Bailout Watch 278: The Doomsday Czar

Edward Niedermeyer
by Edward Niedermeyer
bailout watch 278 the doomsday czar

Marketwatch reports that the federal appointment of a “Car Czar” could trigger a “credit event” for Ford and GM’s credit-default swaps, according to Bank of America Securities analyst Glen Taksler. Taksler points out that the International Swaps and Derivatives Association, the trade association that acts as a standard-setter for credit derivatives trading, says one trigger for a bankruptcy credit event is the appointment of an administrator, trustee or similar official to oversee all or most of an entity’s assets. But it’s unclear whether the potential car czar’s powers would correspond with the ISDA definition. The authority to review and prohibit certain transactions, or what’s been discussed in one piece of draft legislation, is different from having control over assets, Taksler noted. “The result may depend on the exact wording of a potential bailout package,” he wrote in a report made public late Tuesday. “We find arguments both for and against an autos czar triggering CDS,” he said, adding: “The actual process is likely to be determined through ISDA.” MW concludes that if the auto maker bailout does amount to a credit event, it would create another shock in the $50 trillion market for credit default swaps. Talk about unintended consequences! Stay tuned…

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4 of 12 comments
  • Edward Niedermeyer Edward Niedermeyer on Dec 10, 2008

    vww12: You misunderstand. This is not contingent upon the czar doing anything, rather a "credit event" could be triggered by the mere appointment of said czar.

  • PeteMoran PeteMoran on Dec 10, 2008

    Edward and Robert: I have a suggestion, for the remainder of the week, when-ever you write "Draft Bill" can you drop the "R".

  • Vww12 Vww12 on Dec 10, 2008

    «vww12: You misunderstand.» Having re-read this at a more leisurely pace, I see my error. Thanks for the clarification.

  • John Horner John Horner on Dec 10, 2008

    Could someone please outlaw credit derivatives trading? What exactly is the point of having a market of gamblers placing bets on the possibility of a debt going unpaid? This is high stakes gambling, not investing.