Bailout Watch 353: Pimco Kills GM

Robert Farago
by Robert Farago
bailout watch 353 pimco kills gm

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.

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  • on Jan 22, 2009

    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.

  • on Jan 22, 2009

    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.

  • Redapple2 Cadillac and racing. Boy those 2 go together dont they? What a joke. Up there with opening a coffee shop in NYC. EvilGM be clowning. Again.
  • Jbltg Rear bench seat does not match the front buckets. What's up?
  • Theflyersfan The two Louisville truck plants are still operating, but not sure for how much longer. I have a couple of friends who work at a manufacturing company in town that makes cooling systems for the trucks built here. And they are on pins and needles wondering if or when they get the call to not go back to work because there are no trucks being made. That's what drives me up the wall with these strikes. The auto workers still get a minimum amount of pay even while striking, but the massive support staff that builds components, staffs temp workers, runs the logistics, etc, ends up with nothing except the bare hope that the state's crippled unemployment system can help them keep afloat. In a city where shipping (UPS central hub and they almost went on strike on August 1) and heavy manufacturing (GE Appliance Park and the Ford plants) keeps tens of thousands of people employed, plus the support companies, any prolonged shutdown is a total disaster for the city as well. UAW members - you're not getting a 38% raise right away. That just doesn't happen. Start a little lower and end this. And then you can fight the good fight against the corner office staff who make millions for being in meetings all day.
  • Dusterdude The "fire them all" is looking a little less unreasonable the longer the union sticks to the totally ridiculous demands ( or maybe the members should fire theit leadership ! )
  • Thehyundaigarage Yes, Canadian market vehicles have had immobilizers mandated by transport Canada since around 2001.In the US market, some key start Toyotas and Nissans still don’t have immobilizers. The US doesn’t mandate immobilizers or daytime running lights, but they mandate TPMS, yet canada mandates both, but couldn’t care less about TPMS. You’d think we’d have universal standards in North America.