GM exchange structure and some thoughts on banks

The GM exchange offer is in my view a harbinger on what
we are likely going to see when it comes to the next round
of bank recapitalizations. Haircuts! The exchange is structured
in favor of workers and less than perfect for bondholders. Governments
ability to protect bondholders is limited and decreasing. What does this
mean for banks? Tax payers have injected and guaranteed a lot up to this
point. The next round of bills will in my view be on bondholders. No clue
how they will call and how and over which weekend they like to do it but
it will be a debt for equity swap and bondholders giving up part of their
debt in exchange of equity and thereby recap the banks. The too big to
fail and toxic asset discussion will go away after that. Too big to fail
can to a large extend be solved by establishing a clearing house for all
off-balance sheet instruments (Lehman would not have failed if they had
this in place). it is not true that the toxic assets can't be valued and
can't be traded. The US is far ahead in the process while Europe is not
fully awake on all the issues. However, if US banks are restructured in
the way as I have suggested European taxpayers will recognize and follow.
Bondholders in financial institutions should be aware of this. I would
like to avoid any outright longer dated financial institutions exposure and
seek protection for the portfolio in this regard over the next view month.
Credit default swaps (of protection) on European insurance companies (they
are higly exposed to this theme) look very, very cheap (especially compared
to US peers).