Wednesday, December 10, 2008
will the auto bailout trigger CDS?
[A]n auto czar would have authority over car companies’ expenditure above $25m. According to the 2003 credit derivatives definitions of the International Swaps and Derivatives Association, the trade body that tries to organise these things, a criteria for a credit event is when the reference entity:
“seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets”
So the key question here is whether the President’s designee would count as an administrator, trustee, custodian, etc (i.e. what’s the legal definition of a czar?). BoA for one, “absent specific language in a bailout plan to the contrary,” is thinking yes.
such concerns might be motive for the decided lack of enthusiasm in credit markets on the bailout compromise that is apparently emerging between the bush white house and congressional democrats.
no worries, though. the same congressional republicans who tried to kill the TARP are threatening this one too.