Theater of the Absurd in Detroit

The Government proposal for General Motors may just be a watershed event. It is not that hard to understand and reveals who gains and loses fairly clearly. For American taxpayers, its not that good and when looking at the winners, joe sixpack might not be that happy.

If the deal goes through as currently proposed....

US taxpayers) would get stuck with 50% of GM's equity (currently worth $625 million) in exchange for forgiving about $10 billion in federal loans.

The UAW would get 39% of GM's equity (currently worth $488 million) in exchange for giving up $10 billion in health care benefits.

Corporate bondholders would get 10% equity (currently worth $125 million) in exchange for giving up $27 billion in bonds.

Under the above agreement there is still a missing $10 billion piece of the puzzle: "The government wants the union to accept company stock to finance half of G.M.’s $20 billion obligation for retiree health care as noted above."

What happens to the other $10 billion? Either it goes to the retired worker or to taxpayers via the Pension Benefit Guarantee Corporation.

Everybody loses but the credit default swap holders. Now who might that be? JPMorgan, Goldman Sachs, and/or Citigroup by any chance?

The decision to allow CDS to be an opaque, unregulated, casino might end up staining Bill Clinton's legacy even in the eyes of admirers.

The idea that Wall Street runs the country and not the elected or the electorate becoming clearer by the day.

As we saw with the Goldman Sachs/AIG counterparty party in which rolled the dice with AIG and taxpayers paid up, there seems no limit to our collective generosity.

John Barnyak
President
www.stonehouseasset.com