AIG and GM's Viability

This is surreal. Basically AIG has government guarantees that its CDSs will be worth face value at the end of the day and that includes some holders of GM bonds who also hold CDS hedges on those bonds. If GM goes belly-up then those holders of CDS hedges for GM bonds get all their money invested in GM bonds back. So why then would those GM bondholders want to exchange bonds for stock? Sheesh - talk about the left hand not knowing what the right is doing. ;-)

Hat tip to The Business Insider.