Blind leading the blind
AIG forced Chrysler into bankruptcy by selling Credit Default Swap contracts on Chrysler (and GM) bonds.
This explains why the hedge funds did not want to go along with Obama’s proposal that the bondholders accept pennies on the dollar.
With the Credit Default Swaps, the bondholders had their bonds insured at full value.
Why would they take anything less? Let AIG pay the hedge funds and others with taxpayer’s money), one hundred cents on the dollar.
Who would settle for pennies on the dollar, and maybe nothing, when you are fully insured by AIG?
Obama bailed out AIG – so that AIG-insured bondholders would not lose their money. The U.S, government made it perfectly clear that AIG counterparties can expect their Credit Default Swap contracts to be paid out in full at 100 cents on the dollar.
It is this decision of Obama’s to save AIG that has driven Chrysler into bankruptcy. It may well do the same for General Motors.
There's a FIAT in your future? (don't the lights point backwards?)
Obama should not blame the hedge funds, he should blame himself, and Tim Geithner, for not understanding that punishing whiplash called “unintended consequences.”
The effect of the AIG Credit Default Swap contracts on Chrysler is very simple. So simple, in fact, that we should question why the media, not even Fox News, has covered the story.
Maybe the media doesn’t understand the AIG/Chrysler “unintended consequences,” but now you do.
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