Major banks made whole in GM bankruptcy

Major lenders to General Motors (GM) will not lose any money as a result of the automakers’ bankruptcy, according to several media accounts. Senior secured lenders — all major Wall Street banks and finance houses — will be made whole, realizing the full $6 billion they are collectively owed.

In sharp contrast, the estimated $35 billion GM owes its current and future retired workers in the form of pension and healthcare obligations will be subject to ruthless cuts, overseen in large measure by United Auto Workers (UAW) executives.

Because the banks will recover “about 100 percent of their investment,” the New York Times notes, additional protection purchased on their loans through the credit-default swap market will only have to “cover administrative costs and the like.” In other words, the major banks, including J.P. Morgan Chase & Co., Citigroup Inc. and Credit Suisse, will lose not a penny on their failed investments...

Even many so-called “subordinated lenders,” mostly bondholders, will be covered in full. Though they will receive only 12.5 cents per investment dollar through bankruptcy proceedings, debt insurance paid out through credit-default swap contracts will in many cases cover the rest. Bondholders will take over about 10 percent of “the new G.M.” and control another 15 percent in stock warrants.

A third category of investors—those who bought into GM when its demise was imminent—stand to reap “one of the greatest payoffs in the history of long-short investing,” Citigroup Inc. analysts write.

These groups bought into GM’s secured loans and at the same time acquired derivatives tied to the company’s unsecured debt that would pay out when the company defaulted. They were essentially gambling that the Obama administration would make whole the secured loans, which are dominated by the top Wall Street finance houses...

“G.M. bonds have been changing hands rapidly” among a number of hedge funds, Times business columnist Andrew Sorkin noted in May,”suggesting that some hedge funds have been plowing into them, gambling that these investments soon will be worth even more.”

http://www.wsws.org/articles/2009/jun2009/auto-j17.shtml

that the bankers win again while the working stiffs get the shaft? Why does that not surprise me

That you either get paid in full or receive the title of whatever collateral is securing it?

Yes, it would mean the senior secured lenders would seize the assets (the actual factories and real estate, which they already possess the titles to -- ie that's why they are "secured") and force a dissolution of the corporation, putting the company permanently out of business and the workers out of work.

Of course, I suppose theoretically, a bankruptcy court could ignore the Bankruptcy Code, but I doubt it would survive on appeal.

As to an insolvent company, the value of the "secured claim", which is equal to the present value of the collateral (as opposed to the face value of the note/bond etc.) is frequently considerably less than 100% of the amount of the debt.

nt

If it was secured with Company Stock than it would be junk. But if realestate/capital equipment was used that could be a high percentage.

While protecting Wall Street.

People applauding the Obama admin for forcing GM and Chrysler into bankruptcy while protecting his precious banksters do not get it.

I wonder what other new marvels await us in this brave new world of postpartisan pragmatism.

One has to wonder at an Obama re-election strategy that does not require Michigan for victory. Expect a great deal more pandering to Montana, South Dakota, Iowa, etc. ad nauseum...

"So what are you gonna do? Vote for the Republicans?"

and they'll loot the treasury on behalf of the rich. So don't you DARE vote Republican.

Never let it be said that our ruling class isn't clever.

Right now, polls show MI is still supportive of Obama. But in six months when our unemployment is at 20% because of the bankruptcies, it may change. While I'm disappointed in the treatment of the auto industry compared to Wall Street, I'm not ready to turn my back on Obama. I can't see myself voting for the Republican candidate in 2012. Sadly, MI isn't absolutely necessary for Obama anymore and people can go back to ignoring us. Obama could lose Michigan, Indiana, and Ohio and still win.