Sunday, November 16, 2008

GM.BAILOUT Contract Definition Clarifications Updated 19/11

Four clarifications to our GM.BAILOUT contract:

1. This contract will pay $1 only if President Bush approves a bail out. The contract is unaffected by decisions made by his successor's administration.

2. $1 billion = $1,000,000,000

3. A decision by the US Government to take over some (or all) of GM's obligations to its creditors will be considered a transfer to GM. If the value of this transfer is unclear, iPredict will use the average of the maximum estimated values reported on cnn.com, news.bbc.co.uk and nytimes.com.

4. A loan guarantee by the US Government will not count as a transfer to GM.

These clarifications have been added to the contract definition on the site.

Clarification 19/11/08:

5. For the purposes of this contract, funds committed to GM by the US Government prior to the contract's launch on 14 November do not contribute to the $5 billion minimum transfer total.

6. Relaxation of conditions on funds committed to GM by the US Government prior to the contract's launch on 14 November will NOT contribute to the $5 billion minimum transfer total, because this results in no new transfers to GM. Specifically, a decision to relax restrictions on a US$25 billion loan previously made to GM will NOT contribute to the US$5 billion minimum transfer total, because this results in no new transfers to GM.

7. If GM defaults on a loan, and the date of that default is after the launch of this contract, and that loan was guaranteed by the US Government, then the value of the additional liability the US Government bears as a result of default WILL contribute to the $5 billion minimum transfer total, even if that guarantee was made prior to the launch of this contract. If the value of this transfer is unclear, iPredict will use the average of the maximum estimated values reported on cnn.com, news.bbc.co.uk and nytimes.com.

8. A bail out that is formally and fully approved by any means during the term of the Bush Administration will be considered for the purposes of this contract to have been approved by President Bush.

44 comments:

HolyBastard said...

I believe there is a conflict in the judging criteria and the clarification. It says in the "judging criteria" that "a transfer may take any of the following forms: a loan on any terms" while in the clarification's note 4 says "A loan guarantee by the US Government will not count as a transfer to GM". Thanks.

HolyBastard said...

Maybe it's time to close the National-Maori coalition government.

Txkiwi said...

holy, its not a conflict. A loan is not the same as a loan guarantee. A loan is where the US Govt transfers money to GM. With a guarantee they let the banks or other institution transfer the money and simply guarantee to repay if GM can't; no money is transfered from the US Govt. The flow of the cash is the key determinant....

Matt Burgess said...

As Txkiwi says, a loan guarantee is not a loan and it is cash transfers that are the "vehicle" for deciding a bail out has occurred.

The Maori.Nat contracts are now closed.

HolyBastard said...

Does the stock include a loan to GM for the purpose of developing advanced technology vehicles and associated components rather than bailout (for their financial difficulties)? If so, the legislation has already passed on September 2008. See here-http://www.atvmloan.energy.gov/

Matt Burgess said...

HB - no, and not because of its purpose, but because it was previously made. If the US Government loans GM *another* $25 billion tomorrow for any purpose including green tech development then yes that will be counted.

HolyBastard said...

However, even though the legislation has been passed in prior to the starting date of the stock, no transfer of monies to GM has been made. Nor has there been news about GM making an application to the loan. So in principle, it should still deemed to be a valid point as there would be a selection process to decide whether GM would actually get the loan, should GM decide to make an application. No loan to GM has been approved to GM in prior to the starting date of the stock. Therefore there is no conflict to the definitions of the stock contract, hence it should be allowed. Thanks.

Matt Burgess said...

HB - we'll judge it against the stated criteria if that eventuality occurs.

JC said...

Huh? Thats exactly what it says. Any decision to relax the conditions on previously committed funds does not contribute to the bailout.

So any transfer of funds based on the previously earmarked $25billion for energy saving would not count.

Is this correct?

Anonymous said...

Yes, I'm sure you're right, JC. If you look at the judging criteria for the similar contract on Intrade, they've taken the same position: www.intrade.com.

HolyBastard said...

As to "Relaxation of conditions on funds committed to GM by the US Government prior to the contract's launch on 14 November" (will NOT contribute to the $5 billion minimum transfer total, because this results in no new transfers to GM)

The fund approved on September by the US Congress was to "develop advanced technology vehicles and associated components". So GM can only aplly for that loan if it has plan to develop such technology. Since no such loan approval has been received by GM, "no loan (from the approved fund by the U.S Congress on September) has been committed to GM".

JC said...

yes, it would seem you are correct HolyBastard.

no funds have specifically been committed to GM prior to the launch of the contract, they have only been committed to the auto industry in general, and further, only to those that apply and get approved.

so any repurposing of this money to aid GM would infact be a new transfer.

jojo said...

Hi Admin,
On 16/11/08 clarification you stated: "1. This contract will pay $1 only if President Bush approves a bail out. The contract is unaffected by decisions made by his successor's administration."

But at the 19/11/08 Clarification you stated : "8. A bail out that is formally and fully approved by any means during the term of the Bush Administration will be considered for the purposes of this contract to have been approved by President Bush."...Now the two clarifications are somewhat confusing....If the present congress approves the loan but President Bush does not sign it, then will it constitute a 'loan' approval? ...Please clarify this urgently because your answer can affect a lot of bidders and biddings....Thanks.

Anonymous said...

-"On 17 November, GM filed its first Section 136 loan application for retooling funds (earlier post) with the Department of Energy, related to eight specific, high fuel-efficiency projects, in the total amount of $3.6 billion."

-"A second application, related to additional high-mileage vehicle and powertrain programs in development, is targeted for submission this week, and is estimated at $4.7 billion."

-"In both cases, GM has made significant fuel efficiency-related investments that, as a result of having been made prior to the enactment of Section 136 funding, do not qualify for such funding."

What does this mean? That GM can not claim any of the retooling funds and thus must rely on a bailout unless the congress changes the purpose of the funds. That said they only require $4 Billion for the remainder of the year.

Matt Burgess said...

Jojo

If a new transfer of funds occurs on President Bush's watch by any means then it will be considered for the purposes of this contract to have been approved by President Bush. The clarification was written with the scenario you have in mind. If a new transfer is approved by Congress but Bush vetoes then that transfer will not count toward the $5 billion total.

Anon 4/12: The contract says a loan on any terms qualifies provided it was not committed to GM by the US Government prior to the contract's launch on 14 November, and it says relaxation of conditions on funds committed to GM by the US Government prior to the contract's launch will not contribute to the $5 billion minimum transfer total. Does this answer the question?

jojo said...

Thank you for the response. I thunk the Auto industry will get some bailout, but in my opinion, it will be approved by President Mr Obama, but not by the current president, Mr Bush.

Anonymous said...

Looks like GM will get assistance through relaxation of restrictions on already approved "re-tooling" loan. Most likely $14billion, to be divied up between GM and Chrysler, to see them through to March next year. Unfortunately, will not satisfy this contract because the funds have already been committed. Taking a while for Ipredict punters to catch on!!

jojo said...

LATEST NEWS: IS THIS GOOD OR BAD NEWS FOR 'YOU', from the iPredict betting point of view?..CBS News correspondent Kimberly Dozier reports that significant progress came Friday night, when Democrats from both the House and Senate agreed to bail out the struggling General Motors, Chrysler and Ford with federal funds. Several officials say the White House and congressional Democrats have agreed on $15 billion in loans. They say the breakthrough came after House Speaker Nancy Pelosi bowed to a demand by President Bush that "any aid come from a fund that had been intended to help Detroit produce more fuel-efficient cars." Pelosi said the House would consider legislation next week to provide "short-term and limited assistance" to the U.S. auto industry. Meanwhile, while the White House had opposed any money to the automakers to come from the $700 billion bailout package that Congress had previously assigned to the Treasury Department to assist financial institutions. Read the full report here:
http://tinyurl.com/57waje

Anonymous said...

From the Wall Street Journal..

"The emerging deal would draw funds from a program originally meant to help the industry retool to meet higher fuel-economy standards. The actual funding level remains to be set, but is expected to come in the range of $14 billion to $15 billion, an amount the companies suggested Friday would be sufficient to carry them into March of next year. Other details remain to be worked out over the weekend."

http://online.wsj.com/article/SB122848866282682871.html

jojo said...

The last twop posts above indicate that the transfer of funds will NOT satisfy the iPredict contract. So in my opinion, the share pice should DROP, but the shares are actually rising and are now at $0.6900. Why? This puzzles me. What am I missing?...or have I misunderstood something? What are others aware of that I have missed?Your comments would be appreciated. Thanks.

Anonymous said...

Jojo

There seems to be alot of confusion as to what satisfies this contract.In Matts Blog clarification #6 states, in part, "Specifically, a decision to relax restrictions on a US$25 billion loan previously made to GM will NOT contribute to the US$5 billion minimum transfer total, because this results in no new transfers to GM." These words don't appear on the contract at all, but the meaning is still there. Most people are no longer reading this thread and are not reading reports directly from U.S. news websites. Therefore the limited coverage from our own news media suggesting an impending bailout seems to be keeping the price artificially high. How many shares have you shorted?

Anonymous said...

Also, Intrade has price bottomed at 4.4. This is a different contract in that the value of bailout to satisfy must be $20bn to Big3, but similar to ipredict in that repackaging of existing retooling loan does NOT count.

ojo said...

Hi, Thanks for your comment. That clarifies the situation. I have 137 shares shorted at average 0.47. I intend shorting some more as the price rises!

Matt Burgess said...

Jojo, thanks for the update. Based on the text you provided it sounds like a relaxation of conditions on pre-existing loans, so this on its own will not contribute to the $5 billion threshold. On the other hand if Congress agrees to additional funds then these may well count.

The reason we decided to exclude this scenario from the bailout condition is that we went with a mechanism based on new funds transferred to GM. This was to avoid ambiguity around loan conditions - what conditions qualify and what do not has endless possibility for debate.

The risk is that the popular press reports GM is bailed out yet an iPredict contract called GM.BAILOUT pays zero. This may or may not come to pass - we'll see what Congress comes up with in the next few days. If that were to occur, it would not necessarily be satisfying. The goal is to write a contract that is clear and pays out consistent with a common understanding of events.

More important, however, is that traders understand what it is they are trading.

Holybastard said...

Oh my God, Matt Burgess. Can I ask if you are a trader on this website? And if you were, are you allowd to manipute people? Because from your post on "7/12/08 2:03 PM" you said "Based on the text you provided it sounds like a relaxation of conditions on pre-existing loans, so this on its own will not contribute to the $5 billion threshold", Which is utterly WRONG by the definition plus the clarifications of the BAILOUT contract. I have already provided a hint on "19/11/08 5:00 PM", as to why you are wrong, EVEN before your latest post. I hope it will clear your head if you weren't trying to manipulate people.

Holybastard said...

As to Jojo.........Hahaha. If you are still wondering why the share price for the bailout is so high, my "honest opinion" to you is that you miscomprehend the Bailout contract along with the information you have got, unlike the majority. I suggest you re-read the contract sentence-by-sentence. Hahaha.

Matt Burgess said...

HB

I am not a trader on iPredict.

The contract specifies:

"Relaxation of conditions on funds committed to GM by the US Government prior to the contract's launch on 14 November will NOT contribute to the $5 billion minimum transfer total, because this results in no new transfers to GM."

What part of this is unclear?

Holybastard said...

It is clear to me, but I think you misunderstood its meaning. I think your miscomprehension lies in the key words "funds committed to GM".
Please read my post on "19/11/08 5:00 PM". Do you get it now?

Matt Burgess said...

HB, we'll judge it against the stated criteria.

jojo said...

Funds were previously committed to the auto industry of which GM is a major player. President Bush has insisted that no new money should be given but previously committed funds should be diverted towards this bailout loan. So...?

jojo said...

Another comment of interest regarding the 'previous' funds as well as the 'expected amount for GM' is this: "The focus of the short-term bridging loan is likely to be GM and Chrysler, which are most in need of immediate assistance. GM had said it needed $4bn before the end of this month, while Chrysler, which is understood to have hired Jones Day for restructuring and bankruptcy work, had wanted $7bn immediately. The Senate is scheduled to be in session next week.

A key breakthrough on the long-stalled bailout proposals is understood to have come when Ms Pelosi bowed to President George Bush’s demand that the aid come from a fund set aside for the production of environmentally friendlier cars. She, along with environmentalists, had instead wanted the administration to take money from the $700bn fund the government set aside for the financial industry.

Ms Pelosi said the billions of dollars that had been set aside to modernise plants to develop the green cars would be repaid “within a matter of weeks.” ...Read the full report here: http://tinyurl.com/6gkzha

Anonymous said...

While the funds were committed to the auto industry before Nov 14, they weren't directly committed to GM. GM applied for the funds on Nov 17 but were found not eligible for the funds for various reasons. So this means that the funds were NOT committed to GM.

If the funds are repurposed, allowing GM to have access to them, surely this would then mean that they count for this contract seeing as the repurposing would happen after Nov 14.

I believe iPredict need to clarify definitively whether the funds repurposed or not will count towards the contract. Just saying, "...we'll judge it against the stated criteria if that eventuality occurs," is not good enough.

Anonymous said...

Agree with Anon above. Matt, will repackaging of retooling fund, with GM getting more than $5bn, satisfy the contact or not?

HolyBastard said...

To Anon:
Thanks, finally there are some people understand what I have been trying to explain. If you read the post from Matt Burgess on "19/11/08 2:08 PM", you will know that repurposing the loan will still satisfy the contract's definition of transfer.

Dibbo said...

Matt - I think you have given us a ruling that no part of the $25bn retooling fund can be counted towards satisfying this contract (which I agree was clearly the intent of adding this clause - otherwise it would be superfluous). Can we please get this added to the contract specification so that all traders are operating on the same page (not just those reading this blog)? It will save plenty of issues down the track as I imagine there will be lots of trading in this contract one way or the other over coming days.

Matt Burgess said...

Anonymous' 8/12/08 12:40 PM posts a scenario with the following features:

1. A fund exists. GM is currently ineligible to borrow money from this fund.

2. After the contract's launch, a change in the fund's rules allows GM to borrow money from this fund.

Funds received under this scenario DO contribute to the $5 billion minimum. The fund's purpose is irrelevant to the GM.BAILOUT contract's payout because the contract specifies a loan to GM on any terms qualifies. This scenario is not caught by clarification 6, which specifies "[r]elaxation of conditions on funds committed to GM by the US Government prior to the contract's launch on 14 November will NOT contribute to the $5 billion minimum transfer total, because this results in no new transfers to GM" because under this scenario no funds have been committed to GM by the US Government prior to the contract's launch. The interpretation of Anonymous 8/12/08 12:40 PM is correct.

Contrast this scenario with the following:

1. A fund exists. GM is eligible to borrow money from this fund and prior to this contract's launch has received approval to do so on certain conditions.

2. After the contract's launch, those conditions are changed and GM is able to redistribute those funds within its business.

Funds received under this scenario DO NOT contribute to the $5 billion minimum.

This scenario is caught by clarification 6, which specifies "[r]elaxation of conditions on funds committed to GM by the US Government prior to the contract's launch on 14 November will NOT contribute to the $5 billion minimum transfer total, because this results in no new transfers to GM" because under this scenario funds were previously committed to GM by the US Government prior to the contract's launch, conditions were relaxed, and there are no new transfers to GM.

My 7/12/08 2:03 PM commentary assumed "it sounds like a relaxation of conditions on pre-existing loans". If the assumption is wrong with respect to the quoted article then ignore the commentary that follows.

ltGorman said...

Game on... we now just have to wait to find out the exact amount to be transferred, and whether congress will let it pass.

Anonymous said...

Matt - Specifically, is the auto-retooling loan deemed already committed to GM of not? And if not, what was the point of Clarification 6 if there was no existing loans deemed committed to GM?

Dibbo said...

GM is clearly eligible to borrow money from the retooling fund and so arguably has in in principle received "approval to do so on certain conditions", albeit conditions that have not yet been met (and thus funds have not as yet been committed). Hmmm. I can see why Intrade ruled the retooling funds out. Is that or is that not the case on Ipredict? A clear yes or no please so we can all move on with no ambiguity?

ltgorman said...

GM being eligible for funds and GM being committed funds are two different states. We are not concerned with eligibility due to the wording of the contract we are only concerned with commitment.

Commitment being:

2 a: an agreement or pledge to do something in the future ; especially : an engagement to assume a financial obligation at a future date

This is incredibly black and white to me, under the current wording of the contract GM has not been committed one cent of the retooling fund prior to Nov14.

Prior to Nov14 they were eligible to apply for these funds, and did so, but were denied.

No funds were committed to GM prior to Nov14.


The situation is:

1. A fund exists. GM is currently eligible to borrow money from this fund.

2. None of these funds are currently allocated to GM

3. After the contract's launch, a change in the fund's rules allows GM to borrow money from this fund.

jojo said...

Geez..This is getting so ambiguous and confusing. Please state in clearly understood language without ambiguity if the previously committed auto retooling funds for the 'auto industry' does or does not count towards this contract as far as GM is concerened. It is wrong and unfair to allow traders here to trade in limbo without clear instructions. ASAP please.

PMoney said...

Matt, this whole situation is very unsatisfactory. And this situation is keeping me from trading with any confidence.

While I appreciate your obvious reluctance to give pre-rulings on the effect of various hypothetical situations, it seems to me that all the confusion centres on a single issue: would any transfer of funds from the retooling fund count as a bailout? I think in this situation traders deserve a clear and specific answer. After all, InTrade has given a ruling on the status of these funds for the purposes of its contract. Positing further generalised hypothetical situations is not particularly helpful because traders need to know how the contract rules will be applied to this specific situation.

Personally, I believe both sides have good arguments as to whether a "bail out" that comes from the retooling fund will cause the contract to be judged true. In particular, there is a cogent argument that the funds were not "committed" specifically to GM. The fund's stated purpose is to provide "grants and loans to eligible automobile manufacturers and component suppliers for projects that reequip, expand, and establish manufacturing facilities in the United States to produce light-duty vehicles and components for such vehicles, which provide meaningful improvements in fuel economy performance beyond certain specified levels." (http://www.atvmloan.energy.gov/keydocs/finalrule.pdf)

However, it does seem to me that the clear implication of the contract was to exclude any transfer of retooling funds as counting towards the bailout figure. (As InTrade has done with much greater clarity.) We can test this with a hypothetical: If congress had refused to transfer additional funds to any of the automakers and did not change the rules governing the retooling fund, would a loan made from that fund to GM constitute a bailout? Surely the answer to this would be "no". And given the contract clearly eschews any need to consider the purpose of loans made, the fact that the rules governing this pre-existing fund are changed should be of no relevance.

Perhaps an even more significant point in favour of not allowing retooling funds to count towards a bailout is the following sentence from Matt's contract clarification: "Specifically, a decision to relax restrictions on a US$25 billion loan previously made to GM will NOT contribute to the US$5 billion minimum transfer total, because this results in no new transfers to GM." Although there are some difficulties with the wording of this "clarification" (the fact that the US$25 billion loan was not "made to GM"), its meaning is clear. It was clearly referring to the retooling fund - the only $25 billion loan and, indeed, the one specifically referred to by InTrade in its contract definition. The inference to be drawn from this clarification was undeniably that any money transferred from the retooling fund would not count as a bailout - as others have said, what else would be the point of this "specific" clarification? In my opinion, traders have surely relied on this and it would be unfair now to permit transfers from the US$25 billion retooling fund to contribute towards GM's bailout.



Now others may disagree with my analysis, but it seems like a situation that can be quickly cleared up with a definitive (and timely) ruling.

Matt Burgess said...

Folks, a clarification has been posted on the blog in a new post.

I understand there will be frustration either way on this issue. The decision was based on a very careful consideration of the wording of the contract as it stood and an overarching goal of staying consistent with that wording, the details of the program in question, and a desire to provide some much-needed certainty.

jojo said...

I entirely agree with PMoney's comment and entirely disagree with the new changed ruling by the latest clarification by Matt. What a fiasco this has been for me and probably for many traders. I am now awaiting a considerable loss from this contract.