Friday, December 5, 2008

The trillion in the closet

(Nardelli was on Chris Matthews's last night and was obviously a bit tuckered out. He let slip that some folks predict that the fallout would be around 1 trillion. This was at the end of a long sentence that delineated the impact to the general economy in jobs and to the domestic automotive sector. What he was talking about doesn't seem to be talked about outside of blogs. Single name CDS and CDOs where Chrysler is present in the form of CDS are a clear and present danger. These are basically bonds, that have to be returned at par in case of a credit event. DTCC decides if there is a credit event and a bankruptcy would certainly qualify. If Chrysler cannot continue as a going concern a 'carservatorship' is the only option. However they do it they will have to do it. At this point in the game I would say that if they let Chrysler be a credit event they want the whole bloody thing to go off the cliff. Chrysler-and GM- are Lehman sized disasters in the shadow banking world and by now the Federales have to know this. DTCC hasn't provided clarity to the public but certainly folks have to know what could happen here. - AM

By Thom Weidlich and James Rowley
Dec. 5 (Bloomberg) -- Chrysler LLC, seeking a $7 billion U.S. government bailout to avoid running out of cash by March 31, said it sought legal advice about a possible bankruptcy and decided not to pursue that option.

Chrysler said it retained Jones Day and other advisers last month after Congress asked carmakers “to study why bankruptcy was not a better alternative for restructuring” than the billions in government loans General Motors Corp. and Chrysler are seeking.

Chrysler estimated that it would need $17 billion to $20 billion to finance its operations during a one-year bankruptcy reorganization, according to written testimony submitted to the Senate Banking Committee. That would include “at least $5 billion” to provide financing to Chrysler’s dealer network, the company said.

In the written Senate testimony, Chrysler said that Chapter 11 bankruptcy was not likely to “lead to a timely and successful reorganization of Chrysler” because of the company’s size and complexity. A pre-packaged bankruptcy was “impracticable and highly unlikely to succeed,” according the written testimony submitted by Chrysler Chairman and CEO Robert Nardelli.

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