Obama Denies Funding to Automakers; What Happens to $1T in CDS?

[girl gone mad]

http://globaleconomicanalysis.blogspot.com/2009/03/obama-denies-funding-to-automakers-what.html

In news I did not expect to see this month, Obama denies bailout funds for automakers:

[Mish Note: In the 15 minutes or so it took me to write this, the link title above was changed from "Obama denies bailout funds for automakers" to "Obama conditions bailout funds for automakers". A new sub-headline was added as follows. "White House: GM, Chrysler fail to submit restructuring plan that will get them more money." As best as I can tell, the body of the article was not changed.]

The White House says neither GM nor Chrysler submitted acceptable plans to receive more bailout money, setting the stage for a crisis in Detroit and putting in motion what could be the final two months of two American auto giants.

President Barack Obama and his top advisers have determined that neither company is viable and that taxpayers will not spend untold billions more to keep the pair of automakers open forever. In a last-ditch effort, the administration gave each company a brief deadline to try one last time to convince Washington it is worth saving, said senior administration officials who spoke on the condition of anonymity to more bluntly discuss the decision.

Obama was set to make the announcement at 11 a.m. Monday in the White House's foyer.

Credit Event Triggered

One last point: This will be a "credit event" triggering payouts on credit default swap bets.

I have reported before that GM has a $trillion or so in credit default swaps written on it (but my information on this is well over a year old). If banks stocks rally tomorrow (or even if they simply do not collapse), you will know that banks are fully hedged or on the right side of those swaps.

However, given the swaps dwarf GM bonds, it is virtually guaranteed that someone is on the wrong side of them.

[BlooInBloo]

1. Funny how it's not titled "Automakers refuse to make adequate plans", eh?

:rofl:

[girl gone mad]

3. You should go bug Mish about it.

He has been pushing for bankruptcy since the crisis started. Funny how you agree with him on this one, but when it comes to the banks, the government can't pour enough money into these failed institutions that produce nothing but complicated securities and bad loans. You're on the opposite end of the spectrum on that one.

[JDPriestly]

2. All credit default swaps should be declared null, void and unenforceable.

Shareholders get the proceeds from the sale.

Allowing the auto companies to go belly-up will destroy the American economy. The ripple effect will be devastating. This cannot be allowed to happen. Think of all the small companies that supply the auto companies. For example, the auto companies and their many, many suppliers and auto parts shops buy health insurance for their employees and retirees. What kind of effect will it have on the health insurers if they lose the auto company business?

The up-side is that, if the health insurance companies go belly-up in the aftermath of the loss of the auto industry customers, we may get single-payer faster than we ever thought possible.

Seriously, the repercussions of this failure on the parts of the management of the auto industry to find viable solutions for their companies and industry could be the death knell for the American economy. Hard times are comin', real hard times.

And Obama is going to find himself on the down-side. He needs to take a much stronger hand with Wall Street, the banks and the auto companies.

[FlyingTiger]

4. One problem with that.

The "ripple effects" we're supposedly avoiding by propping up the Big Three are http://www.meltingpotproject.com/mpp/2009/03/well-also-be-bailing-out-valets.html">already happening anyway.

[zeemike]

7. I know how crazy this sounds but

perhaps what we need is a Jubilee.
where all debt is forgiven. Put everyone and every thing back to 0 and start again.

[westerebus]

8. Not crazy, smart and very pratical. n/t

[rcrush]

5. The chicken landed on 'no bailout'

south park joke lol

[girl gone mad]

6. :)

:rofl: