GM and CDS

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BosyBillups

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Anyone know what a Bankruptcy (credit event) of one of the big 3 auto will mean in wall street carnage, or counterparty risk?

I've heard that there are a ton of CDS contracts written against these 3... way more than Lehman/Wamu/etc.

Anyone have some info here, because futures are down 300+ pts right now.
 
yeah, the lehman cds settlement seemed like a huge event........wamu not so much, but the loss wasn't that huge...
 
Studies have said effect wouldn't be that big since most cds contracts are netted against other cds contracts
 
I wouldn't be as worried about the CDS as I would be the underlying.
 
1. CDS are (almost) all collateralised. The only entities that don't have to post collateral are AAA rated entites (like AIG!). GM et alia have been trading upfront (So imminent expected default) for a while now.
2. The Gross exposure figures quoted are always misleading due to netting. DTCC figures:

http://www.dtcc.com/products/derivserv/data_table_i.php?id=table6

Suggest GM (for example) have $43bn gross CDS written on them, but after netting that becomes $3.3bn (or about a day's cash burn for the automakers)
3. CDS will have a recovery rate. It might be small, but this will further reduce settlement.
 
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