Why GM could still go bankrupt: Banks & AIG are the problem

GM has a problem.  It’s not the cars or the union.  GM needs to get it’s costs down as required by the govt loan terms.   The union has agreed to it’s share of the restructuring.  Waggoner is now gone.  What’s left and what’s blocking GM’s turn-around are the the banks and bondholders.  They refuse to take a “haircut” to re-structure GM’s capital structure and debt costs.  Why?

Because the big banks and bondfunds have already insured themselves against GM default (bankruptcy).  So heads they get paid, and tails they get paid.  The only way they don’t get paid fully is if they agree to a restructure now.

Ahh, but you say, isn’t AIG, the “insurer” of these bonds through it’s credit default swaps already kaput itself?  Yes, but The Treasury has shown that it will make good 100% on AIG’s CDS.

GM (and all of it’s employees, dealers, and communities) is being held hostage by the banks and bondholders until the US govt pays full ransom to them.

Why, oh why, oh why won’t the govt just declare Credit default swaps null and void?