Wednesday, April 01, 2009
quick and surgical = probable clusterf*ck
As we will explain below, the notion of a "quick and surgical" bankruptcy for GM, and probably Chrysler too, is a fantasy. GM would be the most complicated bankruptcy ever. It simply isn't amenable to a prepack or a fast track variant. In fact, somme bankruptcy experts think a Chapter 11 restructuring simply isn't possible and a filing would morph in the courthouse into a liqidiation. That in turn would take out many suppliers, and many of the foreign transplants too.
is yves smith's misspelling of "some" a freudian slip? please read her analysis, which is not amenable to excerpt, but to cut to the chase:
It would be better if we were wrong, but this looks like Lehman redux. The powers that be are getting bailout pushback, and aren't willing to take any financial perps out, so by default it's Big Auto. And if they miscalculated, the consequences will be catastrophic. It won't simply be GM and Chrysler, but the parts makers, and the transplants will take hits due to the loss of suppliers. GM and Chrysler are not isolated players, but major components in a large ecosystem. There are no good answeres here, but the Administration does not appear to have thought this out (how many balls does Geithner have in the air, including the G20?). A miscalculation here would have major repercussions. But Andrew Mellon would be pleased.
i further wonder if anyone in the white house has looked at the reference lists for that massive batch of synthetic CDOs of a certain vintage -- or, if they have, understand what it may mean. chrysler, GM and ford are all in there:
"A default by one of the automakers would trigger writedowns and losses in the $1.2 trillion market for collateralized debt obligations that pool derivatives linked to corporate debt… Credit-default swaps on GM and Ford were included in more than 80 percent of CDOs created before they lost their investment-grade debt rankings in 2005, according to data compiled by Standard & Poor's."
this may have been in the pipe for some time, indeed perhaps since before obama got here. but the consequences in terms of deleveraging pressure and demand destruction make this, to my mind, an economic justification to sell any technical weakness in the market over the coming weeks.