Bo Peng

What if Chrysler Holdouts Overhedged with CDS?

CorradoCam, I'm not sure how DTCC classifies ref entities. DaimlerChrysler papers are still traded but the current Chrysler loans are traded under "Chrysler Financial" and I have no idea the reason why it's not on the list is because it's not big enough, LCDS are not included in DTCC stats, or lumped under DaimlerChrysler for some reason.

hoffman23, people write CDS on Chrysler/AIG for short-term bets. It all depends on the price. It may look stupid in retrospect but there's a technical problem -- you can't trade in retrospect. In any case, trading wisdom of anyone is irrelevant.

Chrysler: Reshuffle the Corporate Capital Structure?

Thanks for the info, car_guy.

When you invest in a company, your valuation is based on all-in cost. So whether Fiat put the $2B cash upfront or later doesn't change the valuation. I think the $10B ballpark valuation for Chrysler still stands.

As to UAW's recovery, it's recovery for its "investment" in this deal, not its overall VEBA liability. So I think 55% recovery is correct. I'm not sure it was smart for UAW to accept the conversion of their junior debt into equity, though. It does carry a lot of risk. And now they're on the hook to lower their demand in contract negotiations. It's a no win situation for them.

Five Ways This Bubble May End

Ricard, I think I've answered your question of "bank fails then what" question before. I see that you're not convinced. ;>

Bank fails. Deposit is saved. Commercial banking part remains public if possible. Investment banking part is taken over by gov and then sold to private partners ASAP. We go back to the old Wall Street model that had worked quite well for about two centuries. Counterparty risk chain reaction is unlikely as demonstrated by the non-event of Lehman CDS settlement.

My point is, too big to fail means it's too big, therefore needs to be broken down. Instead, the gov (not just US gov) is making them even bigger.