Actually, it turns out that the Fed was happy to let GMAC become a bank regardless of whether or not the tender offer succeeded. In the game of chicken, neither the bondholders nor Cerberus needed to blink, since the Fed simply climbed down from its previous stance. Bloomberg reports today:
The Federal Reserve last week approved GMAC’s application to become a bank holding company. GMAC said yesterday that the Fed’s approval didn’t hinge on the debt swap.
Yep, a 180-degree about-face from its stance a couple of weeks ago. Back then, it was crucial that the debt swap go through in order to get Fed approval; now, it really doesn’t matter either way.
It’s actually worse than that, though. The Fed clearly spent a large amount of time approving GMAC’s application to become a bank holding company: the order announcing the fact is 15 pages long, and densely-argued. But it looks very much as though the Fed delayed making the announcement until the bond exchange was all but over: it essentially conspired with GMAC to keep the decision secret so that GMAC could continue to threaten bondholders with the Fed’s earlier statement and thereby get them to tender into the exchange.
This is bad enough all by itself. But the long term effects are even worse. After this, no bond holder is ever going to voluntarily take a hair cut for fear of looking like the sucker.
Naked Capitalism and Calculated Risk have more.