Why Chrysler’s bondholders refused to concede
The Huffington Post offers an opinion as to why Chrysler’s bondholders refused to accept the concessions which could have avoided its bankruptcy:
Many of the Wall Street firms holding Chrysler bonds may also own credit default swaps that they bought to hedge their bets. These swaps, which are essentially like an insurance policy on the bonds should Chrysler default, were likely mostly issued by AIG.
AIG, thanks to the government bailout, has paid off swaps in the past at 100 cents on the dollar. Under the deal they would have had to accept with Chrysler, the bondholders would have received as little as 30 cents on the dollar, for example.
Why take 30 or 35 cents on the dollar from Chrysler when you can get the whole buck from the American taxpayer?
“The basic story is very simple,” says economist Dean Baker of the liberal-leaning Center for Economic and Policy Research. “If they hold credit default swaps on the bonds, they’re totally happy with them defaulting.”
Well done to the Obama administration. It appears I was mistaken earlier. It isn’t the greed of Wall Street hedge funds and investment firms which are to blame for this. It’s the lemon socialist approach of Geithner, Bernanke, Summers and whomever refused to let AIG or any of its credit default swap deals die which precipitated the collapse of Chrysler.
After all, even if in the event that Chrysler files for bankruptcy, I as a Chrysler debt-holder would happily allow it to fail so long as I can get back my original investment from AIG, even if it was 100% financed by the American taxpayer. As noted earlier, AIG was a net seller of credit default swaps.