The point about the credit default swaps is right on but the question comes down to, like it did with Chrysler, to who owns them. If they are banks who are living on TARP money and therefore subject to government pressure, it might not matter. The Chrysler bankruptcy and the upcoming GM one are fake "political" BKs. They are going to be alike in that in contrast to a normal BK that a certain class will be favored to the point that the company will not have reduced costs enough to survive. It will put off the inevitable long enough to get through the next congressional election cycle but that's about it.

Do you put any credence on the claims reported in WSJ that many of the non-TARP bondholders have recieved threats from the White House?

So far it looks like all that's been confirmed is that some lawyers are claiming they have clients who are afraid to go public becuase of possible gov't retribution for their public disclosure of the alleged threats (which could be for real or could be completely fabricated with no way to tell between the two). I'm not sure if there's significance to the lack of attention from other outlets in this case since AP still seems to be more focused on whipping up swine flu panic and so many papers are skeleton crews taking their cues from the wire services.

I do agree with your asessment that the result of accepting the debt-for-equity swaps that GM is offering (and the TARP banks are presumably being instructed to accept) will ultimately mean a total loss for all takers (which will likely mean the UAW medical fund will be made whole out of the U.S. Treasury on top of the $10Bil loss the gov't will eat). Between the dilution and the reverse-split, the swap recipients will end up with 1% of the number of shares they get for the bonds (probably trading at or below $1/share even after the consolidation), and since the deal is being designed almost specifically to maintain the structural problems which got GM to where it is now probably the only hope of any value being derived from those shares is if the profitable foreign operations were spun off into a new, viable company and the North American operations are left to either die or get fully nationalized (and possibly combined with the NA portion of Chrysler once Fiat cherry-picks Opel and spits out the rest). Even the subsidy that the "cash for clunkers" bill is being rejiggered into probably won't be enough to salvage these wrecks in the long run.

If I were a bondholder, I'd definitely take my chances with counterparty risk on a CDS over the extremely high likelihood of getting completely wiped out in the debt-for-equity deal.