PIMCO Plays Chicken with Treasury
A friend Andrew, all around big firm Analyst, writes:
“Correct me if I’m wrong, but didn’t PIMCO just win another game of chicken with the authorities when it refused to tender its GMAC debt for restructuring? Didn’t that effectively force the Fed to use clause 13(3) to save GMAC?
As I understand it, a debt restructuring would have smoothed GMAC’s conversion into a bank holding company, but PIMCO balked and didn’t tender because a restructuring also meant big losses for PIMCO. I don’t believe Tarp funds are senior to any existing GMAC debt, so GMAC debt will probably rally now that it got Bank Holding Company status without the restructuring…I’m not a bond guy but I think that’s how it’ll work…meaning PIMCO wins again at the expense of the taxpayer.
By the way, from the Treasury website regarding Tarp injections:
The senior preferred shares will qualify as Tier 1 capital and will rank senior to common stock and pari passu, which is at an equal level in the capital structure, with existing preferred shares, other than preferred shares which by their terms rank junior to any other existing preferred shares.
So I don’t see how GMAC debt doesn’t rally at least initially on that (benefitting PIMCO), since it must be senior to preferred stock. A Tarp injection would increase its tier 1 capital without endangering the claims of the debt holders.
I should mention that [Hedge Fund Manager X] just sent me a research note that, although it doesn’t go into the PIMCO involvement, does cast doubt on GMAC’s fate, with or without Tarp support. Might want to ask him about that (I can’t forward it to you myself under penalty of death!) ”
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See also:
Pimco Said to Balk at GMAC Debt Swap
Dealbook, DECEMBER 19, 2008, 7:32 AM
http://dealbook.blogs.nytimes.com/2008/12/19/pimco-said-to-balk-at-gmac-debt-swap/
GMAC Swap Remains Short of Goal as Pimco Holds Out
Caroline Salas
Bloomberg, Dec. 18 2008
http://www.bloomberg.com/apps/news?pid=20601103&sid=adlTWMv.To_U&
Pimco snubs GMAC debt offer; bank bid may fail-WSJ
Dec 19, 2008 2:01am EST
http://www.reuters.com/article/privateEquity/idUSBNG40247620081219
December 26th, 2008 at 11:32 am
I’d like to understand more about the relationship between Cerberus and GMAC. I know they are a major shareholder (majority?) of chrysler, but only recently learned they had anything to do with GMAC. If you think PIMCO punked the USG, and I agree from what you’ve said, what about Cerberus? If I get this right we have a ‘hedge fund’ whose modus operandi is LBO’s, having it’s disasterously stupid acquisitions propped up by the US Government. Oh and on the super groovy side, an ex-member of the Bush admin (Paulson’s predecessor) just happens to be a member of senior management (is that right I forget the exact job title) Good thing only rich people get to invest in hedge funds or this would be communism in everything but name, thankfully it isn’t and crony capitalism has finally found it’s true home.
On the subject of PIMCO, and re the China story in the NYT: how funny that the NYT wants us to be all bent about China lending us money, but not about the largest single holder of agency debt getting bailed out in september. How strange that their article plays to emotional biases instead of looking at real causes. Why you might almost think they wanted to whip up popular frenzy against the evil foreiners.
The alliance between the ultra rich and the poor white trash has always been the major route to screwing the middles class.
December 26th, 2008 at 11:38 am
Yet again the government fails to negotiate a better position for the U.S. taxpayer and instead benefits the well-heeled. Why the government does not let bankruptcies happen AND THEN make sure the process is orderly with government financial assistance is beyond me.
December 26th, 2008 at 1:14 pm
Why the government does not let bankruptcies happen AND THEN make sure the process is orderly with government financial assistance is beyond me.
Things become easier to understand, once the following is kept in mind:
Government of the people, by the people, for the people has been turned on its head and should now read as: Government of the sheeple, by the creeple, for the wealtheople.
December 26th, 2008 at 1:45 pm
“…PIMCO wins again at the expense of the taxpayer”.
And GM wins at the expense of the taxpayer. So what else is new?
Politicians are increasingly in the taxpayer-screwing business.
December 26th, 2008 at 1:47 pm
James Carville, I think, said “whatever you do, don’t fuck with bond markets”. Pimco is like a mafia don, shaking down the local populace (taxpayers) for money and daring, just daring the cops to do anything about it.
With Chrysler, Cerberus leveraged a few thousand (and shrinking) auto workers to fleece the taxpayers out of billions.
Now it’s doing more fleecing through GMAC, in which it owns a majority interest.
December 26th, 2008 at 1:52 pm
on a sidenote gold is looking strong today, could it finally reverse the trends at move to all time highs in Q1`.
December 26th, 2008 at 2:03 pm
Ventura2012 @ 1:52
Oil is up on the UAE cuts.
If the S&P retests its low, it’ll pull gold down with it (temporarily).
December 26th, 2008 at 2:05 pm
well, in (P)’s defense, they do have a bond fund to run..
W.C. Fields said: “Never give a Sucker an even break”
the sad thing is, of course, We’re being made the Suckers..
If we only had ‘The Owl’ about, to tell us how long we’re going to last..
http://www.youtube.com/watch?v=3fGTUFqPJo4
30 seconds..
December 26th, 2008 at 2:12 pm
DL…I see the S&P retesting its lows, however, only in real terms. Nominally I think stocks will rally, however, commodities will rally significantly more as people wake up and unload t-bills. Best of luck.
December 26th, 2008 at 2:20 pm
MAL Says:
“… Why the government does not let bankruptcies happen AND THEN make sure the process is orderly with government financial assistance is beyond me.”
IMO, the governments refusal to allow companies to fail is partially a reflection of the pain-free ethos that has grown in this country in recent decades, e.g., eliminating the pain of corporeal punishment in schools, painless dentistry, social promotion in schools, grade inflation in colleges, and generally giving all individuals the right to a physically and, more relevant here, emotionally pain-free life, everywhere: in the workplace, social interactions, business transactions, on the playground (bullying), and even in the playing of soccer where scores are not kept in order to protect children from the pain of loss. Pain has become unacceptable in this country.
This expanding “right” is supported by threat of lawsuits where large cash judgements are often awarded for “pain and suffering”. While this trend is not entirely bad, it has become so pervasive in the culture that it has made us weak and over confident to the point where we have lost much of our ability to endure hardships.
So TPTB are trying to minimize the pain for all of us that they believe would arise from the collapse of any large corporation, and in another serious depression that might develop as a result of too many bankruptcies. They allowed it happen with Lehman, but I don’t think they liked the pain that resulted and so they are not going to let it happen again.
As my father, who was born in 1921 said, “This country couldn’t stand another Depression; people wouldn’t put up with it.” He sensed that people had grown too weak and that there would be chaos, riots, and starvation, perhaps leading to the collapse of our government. I think TPTB fear this too, thus they are doing everything they can to avoid any sudden pain. Perhaps they realize our economy will languish for years, but if they can spread the suffering out over a long enough time period, then we will be like the frog in the pot of slowly heated water: we will not react negatively to it and the stability of the nation will be preserved.
December 26th, 2008 at 2:51 pm
@KJ Foehr…
“Pain-free” is just an euphemism for dead. But you are correct. Virtually all of the developed-world’s governments do everything they can to eliminate pain, yet pain is our only hope for salvation.
Their attempts at pain elimination will ultimately fail, as always, and will accomplish the exact opposite of their intent. The pain will ultimately be greater for having spent so many resources trying to forestall it.
December 26th, 2008 at 3:06 pm
The Curmudgeon Says:
@KJ Foehr…
““Pain-free” is just an euphemism for dead.”
Yes, that would be true. But that is the goal, not the actual outcome. In my view, pain can’t be eliminated, we can only reduce it and, as a consequence, raise the pain threshold such that what was previously not painful now is. Thus we become increasingly weaker and more “spoiled”.
and
“Their attempts at pain elimination will ultimately fail, as always, and will accomplish the exact opposite of their intent. The pain will ultimately be greater for having spent so many resources trying to forestall it.”
So, in your view, will we survive and grow stronger in body, mind, and character, or will it be the end of us as a nation?
December 26th, 2008 at 3:32 pm
Ventura2012 2:12
I am very bullish on commodity prices during 2010. But I’m not all that bullish on commodities over the next four months. Over the next 6 months (at least), there’s not going to be much difference between “nominal” data and “real” data.
December 26th, 2008 at 3:34 pm
KJ,
this: “So, in your view, will we survive and grow stronger in body, mind, and character, or will it be the end of us as a nation?”
Is The Q:. We, each, and Every, Need to Answer. If we thought we were going to get, Political, Change, by the results of Nov., We need to start Thinking.
As an aside, anybody catch the coverage of The Electoral College? was there any? no? telling..
December 26th, 2008 at 3:40 pm
KJ @ 2:20
“Perhaps they realize our economy will languish for years, but if they can spread the suffering out over a long enough time period, then we will be like the frog in the pot of slowly heated water: we will not react negatively to it and the stability of the nation will be preserved”.
Agree with the foregoing. And add the fact that Bush will be long gone before the true cost of this mess becomes obvious to the majority (so why should he care?). As for those in Congress (e.g., Frank and Pelosi) who will probably still be there many years from now, it’ll be a simple matter to point fingers at someone else, or to argue that “no one saw it coming”.
December 26th, 2008 at 3:44 pm
“As an aside, anybody catch the coverage of The Electoral College? was there any? no? telling..”
I heard a story about it, I think on NPR, but it was labeled a “non-event” because of the margin of Obama’s victory. It is another example of how little things change. After the 2000 debacle, there was a hue and cry to eliminate it, but that didn’t last long. The public is short on memory and long on apathy… but that may change in hard times, if we really have any on a widespread scale.
December 26th, 2008 at 4:14 pm
Pain is nature’s way of telling you something. A short sharp lesson.
If you don’t feel any pain, you tend to repeat self-destructive behavior.
Inability to feel pain is a serious medical condition, leading to scenarios like:
“After Effects: The truly frightening part of HSAN-CIPA is that since children cannot feel internal pain, they cannot tell their parents or their doctors when something is wrong internally. Often, they must fall critically ill before internal problems are surfaced. Worse, they often die from fatal injuries and infections that feeling pain would have prevented. So the next time you feel pain, also feel gratitude for the fact that it is keeping you safe. “