Washington, D.C. – Representative Thaddeus McCotter (R-MI), is demanding the Obama administration and the Federal Reserve ensure no AIG-backed bondholders profit off a forced GM bankruptcy. Those with GM bonds backed by credit default swap (CDS) contracts with American International Group (AIG) could stand to be made whole or even profit due to taxpayers’ money if GM is forced into bankruptcy. Tonight, McCotter sent a letter to Treasury Secretary Geithner and Federal Reserve Chairman Bernanke demanding answers to the following questions:
1. Are there GM bondholders who have CDS contracts with AIG?
2. If so, in what amounts are those contracts?
3. How much would GM’s bondholders gain from their AIG CDS contracts should GM be forced into bankruptcy?
4. How much more money would the American taxpayer have to funnel into AIG to cover CDS contracts should GM be forced into bankruptcy?
“I urge the Obama administration to ensure no TARP recipient honors a CDS contract on GM’s bonds should GM be required to file for bankruptcy,” McCotter said. “It would be morally wrong for auto workers’ tax dollars to be used to hasten their unemployment; drive GM into bankruptcy; and reward the bondholders for facilitating this dire outcome.
“Given the President and his Presidential Task Force on the Auto Industry have started the clock ticking on a potential bankruptcy for GM and its workers, I urge the Obama administration and the Federal Reserve to provide prompt answers.”
Note: According to articles from The Market Ticker and The Business Insider, many GM bondholders could hold credit default swaps (CDS) with Troubled Asset Relief Program (TARP) recipient AIG on GM debt. Secretary Geithner has previously stated that, due to the injection of taxpayer dollars, AIG “fully met its obligations” – in sum, it paid 100 cents on the dollar on AIG’s CDS contracts. Thus, if GM enters bankruptcy, GM’s bondholders with CDS contracts from AIG could be assured of getting all their money back – if not more – because the American taxpayer is now guaranteeing these contracts with AIG.
McCotter was the first member of Congress to call for the breakup of AIG and the first member of Congress to oppose the original Wall Street bailout.
Click here to read letter
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