GM Bankruptcy = Another Financial Panic?
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?