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Amid all the noise about the government doing unspeakable things to Detroit bondholders, it looks very much to me as though in fact we’re shamelessly bailing them out:

The Treasury Department is preparing to announce as early as today that it will invest an additional $7.5 billion in GMAC LLC…

The Treasury and Federal Reserve Board this month announced GMAC needs $11.5 billion in additional capital reserves as the result of government stress tests. The additional assistance to be announced this week is likely not the end of government support for GMAC.

Credit default swaps on GMAC are trading at 900bp these days, and its bonds are trading at yields in the 50% range. GMAC’s bond investors mark to market: they’ve already taken their losses. So let’s take advantage of that fact, and convert their debt to equity, before pouring billions of fresh dollars into this particular black hole.

Source: Are We Bailing Out GMAC Bondholders?