WASHINGTON—Rep. Elijah Cummings, D-Md., has asked the special inspector general for the government's Troubled Asset Relief Program to investigate whether American International Group Inc. issued credit default swaps on the debt of U.S. car companies.
In a letter sent Tuesday to Neil M. Barofsky, the TARP's special inspector general, Rep. Cummings noted that some of Chrysler L.L.C.'s creditors voted against the latest deal to rescue Chrysler L.L.C., thus forcing the automobile maker to seek bankruptcy protection while it attempted to work out a deal with Italy's Fiat S.p.A.
Rep. Cummings, who has been a critic of the federal government's financial assistance to AIG, asked Mr. Barofsky what role—if any—AIG-issued credit default swaps played in Chrysler's and General Motors Corp.'s debt securities.
"As an issuer of credit default swaps, it is plausible that AIG had issued swaps on the debt of the American auto companies," wrote Rep. Cummings. "We know that the collateral calls and threat of payouts triggered by an AIG bankruptcy forced the federal government to commit up to $182.5 billion to the insurance giant. We also know that many holders of AIG credit default swaps were apparently compensated at 100% of par value in order to retire the swaps they held and enable the purchase of the underlying securities (the counterparty payments). Finally, the recipients of the counterparty payments in some cases were the same firms that held auto industry debt."
Citing a Wall Street Journal story, Rep. Cummings added that "bank-debt holders, many of them hedge funds or distressed debt funds, voted against the latest deal for various reasons, ranging from financial interests to philosophical ones. Some said their funds had bigger positions in Ford Motor Co. or General Motors Corp. and could benefit by a Chrysler bankruptcy and the production capacity that may eliminate. Some funds may also have credit-default swaps on Chrysler bank debt that pay out in the event of a bankruptcy.
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http://www.businessinsurance.com/cgi-bin/news.pl?post_date=2009-05-06&id=16128Some of the debt holders bought CDS's that ONLY PAID if the company filed for bankruptcy.
BASTARDS!!!!!!