MUST READ! Chrysler Creditors May Have Bought Credit Default Swaps!

[Joanne98]

Creditors May Have Pushed For Chrysler Bankruptcy To Rake In Bailout Cash
digg Huffpost - Creditors May Have Pushed For Chrysler Bankruptcy To Rake In Bailout Cash stumble reddit del.ico.us ShareThis05/ 5/09 05:13 PM


The White House, auto executives and union representatives were all able to come to an agreement last week to keep Chrysler out of bankruptcy. But the car company's creditors -- Wall Street banks and hedge funds -- refused repeated compromises and drove the company under.

The refusal doomed a major American auto company to bankruptcy, but it may have been a smart business move for the lenders.

Many of the Wall Street firms holding Chrysler bonds may also own credit default swaps that they bought to hedge their bets. These swaps, which are essentially like an insurance policy on the bonds should Chrysler default, were likely mostly issued by AIG.

AIG, thanks to the government bailout, has paid off swaps in the past at 100 cents on the dollar. Under the deal they would have had to accept with Chrysler, the bondholders would have received as little as 30 cents on the dollar, for example.

Why take 30 or 35 cents on the dollar from Chrysler when you can get the whole buck from the American taxpayer?

"The basic story is very simple," says economist Dean Baker of the liberal-leaning Center for Economic and Policy Research. "If they hold credit default swaps on the bonds, they're totally happy with them defaulting."

In what would rank as one of the great scams of this financial crisis, government bailouts may be colliding. Wall Street may be raking in taxpayer dollars through AIG and returning the favor by driving the auto industry into bankruptcy.

Are they? Rep. Elijah Cummings (D-Md.), who has been closely tracking the AIG bailout, wants to find out.

http://www.huffingtonpost.com/2009/05/05/creditors-may-have-pushed_n_196964.html

SWAPS THAT ONLY PAID IF THE COMPANY WENT INTO BANKRUPTCY!!!!!!!

:nuke: :nuke: :nuke: :nuke: :nuke:

ARE YOU READY TO KILL THEM YET?

[madrchsod]

1. a colossal mistake in obama`s economic stimulus plan......

obama better start firing his advisors responsible for this disaster.

[muriel_volestrangler]

2. Wasn't that the whole idea of credit default swaps?

That they'd pay out if the company couldn't pay its debts?

If not, can you explain what you think the swaps were for?

[Dr.Phool]

4. That was the original idea, but like everything else on Wall Street, it was perverted.

You could insure your loan to Chrysler for 10, 50, 1,000 times the amount of the debt. You didn't even have to have any debt. You could just buy swaps, and short the shit out of the stock until the company collapsed. And rake in billions.

[Phoebe Loosinhouse]

7. I fail to see how this is any different than buying a hovel for 10,000

insuring it for 100,000 and then having it mysteriously burn down.

This is financial fraud on multiple levels - the people like AIG who sold unregulated swaps (since they are essentially an insurance product, they should have been regulated as an insurance product) and the people who bought the swaps with the hope/intent that the house would burn down. If they are acting in concert, I don't see why RICO wouldn't be involved.

All CDS swaps sold to outside interests with no invested capital in the underlying entity should be declared null, void and illegal. The people who bought them can sue the people who sold them. In my opinion both sides on that type of transactions are "bad actors".

That would be a beginning, at any rate.

[lumberjack_jeff]

10. Yes, it's arson.

The bank had a financial interest in Chrysler collapse, and were in a position to ensure that it happened.

[Dr.Phool]

11. The difference is more like, your neighbor insuring YOUR house for 10x it's worth.

And you notice him stacking cans of gas in his driveway.

[Papa Boule]

12. Edit: Dr.Phool said it better n/t

[Uncle Joe]

14. This sounds like they should make illegal any institution or individual from owning

Credit Default Swaps and put options in the same industry.

[lumberjack_jeff]

9. The problem is that the banks no longer have any skin in the game.

Foreclosure? Bankruptcy? Bring it on! We get all of our money back, thanks to the taxpayer!

Insurance that no one can afford to pay was a stupid idea from the get-go. I see no compelling reason that taxpayers should enable stupid.

[Grinchie]

13. Tell that the the Katrina victims that are still battling for insurance payouts.

Furthemore, while CDS's make it seem like an investment is "Risk Free", they unfortunately do not apply to only the original debt holders.

Any hedge fund could buy CDS's, whether they held any of the original debt or not.

So, say someone like the Carlysle Group saw some weakness in a company. They come purchase a CDS's, pay a measly premium for a few years and then rake in when the deal failed. This is what makes it a Ponzi scheme of the legal variety.

[Lucky Luciano]

19. It is not a measily little premium if the company is distressed.

GM CDS trades around 80 points up front plus 5% per year. So to insure $10MM of GM CDS, one has to pay $8MM up front and $500K per year for 5 years - which adds up to more than $10MM - which is essentially says that GM is extremely likely to go BK. Similarly for Chrysler.

[Grinchie]

22. When the Money they use to pay the premiums is Monopoly money, it's measly.

Not to mention they were borrowing to pay the premiums as well...

[Lucky Luciano]

23. The people who got paid the premiums can consider it realy money

no matter what. Your post is meh.

[Joanne98]

20. But they tombstoned the talks THEN GOT PAID!

[Dr.Phool]

3. I said that a month ago.

These bastards were holding swaps, and they had a vested financial interest in forcing a bankruptcy.

Swaps should be illegal. Especially for non-interested parties, who have no skin in the game.

[Papa Boule]

5. K&R n/t

[DemReadingDU]

6. Similary, banks don't want to negotiate price on 'foreclosed' houses

Apparently, I read somewhere, that banks get more money from CDS, than by negotiating a price to an interested buyer.

:mad:

[florida08]

8. when Obama gave his speech

on Chrysler a week ago he said:

In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them. I stand with Chrysler's employees and their families and communities.

That pretty much told us what was going on. I had read that these guys were placing put options on the airlines before and after 9/11. Tells what a class act these people are. So helping a car industry? Oh no..that's socialism..we choose capitalism. I hope they choke on it.

[bobthedrummer]

15. That's what CERBERUS does- kick

[Phoebe Loosinhouse]

16. evening kick of outrage. nt

[snot]

17. Too late to rec, but kicking.

[Earth Bound Misfit]

18. Wall St: Factories and manufacturing are out

Toxic paper and garbage loans are in.

Kick.

[Igel]

21. When you resolve the possibility into even

a likelihood, let me know.

Then you'll be on your way to having it be a fact.

I'm not willing to kill anybody based on a mere claim of a possibility that they did something, much less when their actions are still firmly within the realm of due process. But, hey, the Constitution is such a quaint institution.