To qualify for additional bailout billions on March 17, Congress dictated that GM must clear two main hurdles: reduce its public debt by two-thirds (via debt-for-equity swaps), convince the United Auto Workers (UAW) to accept half of contributions to a retiree healthcare trust in the form of GM stock, and lower union workers’ wages to parity with foreign automakers. OK, three. Three main hurdles. Oh, and eliminate the union jobs bank. So, four. Four hurdles. Within two hours of the Bush’s bailout bonanza, the UAW considered the conditions and said uh, no. And now GM’s third largest bondholders have left the investor committee considering the mandatory d-for-e swap, claiming “We’re just not good committee members.” Not so funny now, eh Mr. Bond holder? More specifically, Bill Gross of Pacific Investment Management Co. (a.k.a. Pimco) has just administered the official kiss of death to GM’s shot at meeting Congressional loan conditions. Either the pols will change the rules (the “we’re sorry we were so mean” scenario), or this is it: the remaining money will be used for GM’s post Chapter 11 debtor-in-possession financing.
This development comes as no surprise. Pimco, the world’s largest bond fund (still) revealed their strategy when they played chicken with the Fed and the Treasury Department over GMAC. In that case, the fund refused to take a haircut on its stake in the lender, betting that Uncle Sam wouldn’t let GMAC go belly-up.
In this they were proved right. In fact, Pimco made out better than the companies who believed the Treasury Department’s promise to let GMAC file if they couldn’t meet existing conditions to become a bank.As Bloomberg reports, “The value of the firm’s holdings soared as much as 83 percent, to 80.5 cents on the dollar.”
So why not play the same cards here? Is GM too big too fail; will its failure to satisfy Congress’ demands simply be another example of the company’s unaccountability? In that case, Pimco makes out. Again.
If, however, Uncle Sam pulls the plug/removes it teat, Pimco would lose, Big Style. But then, they’ve got money to lose. GM does not.
I’m not sure: what’s *your* preferred solution, Mr Farago? I’m curious.
RF –
Not sure that Pimco loses if GM goes belly-up. My bet is they own fairly senior debt. First in line.
Well, look at it this way.
If GM does go Chapter 11, the bondholders become the stockholders, so it effectively is a forced debt-for-equity swap with everyone else being more Fraked.
So why should Pimco do a bad debt-for-equity swap (because there are still current stockholders and the union contracts and the dealer contracts and all the other problems, and would get wiped out if GM goes Chapter 11 anyway) when they can wait until Chapter 11 and get a better debt-for-equity swap (no current shareholders to share the pie, union contracts voided, dealer contracts voided).
Its not a “win/lose” scenario for Pimco, but a “win/get-less-fraked-than-everyone-else” scenario
Nicholas Weaver – Exactly
Bill Gross has been playing a game of Chicken with the Fed throughout the multiple “bailouts,” and every time the Fed has flinched first. Look at the bailout of Fannie & Freddie. Gross and PIMCO pulled in something like $1.7 billion when the Fannie and Freddie bondholders were bailed out.
The government has said they will not let GM go under. PIMCO knows this and has nothing to lose by playing chicken with the fed.
Speaking of GM
http://www.insuranceandtechguide.com/companynews.aspx?listingid=59046&contentid=162007&categoryid=6890
Is someone at Polk on crack?
I believe Bill Gross has a net worth of approximately $1B. The man is not a dummy, and I wouldn’t bet against him.
The conditions the Bush White House put on GM and Chrysler were just window dressing anyway. Bush has gone home to Texas. The transition to Obama was bridged. Time for the gravy train to start rolling down the track again, faster than ever.
In a recent Forbes interview the head of PIMCO said that they were now investing heavily in companies that were receiving or will get Uncle Sugar handouts.
The rational being that the Gov’t wants to get eventually get their money back and really does not have any problems about propping up banks, GM, etc….
Smart guys, they’ve been buying lots a debt – all of it at significant discounts from face value. Simply put, they’ve own a garage full of $1000 GM bonds; purchased at $500-600 each. If things really do go tits up (and it could happen, Obama is not going to waste all his political capital bailing out
GM and ChryCo) it will take a while before getting to PIMCO’s pain threshold.
As far as a debt to equity swap if you were a bond holder would you want to swap your debt for stock in the “old” GM, or the “new” reorganized GM. Even if you took a 40%-50% haircut off the face value you could still come out ahead by digging in your heels everyone goes back to Wash DC for Round 2.
Obama and the Dems are going to steal *TRILLIONS* of newly printed “dollars” to hand over to their laggard parasite bum supporters…Gross is not a fool…The taxpayer is…Even the new Treasury Secretary is a tax evader.
PIMCO has little to do with GM’s future. Our tax dollars will pay any price to keep that anchor floating.
Seriously, does anyone think GM, Ford, and Chrysler aren’t getting the rest of the money? They could fly into DC with each member of their entourage in a separate private 757, walk straight up to Pelosi and say F you, take a dump on Obama’s desk, and they would still get the money. Nobody in Washington has the first clue about the automotive industry or any other industry. They are simply too afraid of being labeled responsible for the death of any of them and too tempted by the opportunity to tack on all their favorite projects to the bailout bonanza to resist.
PimPco and the rest know full well the flood gates are open.
In the game of chickenplay, Bush blinked in December. And I fear that he new government is not prepared to start with a GM Chapter 11. So, why should any of the concerned stakeholders give up anything to fulfil the 4 conditions? GM will get the taxpayer`s money anyway.
“So, four. Four hurdles.”
Nobody expects the Congressional Inquisition!
Bondholder: Do you expect me to talk?
Taxpayer: No Mr Bondholder, we expect you to die!
… but of course, the Bond holder escapes, gets the girl and kills the errr … oh …. bad guy taxpayer…
PeteMoran said:
Bondholder: Do you expect me to talk?
Taxpayer: No Mr Bondholder, we expect you to die!
… but of course, the Bond holder escapes, gets the girl and kills the errr … oh …. bad guy taxpayer…
No, you messed up the roles. The bond holders merely gets back what they have paid, together with the interest.
It’s the UAW that ultimately gets the girl and kills the taxpayer …
Are those higher-up big-wigs performing the jobs moral honest Americans are unwilling to do?
Isn’t PIMCo a subsidiary of a german company, Allianz Insurance, and don’t they manage US retirement assets in bond funds?
Why would it let its investors take a shot in the teeth to protect Chinese investors in US treasury bills which will not get paid back anyway?
Maybe it looks like not playing fair but its too complicated for me to tell.
PIMCO is owned by the Germans, but Bill Gross runs the show out of California. He does his own thing because he makes money year after year.
“It’s the UAW that ultimately gets the girl and kills the taxpayer …”
No wonder they demand free Viagra.
Luther :
…Gross is not a fool…The taxpayer is.
Got news for you. Over half of those who can vote don’t pay any federal taxes.
Therefore, there’s not enough evidence that the taxpayer is a fool, when he’s a minority anyhow.
If you pay taxes, welcome to the club. We’ll show you the secret handshake later. It’s really easy though, you reach for your wallet and just hand it over.
The Bush administration has left us in this economic crisis and I believe that Obama will lead us out. It seems as tho their are some Americans that yearn for the destruction of American businesses. These same people fail to either realize or understand exactly who it will impact. They dont see the ramifications that would happen and are happening at this very moment. We are losing jobs accross the board in the USA. People are losing their incomes,401ks,etc…… So why are some reveling in Americans workers demise. I believe if you are a True AMERICAN you would be Patriotic and that doesnt mean just supporting the Troops but supporting all AMERICANS. These are extraordinary times and its not a time for Congress to start negotiating or dictating incomes across America. If Congress starts dictating wages then it is true We are truly living in a CORPORATE OWNED Government and the bottom is a SLAVE STATE>
obbop…………Too Good!!!!!!!!!!
scartooth :
January 22nd, 2009 at 5:20 am
The Bush administration has left us in this economic crisis and I believe that Obama will lead us out. It seems as tho their are some Americans that yearn for the destruction of American businesses. These same people fail to either realize or understand exactly who it will impact. …
If Congress starts dictating wages then it is true We are truly living in a CORPORATE OWNED Government and the bottom is a SLAVE STATE>
Well, this could be out of the textbook of Wagoner – outright denial of the reality.
The US economy is certainly in trouble, and for companies which were profitable before and are now suddenly being hit by a downturn, you may make your argument. However, the D3 have been in losses over years, and even in times of a big credit bubble, where they should have reaped massive profits.
Consequence: the D3 are not in trouble due to Bush policies, but because of their own problems and mistakes. And sure, no one should dictate these companies the wages. Unless such companies want taxpayers money.
If the UAW and the companies do not want to agree on their concessions, they always have the freedom to go for bankruptcy.
“I believe that Obama will lead us out.”
Why do so many supporters of obama use this type of biblical language? I find this kind of faith naive and a little creepy, rather like the “our great leader” mentality in totalitarian states.
And, as mentioned, if corporations are going to beg for funds then they will be ordered around to some degree by those paying the tab.
scartooth: The Bush administration has left us in this economic crisis and I believe that Obama will lead us out.
GM and Chrysler were headed for bankruptcy long before the current recession. The downturn just sped up the process. Bush is not responsible for their current predicament.
scartooth: It seems as tho their are some Americans that yearn for the destruction of American businesses.
No, they just recognize a corporation without a viable business plan when they see one, and would prefer that their tax dollars not be used to prolong the inevitable.
scartooth: We are losing jobs accross the board in the USA. People are losing their incomes,401ks,etc…… So why are some reveling in Americans workers demise.
Then why are GM and Chrysler workers so special that we should use taxpayer dollars to prop up their employers while letting others lose their jobs, incomes, etc.?
scartooth: I believe if you are a True AMERICAN you would be Patriotic and that doesnt mean just supporting the Troops but supporting all AMERICANS.
The patriotism card has been worn out; flag waving isn’t going to convince people to buy an inferior product or be happy about forking over their tax dollars to support a bankrupt corporation.
scartooth: These are extraordinary times and its not a time for Congress to start negotiating or dictating incomes across America.
Here’s a way to avoid having Congress dictate the pay of GM and Chrysler workers…don’t ask for taxpayer money.
I believe that American businesses and foreign businesses need to be playing on the same playing ground. I believe that the American people are entitled to see the unregulated slave shops that exist that produce the foreign cars. I believe that these foreign businesses should adhere to the same standards as Americans adhere to. Lobsterman in Maine can only catch a quota and they are done, they have restrictions in order to protect are wildlife and yet China and Japan go unregulated and thereby are abe to undermine this Industry as well. The list goes on and on. They put lead in their toys and use cheap processing in order to undermine the system. They use dangerous artificial proteins in the foods they send here in order to reach protein maximum and make it look better. This same practice killeed many pets in the USA. Lead poisoning took place from the toys. If this one of our businesses it would have been hung from the nearest tree by the media. But this is all hushed up. WHY. Do we only believe in HUMAN rights here in the USA or the “IF its not in my backyard mentality” then its ok. I believe there is more to a product than just cheap. We have laws here in the USA and I believe that these laws apply to anything that comes into our borders. What does your product represent. Americans can produce as well as any other business in the world. But if they are undermined by foreign entities aloowed to exploit human beings and exploit the environments in which they reside in order to undermine American businesses and we sit idle then WE as AMERICANS are and have become Apathetic and are as guilty as if we had did these acts ourselves. Its time to address these tactics that are destroying American businesses across our country and if you do not believe in what I am saying you are either truly lost and incoherent or you have investments in these foreign entities yourself and are only self serving.
@scartooth
Bullshit from front to end.
The D3 have mainly lost to Japanese and European manufacturers, especially to the Japanes manufacturing in the US. Any problems with the labor laws in the US?
No business goes unrelated. If lead in toys is forbidden, there will be no imports. If there are – it will be found. The chinese manufacturer who did this last time is simply bankrupt today.
Germany has high standards and high labor cost levels. Still we are competitive worldwide – especially in automotive and machinery, where you need highly educated people.
Seeking the problem in denial and in blaming wrongly allegedly low standards in other countries will neve make the US competitive again.
The only time I have seen any regulatory stoppages of these foreign goods is when they have directly had an impact on AMERICANS. Hundreds of pets died before the product was pulled.The lead was only discovered and addressed after it had a direct impact and sickened Americans. They FLOOD are markets with their tainted goods and the FDA is undermanned and understaffed and has no possible chance of keeping up with the flood of goods entering our markets. They play on a hit and miss basis. Those products would still be on our shelves today if it had not killed hundreds of pets across our country. They would have slowly killed every pet in this nation if the dose was lower and noone would have none the difference. Denial, Why is it with so much facts to prove, do some deny . We need LAWS in place that monitor anything that enters this country prior to its entry. We need people to stand up for Human rights for people in slave shops if they are bringing their products here. We need laws that protect the enviroment around the world not only in the USA. Im tired of seeing our Government send billions of dollars to countries that hate our guts and yet we have a KATRINA and the hand is not there.
If we as Americans can send billions of dollars to other countries why is it so hard to help our own. If there is an earthquake in Taiwan we send money. If we have a Katrina it takes pulling teeth to get help. We give Pakistan billions and they house the enemy. We give millions to foreign businesses and offer encentives to go overseas. Americans lose their homes and we give monies to those taking them. Its time to start SUPPORTING AMERICANS and AMERICAN businesses. The time of ignoring the American worker and trying to make us seem as tho we are less than any other is over and our economy shows it. IF you are an AMERICAN its TIME to start buying only AMERICAN products and keeping our money home.