts, and the credit markets froze (and are still mostly frozen). Won’t a GM bankruptcy have a similar effect? I know they are saying a pre-packaged, quickie chapter 11, but I dunno: how will the credit markets react? And who sold said hypothetical CDS? AIG again? Could Uncle Sam be on the hook for $10B’s for CDS payouts?

Just wondering.

4 Comments – Post Your Own

#1) On April 21, 2009 at 9:36 PM, Ecomike (< 20) wrote:

You can be sure, either way many wil lose.

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#2) On April 21, 2009 at 9:45 PM, checklist34 (98.71) wrote:

now thats a good question, and ...  a reason to believe that GM won't see chapter 11???

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#3) On April 21, 2009 at 11:02 PM, Sickdaze (< 20) wrote:

This is a fantastic post!

 I would like to know how much of this is rumor/spec but it does seem plausible...


Was there ever any talk or push for legislation to suspend CDS's following Lehman...?

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#4) On April 22, 2009 at 9:06 AM, Xciteddon (66.69) wrote:

Bankruptcy may not be a bad thing. There are many types. It depends on what they choose to do. Bankruptcy can hold off their creditor, the unions, the bondholders, freeze assets, and allow the company with qualified assistance from the court to reorganize and begin to pay down their debts and become solvent again. This could take years, probably will.
It took them that long to get there, It will take a lot to bring them back. But it will be better than us the taxpayer throwing good money after bad, and keeping the rich richer. Let them take the losses! Thats what bankruptcy if for. Not for the Federal Government! They don't know what they're doing. Let the Bankruptcy court, who specializes in this type of thing, do their job..


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