Bailout

How the Teamsters successfully played the CDS market

By Felix Salmon

The fight between capital and labor has been a bit lopsided of late, so I’m quite happy to see that the Teamsters seem to have scored a real win from their latest PR campaign against Goldman Sachs.

Goldman Sachs stopped making markets in bonds and credit default swaps (CDSs) on US freight company YRC Trucking for around two weeks from December 16, as part of an effort to stave off a public relations catastrophe. The decision to stop quoting on YRC is understood to have been taken at a very senior level in Goldman, after freight union International Brotherhood of Teamsters (IBT) sent letters to congressmen, senators and state attorneys-general accusing the bank of encouraging investors to torpedo YRC’s restructuring – which would have threatened the jobs of around 30,000 IBT members.

Later on in the article there’s bellyaching from anonymous credit traders that the IBT seems to be using the CDS market as a bugaboo much more successfully than semi-mythical “empty creditors” have ever been able to use it to force bankruptcies. “The episode has sparked concern,” write the authors with a straight face, “that failing companies could use political pressure to strong-arm banks and investors into backing restructurings”.

Doesn’t your heart just bleed.

Personally, I’m far from convinced that empty creditors are a real problem. But if they can be used as a bogeyman to save jobs and prevent unnecessary and costly bankruptcies, then they will have served some good purpose. Well done to the Teamsters for executing this strategy so well, and I look forward to its being used again in future.

Full post as published by Macroprudential on February 02, 2010 (boomark / email).