Monday, December 8, 2008

GM.BAILOUT Contract Clarification 9/12/08 12:00am

For the contract GM.BAILOUT, iPredict considers it important to clarify its position regarding any loan or loans made to General Motors under the Advanced Technology Vehicles Manufacturing Loan Program (ATVMLP). The GM.BAILOUT contract includes the condition that a transfer of at least US$5 billion to General Motors is required for the contract to be judged true and pay $1.

For the reasons outlined below, iPredict considers ATVMLP funds WERE NOT committed to GM by the US Government prior to the contract's launch on 14 November. Accordingly, any loan or loans made to GM under the ATVMLP WILL contribute to the $5 billion minimum in the GM.BAILOUT contract.

Some background on this decision is relevant.

On 30 September 2008 President Bush signed into law the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act 2009 (Pub. L. No. 110-329; "Continuing Resolution 2009") source in which Congress set aside $7.5 billion as a guarantee on loans to eligible parties totalling no more than $25 billion. Loans will be funded by the Department of Treasury and administered by the Department Of Energy. source

Car makers must apply for loans under the ATVMLP, and to qualify for a loan a car maker must meet certain criteria. Criteria include being financially viable and having improved the fuel efficiency of their light duty vehicles since 2005. Applications for the first tranche of loans are due by December 31, 2008. Additional tranches will be due every 90 days thereafter as long as authority remains to make additional loans source, source, source.

Although the Continuing Resolution 2009 funded a loan guarantee, which on its own would disqualify this as a transfer to GM (clarification 4) unless GM defaults prior to the contract's close (clarification 7), loan principle will be funded by the Department of the Treasury, a department of the US Government.

iPredict has judged ATVMLP loan(s) to be included for the following reasons:

a) ATVMLP loans come with eligibility criteria and GM's eligibility under these criteria was uncertain at this contract's launch;

b) this contract's wording refers to "funds committed to GM". For the purposes of this contract iPredict considers no commitment was made to any one company on that date and that conditions required to satisfy "funds committed to GM" was not met; and

c) if GM is judged eligible for loans under ATVMLP then this will result in a new transfer to GM from the US Government.

ATVMLP loan(s) must be approved (but not necessarily paid) by the Department of Energy or any other US Government agency prior to this contract's close to contribute to the $5 billion minimum.

In the post "GM.BAILOUT Contract Definition Clarifications" on this blog dated 16 November, updated on 19 November, the author wrote: "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." This comment was made assuming a loan had already been made to GM and at question was whether a change in this loan's purpose would affect the GM.BAILOUT contract. It continues to be the case that relaxation of conditions on 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. However, as explained here it is iPredict's position that any loan made to GM under the ATVMLP was not committed to GM by the US Government prior to the contract's launch on 14 November.

36 comments:

HolyBastard said...

Hahaha, I see you finally understand what I have been trying to explain the whole time. I thought the confusion could be some manupulation move by other trader(s), so when so many people got confused, I thought it would be a good chance to make some good profits myself (Manipulation is allowd under the rule of iPredict). But then again when I found out that Matt Burgess was not a trader, I feared that I could loss money because of the misinterpretation (as he was also confused himself). That's why I had been trying so hard to clarify the contract's definition, up til now.

jojo said...

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

Crampton said...

Guys, I'm taking a huge bath on this contract (see below), but the ruling is in keeping with the spirit of the contract.

Is it a loan on any terms? Yes.
Would it be dished out before 2010? Yes.
Were the funds previously committed to GM? No. The programme was put in a while back, but they're distorting it so much that it requires a separate senate/house vote to get the money to GM. If it takes a vote TODAY to get the money to GM, how can it not be new funds?

I'd shorted hugely figuring that they'd not get 60 votes where a fair number of Republicans seem to have remembered that Republicans ought oppose this kind of thing (and that they're representing southern districts with Toyota plants). 40 GOP senators with a bit of spine could delay things 'till January.

Adjudicating these things can't be fun -- there's always ambiguity that can't be fully specified in the initial contract definition. The ruling here is in keeping with the spirit of the initial contract and doesn't seem out of line with the letter of it either.

Cut and paste of my losses on this one below :(

GM.BAILOUT -400 $0.4013 $0.9002 $0.50 - $199.56

Anonymous said...

Well I shorted as well based on this and I'll continue to short this stock while the price is high. Democrats only have 6 definite GOP votes so far, they will need 12 of the 60 GOP for support as well as White house approval. So I'm hoping it could still go either way.

http://www.reuters.com/article/topNews/idUSTRE4B50CL20081208

PMoney said...

I actually agree with Crampton (mostly), though I am also losing money on it. My only gripe is that earlier "clarifications" actually created the uncertainty and confusion rather then resolving it. The ruling is consistent with the original contract definition, but not with later clarifications. At the very least, the clarifications did much more harm than good. If this ruling had been made much earlier on, there would have been a much more level playing field.

Mike K said...

This was ALWAYS a "buy". The Fed Govt will NEVER let 250,000 jobs go in the current climate, with the potential fallout of up to 1.5 million in related businesses. It would make Obama's programme to "create" 2.5 million "new jobs" even more of a frace than it already is.

PMoney said...

Mike, thanks for your insightful analysis. But quite why you think the Bush administration would see itself responsible for implementing Obama's "frace", I'm not sure.

Syphoon said...

I was long on this until the additional clarifications. #6 in my reading was almost specifically referring to the ATVMLP loans. Being caught very short now, I'm sour about this. And why did it take this long? The ATVMLP has been a viable factor for weeks now.

Anonymous said...

Syphoon is right. This should have been addressed well before now. If Matt had not made clarification #6 none of this would have happened. Just what is clarification 6 supposed to mean?... Which $25bn fund were you "SPECIFICALLY" referring to? Is it a fund that you just invented to confuse people in some sort of sick social experiment.

Dibbo said...

Yes, clarification 6 sucked me in as well (if it wasn't meant to refer to the retooling loans then it was superfluous). But I really just blame myself for trading a contract where the terms were so clearly open to conjecture. I guess that is the lesson to be learned by all of us and the Ipredict team in future.

ltGorman said...

the intent of the ipredict team was always to remove the possibility of old money being counted as new money. this intent was correct and the wording protects this intent.

the error comes with the example of the retooling fund. people focused on the retooling fund as an example of old money being disallowed, including the ipredict team, when it was never really the case.

the contract wording was always correct. the intent, in my opinion was also correct. however the example of the retooling fund was based upon error and assumption.

as traders in a prediction market its your job to research and understand the terms and implications of each clause, not to confuse them with misguided quotes.

its probably easy for me to say this. after reading HolyBastards initial argument i could see it was correct and came out on the right side of the deal.

i suspect when forums are in place this sort of confusion will be ironed out significantly quicker - rather than being played out on page 2 of a blog posts comments section.

Anonymous said...

glad im not the only one who's lost some dollars then haha

Mike K said...

Won't you please excuse the small typo, PMoney?
As to the American Body Politic - it's a lot less partisan than you and other "shorters" apparently assessed it to be. Anyway, given the state of things in general, letting the US Auto industry go under purely as MORE sabotage on the Obama administration would have smacked of callousness beyond belief.

Matt Burgess said...

Folks, thanks for the feedback and suggestions. Frustrating day for some traders, something we want to avoid in future.

Forums are going to help speed up the rollout of clarifications in future. Forums will be underway in the new year. Another suggestion is, when a clarification occurs, to freeze stock long enough for traders to digest the news, and unfreeze at a specified future time. We also intend to increase the testing of contract definitions ahead of launch - a forum is one place to do that.

This sort of thing is hard to avoid completely but these changes will help to reduce the frequency.

Holybastard said...

To Everyone who is trading on iPredict:
Please be aware that "manipulation" is allowed under the rules of iPredict. So, certain comments posted on the blog could be simply a move of manipulation to misguide other traders for oneself's gain. Hence, it is important to be able to read the terms of the contracts in a "very literal and careful" manner. Research about the subject matter of the contract, before you start to trade, could also give you vital insight into the meaning and definitions of the contract.
Contracts from other similar trading websites such as inTrade, "maybe relevant" when confusions arised about the contracts here on iPredict. However, differences in the small details of the contracts from both websites might cause complete different rulings.

To ItGorman:
Since I have helped you made money on the Bailout contract by clarifying the meaning of the contract, against all odds, I really think you should give me a cut as a goodwill gesture for future collaboration. Hahaha.

Anonymous said...

Mike K - the bankruptcy they were referring to in the US was Chapter 11, that would allow the company to restructure - it doesn't mean all the jobs would be lost as Chapter 11 bankruptcy allows the company to continue to trade. It's not a Chapter 7 type traditional bankruptcy. Chapter 11 is still supported by some republicans as a way for the company to restructure and cut the neccessary staff. Some republicans would argue that this is a better plan than pouring 5 billion into a company that will keep operating but will still be losing money year after year - as GM have for the last decade.

Mike K said...

To Anonymous:
Yes, I undertand the difference between Chapter 11 and other bankruptcy options available in the US and you're right. But C11 does not help much when CAPITAL is needed, along with the restructuring. In this case, the only counter-party even ABLE, let alone willing, to stump up any dosh is the Federal Government.

Anyway, our debate is not about whether the Bailout is a good or a bad idea (personally, I think it's utterly stupid, for the very reasons your point out), but whether the "World Improvers" would be able to resist the temptation to throw Other People's Money at the problem or not. Like I said, with that as the underlying issue, this one was ALWAYS a "buy".

JM said...

"Always a buy" ? Even if they do get bailed out, what if it were only by the $4 billion GM have said they need until the end of the year?
This "lesser bill" is only intended to tide them over until Obama is in power. If that happens then it wont satisfy the minimum contract requirement of $5 billion?
http://money.cnn.com/2008/12/07/news/companies/automaker_help_obama/index.htm?postversion=2008120808

This is why I still short GM at these prices.

Matt Burgess said...

Folks, probably a good time to make two additional points.

1. I do not trade for profit on iPredict. The trading I do is on a test account and usually 1 share at a time to check systems after a new release.

2. iPredict had no financial interest in last night's clarification. Our market maker is symmetric: whether a contract closes at $1 or $0, the market maker will be on the other side of trading that takes the equilibrium price up to $1 or down to $0. The symmetry moving up or down the S-curve makes us, the market provider, indifferent. Profit or loss earned by the market maker is mostly determined by the efficiency of the initial price.

Anonymous said...

I'm still short as well because the Republicans haven't yet confirmed the numbers required to pass this bill through the senate, and as JM says there is no guarantee that GM will even get the $5bn required. This contract might yet sit undecided until inauguration day, hopefully!!

Anonymous said...

Anyway, moving right on...Matt - will there be any new contracts released soon? Most of those currently released seem unlikely to trade much over coming weeks (thinking labour leader, building consents, currency).

Anonymous said...

I agree with Anonymous. Made 50% on this stock...need some new one's

jojo said...

So, my chances of success in this 'Bailout' stock rests on these three factors now: [1] Some senators opposed to the bailout will engage in fillibuster tactics until atleast the inaguration.. OR [2] The bailout is agreed to but outgoing President Bush will leave it to the incoming President Obama to sign the deal. or [3] The bailout of GM will be for less than the 5 Billion dollars specified here...What are your thoughts on these 3 scennarios?...Are they likely or not. Keen to hear your views.

LtGorman said...

Dear HolyBastard, i'll give you $3 for your amazing advice.

Anonymous said...

I've put $1000 down on the fact that GM CEO only asked for 4 billion to see them through till Obama takes charge. Why would they give more than asked for? Then again... I'm a bit of a gambler!

PMoney said...

Mike, apologies for drawing attention to the typo unnecessarily. What I don't excuse, however, is your failure to appreciate the key issue in this whole discussion. Up until the latest clarification the issue for most traders was not whether some assistance would be provided by the federal Government to GM, but from where it would come. The key question governing trading behaviour (illustrated by the leap in prices following the clarification) was whether assistance in the form of an ATVMLP loan would qualify under the contract definition. Given this was the issue, your comment that the contract was 'ALWAYS a "buy"' (for the reasons specified) had little, if any, relevance. It came across as an arrogant (and ignorant) "I told you so".

nDanger said...

I'm just glad I was still pottering around at 12:30am just after the clarification came. I'd been shorting and buying up till then. To those people that are still shorting and/or losing money on this stock, you seriously need to do a little more of your own research and not just from one or two sources. When it comes to prediction markets you only have yourself to blame.

Mike K said...

PMoney
Fair enough. Participating in this blog (first time I looked) has certainly impressed upon me the extent to which the finest of the fine print can sink a bet. Until now, I've approached trades with, perhaps too much of, a "macro" view. Hence the "always a BUY" statement. It wasn't meant to be gloating "I told you so".

Oh, and while your "forgiveness" is NOT sought, thanks for your advice anyway.

Holybastard said...

I think Mike's "ALWAYS a buy" statement merely shows his confidence in his own view and excitement in making money. I believe this is understandable as at least most of us like to make money. Moreover, I see no evidence supporting PMoney's view that Mike was being arrogant (by implying "I told you so") because Mike has not mention anybody in that particular post. I really think we should just chill, and be more considerate rather than hostile.

To LtGorman
I really think my help to you is worth well more than 3 bucks. However, your generosity is better than any less. And if you really meant it, please give Matt Burgess your authorization to credit monies from your account into mine. Thanks.

Mike K said...

To Anonymous (yesterday)
Bankruptcy and Bailout are not mutually exclusive

Bloomberg 9/12/08
"General Motors and Chrysler may not be asking for a federal auto bailout in order to help them avoid bankruptcy. According to press reports, the two companies may ask for a federal bailout after declaring bankruptcy.

Bloomberg reports, "General Motors Corp. and Chrysler LLC executives are considering accepting a pre-arranged bankruptcy as the last-resort price of getting a multibillion-dollar government bailout, said a person familiar with their internal discussions." Executives are reportedly worried that they could not restructure their companies ..."

ltGorman said...

HolyBastard:

what if i made a total of $6 profit. $3 would be a 50% cut. very generous indeed.

but really, if i went around crediting all sources of information i would have nothing left.

Dibbo said...

Matt - If Congress approves a maximum loan of $7bn for the period through to 31 Mar but GM only draw down the $4bn they need this month by 1 Jan, is the "transfer" under this contract deemed to be $7bn or $4bn? I would have thought the latter - can we urgently have yet another clarification on this please?

Anonymous said...

Dibbo, try the contact us link on iPredict... I received an answer on another query pretty much straight away.

Babytom said...

Matt, is Dibbo correct in the assumption that only funds drawn down prior to Jan 1 is eligible regardless of fund granted?

It sounds true and correct to me

Matt Burgess said...

Looking at this now, folks.

I am bound by what is already in the countract. I draw your attention to the following words in the contract as it stands:

[A] bail out will be deemed to have occurred if the US Government approves a transfer of at least US$5 billion to General Motors.

[O]nly transfers planned to be made before 1 January 2010 contribute to the US$5 billion minimum.

Matt Burgess said...

Clarification posted here:

http://ipredictnz.blogspot.com/2008/12/gmbailout-contract-clarification-101208.html