pbmax wrote:

Paulson now says bailout money will not be used to by junk assets from banks. Does anyone in Washington really know what this guy is upto?

http://www.foxbusiness.com/story/market ... ut-update/

Well, since many American institutions have turned to junk it's easier to buy their shares instead.

In fact the purchase process of bad assets was too complicated and therefore the banks get a direct capital infusion. It's probably already a socialist Obama thing (seize control over the banking system like Chavez)

Now congressional democrats are trying to re-write the bailout legislation so the Big Three automakers can get into the act. But get this, the federal government will get an ownership stake in the companies.

Wait it gets better... the Big Three want 25 billion just to keep production going and 25 billion to cover healthcare costs for the United Auto Workers union! Its worth repeating. The automakers want the American tax payers to cover the union's healthcare.

This is absolutely insane and we all should be livid over this- liberals & conservatives. I'm beside myself. The federal government might own part of Ford, GM & Chrysler.

Where's the end to this bailout? This is not the answer. The government taking over industries should be absolutely frightening to all of us (and I'm not trying to be alarmist).

http://www.foxnews.com/story/0,2933,451064,00.html (its an AP story)

I agree with you that it should NOT be the taxpayers who foot the bill for The Big Three's total fuckup and poor management of the auto industry.

On the other hand, I don't think that over 3 million people losing their jobs if "The Big Three" go under is going to help the economy or consumer confidence.

Yes, these automakers are knee deep in shit because they refused to build cars and vehicles that people WANT to buy. They latched onto the overpriced, gas-guzzling SUV as a way to quickly make money after the launch of the Iraq war and the poor assumption that gas and oil prices would stay low since we'd probably find a way to tap into Iraq's supplies, either through "payment" for our occupational and defense services or simply being overly friendly with whatever government we installed.

The Big Three totally fucked up, got it all wrong, and are now looking for someone else to pay for their incompetence. And yes, it's wrong that people like you and me are going to pay for their terrible choices.

However... I DO agree that the government should get some sort of control over the companies, and here's why:

First, assuming the auto companies recover and start turning a profit again, the taxpayers should be paid back for their 25 billion dollar loan. One way to guarantee that is through shareholder stakes.

Second, for years, the auto industry has ignored, shot down or fought against any sort of moves towards "green" technology because they already had an infrastructure set up to make tons and tons of money off of a oil/gas-powered combustion engine. They didn't care about pollution. They didn't care about the cost to the environment or the economy or our national security. They cared about making a profit and didn't give a shit about the costs. And even when the signs were looming in the not-to-distant future that gas-powered cars weren't the best thing for our environment, our economy or our national security, they still shot down and pissed all over alternatives and did what they could to make sure those alternatives never had a chance. In other words, they were anti-capitalist and anti-competition.

Well, now that stance has bit them in the ass and they've run their companies into the ground. They are behind on innovation. They are behind on cost-effective designs. They are behind on ecologically friendly systems. They are behind on reliability. And most people don't want to buy their shit.

One of the positives of the government having a stake in these companies is that we may be able to change the "stick in the mud" mentality and finally get The Big Three to make cars that meet the needs of today's consumer: eco-friendly, fuel-efficient, reliable, etc.

I actually see the timing of this to be a bit of a positive... we're on the brink of needing to make HUGE changes in how we produce and use energy, and I think having both the government and the auto makers on the same page could be very beneficial to everyone.

For the short term, though, millions of people's jobs and, yes, even their health insurance policies are in the balance, and suddenly having all those people either out of work or suddenly without health insurance would be a huge mistake. As much as it sucks for our taxpayer dollars to go towards footing that bill, it's better than the alternative, in both the short and long run.

Of course, there may be some better way to ensure we don't have a huge industry go belly-up that isn't so costly... although I can't think of it. The best solution I can see is that the people who work for the Big Three could be put into intensive training programs so that they're on the front lines of making the new, innovative, eco-friendly, energy-efficient and cost-effective cars that the American consumer is both needing and has been begging to have for a while now. That would keep all of those people employed (and probably would spring a need to employ even more people since it would be a thriving, fresh industry again) and benefit our country in a lot of ways... we "could" be leading in terms of the environment... we "could" be leading in terms of reliability... we "could" be making products that are superior to the competition... but I think we sort of need a fresh start, and given how terrible things are right now for the Big Three, there's no time like the present.

According to the article, the $25 billion would come from the $700 billion. I don't see a problem with that to keep the automakers going and people working, if in turn there are some form of stipulation for them to begin creating new technology that people have been looking elsewhere in their vehicles.

So far good portions of the first half of the $700 billion has gone to AIG, which in turn, good portions of that money is going towards luxury meetings and bonuses throughout the company. The Second half was believed to be going towards buying bad mortgages, which as of yesterday has been completely scrapped by Paulson. I say take the $25 billion from whats left for the auto industry before Paulson does whatever he wants, since he has unlimited power to do whatever he wants with all of the money, which was a bad idea when going into the bailout. There needed to be some form of accountability, and there isn't.

goliathvt wrote:

I agree with you that it should NOT be the taxpayers who foot the bill for The Big Three's total fuckup and poor management of the auto industry.

It wasn't poor management that landed them in this predicament, they followed market demands. The market demanded huge bloated SUVs, they provided them. It bit them in the ass when the market shifted to lighter more fuel efficient cars made by companies that use temps paid at 1/2 the wages.

If you are against GM being bailed out, you are essentially telling 2.5 million people that they can kiss their living wage jobs good buy. You might want to rethink that position.

That isn't even remotely true. The majority of U.S. Americans haven't wanted SUVs, as evidenced by the fact that even while SUVs were supposedly "booming," Honda, Toyota and other fuel-efficient cars were gaining steadily in sales. If U.S. Americans really wanted SUVs, then Japanese-made cars would have seen at least a dip in sales. No, instead, the Big Three spent billions of dollars trying to convince Americans that SUVs were the best things ever and their overpriced gas-guzzling, feature-poor models were worth it. Sure, a number of people bought the hype. But that's mostly what SUVs were... a hyped up craze. Now no one wants those hunks of junk and The Big Three have no viable alternatives. They also bought into a faulty business model that assumed gas and oil would remain cheap and, again, have had almost zero alternatives on the table to handle a time when that situation might change... and change it has.

Look, for over 40 years, the car companies have been insulated from the need to be innovative and competitive, thanks to an enormously strong lobby, taxpayer subsidies and protections provided by the U.S. government. The management is terrible... these are the same people that rejected seatbelts because they weren't cost-effective. They resisted air bags for the same reason. They have lobbied the government every single year to skip out on making their vehicles more fuel-efficient. They haven't kept up with the competition one fucking bit and the management of each has run their business into the ground. Frankly, they should all be fired.

And as I pointed out in my earlier post, I wish there was an alternative to bailing out the industry but it's too risky and not to mention morally shallow to allow the Big Three to tank because 3 million hardworking people rely on those companies for their paychecks. The bailout should happen for their sakes, not the worthless management that should be fired on the spot.

Yay capitalism! Banks receiving money from the bailout bill are hoarding the money, declaring dividends for shareholders, paying out bonuses and deferred compensation to executives and talking about getting their share prices up INSTEAD of taking the risk to begin LENDING again, which was the whole purpose for the bailout, right?

http://www.washingtonpost.com/wp-dyn/co ... 33_pf.html

http://www.bloomberg.com/apps/news?pid= ... E&refer=uk

From the Wall Street Journal:

Quote:

During the Depression, the Reconstruction Finance Corp. bought billions of dollars of preferred stock that came with voting rights. The government then barred banks from paying dividends until they had bought out the government's stakes. This time, the government stakes are nonvoting and the dividend restrictions are less onerous.

"It looks like a pretty good deal for the recipients and probably a pretty tough deal for taxpayers," said John Kanas, who was CEO of North Fork Bancorp until selling it to Capital One Financial Corp. in 2006. "It seems quite explicit that there's no strings attached to this money...It seems like a gift."

http://online.wsj.com/article/SB122398468353632299.html

Yay deregulated capitalism! Let's reward the criminals that got us into this mess and pay for the reward with our grandchildren's taxpayer dollars! Yay free-market capitalism! What a healthy, fair system!

goliathvt wrote:

That isn't even remotely true. The majority of U.S. Americans haven't wanted SUVs, as evidenced by the fact that even while SUVs were supposedly "booming," Honda, Toyota and other fuel-efficient cars were gaining steadily in sales. If U.S. Americans really wanted SUVs, then Japanese-made cars would have seen at least a dip in sales. No, instead, the Big Three spent billions of dollars trying to convince Americans that SUVs were the best things ever and their overpriced gas-guzzling, feature-poor models were worth it. Sure, a number of people bought the hype. But that's mostly what SUVs were... a hyped up craze. Now no one wants those hunks of junk and The Big Three have no viable alternatives. They also bought into a faulty business model that assumed gas and oil would remain cheap and, again, have had almost zero alternatives on the table to handle a time when that situation might change... and change it has.

The problem with this reasoning of yours is that it leaves out the people that purchase the Japanese or Korean cars because of the price. Remember, Toyota and Honda are very effective at union busting, and while they may have a comparative wage to the big 3, an insanely large proportion of their work force in the US is made up of Temps making half the wage and none of the benefits allowing them to sell a cheaper product.

Quote:

They have lobbied the government every single year to skip out on making their vehicles more fuel-efficient. They haven't kept up with the competition one fucking bit and the management of each has run their business into the ground. Frankly, they should all be fired.

Care to explain how they are going to make these vehicles more fuel efficient and environmentally friendly? (The answer you'll get when you talk to the engineers that really are trying to accomplish what you want)

Yes, they have made bad decisions like Ford stopping production of the escort that could achieve 50 MPG off the lot, or Chrysler stopping production of the Colt that got similar mileage, but to fire every single manager is stupid as you will lose good managers as well as bad.

Quote:

And as I pointed out in my earlier post, I wish there was an alternative to bailing out the industry but it's too risky and not to mention morally shallow to allow the Big Three to tank because 3 million hardworking people rely on those companies for their paychecks. The bailout should happen for their sakes, not the worthless management that should be fired on the spot.

Again, only some of the managers should go. Like American Axle's Dick Douche who got a nice raise after forcing through two buyouts that effectively cut wages in half (The UAW is partly responsible for that by not paying strikers more than $200/week, but hey...).

I guess I should clarify... I mean the top-most level of management... the ones that are obviously blind to market demands and who seem focused on short-term profits over company and product viability. Unless there's a case to be made that the top-level management has actually done something worthwhile? Not from what I've read though.

You do make a good point about the unions. Honda, Toyota, Nissan, etc. are definitely anti-union and forcefully so. On the other hand, the concessions that the U.S. auto companies push for and actually get are pretty scary too... lately my blood has boiled listening to how, all of a sudden, people's pensions that they worked 30+ years to earn will not be available to them. That's outrageous to me, esp. when the upper management (the kinds of people I would want fired) have seen huge pay increases during that time.

For the interested in here I'd like to comment some of the happenings as a follow up to the two topics "USA : The Bailout" and "USA : The Un-Bailout" which both have received a healthy number of replies, tossing around interesting ideas.

As a warning foreword I want to say all people can currently do is looking into the crystal ball. It's just some spend more time polishing the ball to get a clearer view while others unfortunately show a reflexive repetitiveness of election campaign or media "one liners". However feel free and invited to point out any factual errors.

None of what I write below is scientifically proved or to be taken as factual forward curve of events to happen, it is an assumption of the shape of things to come taking into account the odds and betting on the best ratio. I hope plenty readers will disagree without mindlessly linking to their personal version of conspiracy theories on youtube (ie the Democrats or Republicans ran the economy purposefully into the ground) or even worse, reciting empty wordshell campaigning advertising spots. The blame game is something we all can have a lot of fun with in two+ years time when things hopefully turn around and we all sit comfortably in handsomely paid jobs and decent houses. Pointing fingers will not add any value to this topic, in contrary it will depreciate it down to an insubstantial niveau.

Let's get it going, I'm unsure about the format, but let's see how it works out.

What is this crisis all about in simple terms?

If you look at it at the core it's shockingly simple. High liquidity was made available to the money market after the 2001 double event of new economy bubble burst and terrorist attacks at very low cost, effectively negative interest rates when balanced against inflation. The US economy relies to at least 60% on consumer spending, therefore consumer confidence is and always has been crucial. Negative real interest rates create a demand of goods which grow in value with inflation. Real Estate usually is expected to grow along the inflation. If you borrow money at 2% and have an inflation at 4% you automatically expect the have made an arbitrage gain of 2% per year. The same time you expect your loan purchase power value to depreciate with 4% and your real estate to appreciate in value at 4%. Calculate that forward a few years and reduce it by interest payment and you'll inevitably end up rich on paper.
After ten years the purchase power of your loan will be at 60% and the value of your house will be 140%. Find an appraiser to state this 140% value and you can go to the bank and withdraw another 40% based on the valuation. In theory it is a zero sum game - house appreciation and loan depreciation by inflation should add up to 100%. In fact you did not gain a cent, but on paper it creates the impression of untapped liquidity potential. This is fine as long as there isn't any premium in real estate appreciation on top of the inflation rate. However the US is in a phase of home value appreciation north of the inflation rate for a long time.
Value appreciation in excess of inflation without any real reason (explosive growth of population, discovery of the holy grail...) tends to correct itself more or less steeply. In this case excessive liquidity in form of widespread availability of cheap credit coupled with lax lending standards drove the home prices up even more. So everyone wanted to get into the game. It is understandable that people working hard for a living do not let the chance pass to make another six figures alongside without moving a finger and by saving rental payments the same time.
Seeing this opportunity banks decided to invent betting instruments for the common Joe. A good betting instrument is issuing out loans with no interest payment in the beginning, pricing in the expected home value appreciation as deferred interest rate payment. If these people default you simply foreclose and have made a profit.
Now you take these loans, bundle them up and sell them to FNM, FRE or securitize them on the money market as a mortgage backed security or what ever three letter name you can dream of. If you take a bunch of loans fully collateralized with a 100% face value and factor in 5% loan default rate add 10 year interest payment of x % you come up with a specific value above 100%. Now if the default rate rises to 8% and the value of underlying collateral decreases 17,5% the paper will fall in value well below 100%, let's just say to 74,5%. If you have bought this paper on margin you'll have to take care of the gap between 74,5% and 100% - a sudden a dramatic loss in value leads to write offs and margin calls (take not these numbers are not real world numbers, but in reality the system works this way).
Now these papers have suffered a drop in value but in addition the market realizes these originally good investments, often traded with a premium to valuation, inherit a higher risk as expected so the market decides to pay only 75% of the current valuation, which leads to market value of 55,875% of the original valuation. A pure disaster even for those who haven't bought any securities with leverage.
Write off such securities and your balance sheet will go bust, so you need to issue out more stocks to fill the gap. This will lead to share value dilution and causes write offs of institutions holding your shares. If you on the other hand hold shares of the institution holding your shares, you might face another write off and there it goes. A spiral and no one gets out of it since any move one institution makes fully affects all other institutions. This year ML sold a bunch of such securities for 22% value to Lone Star. This benchmark projected across all other institutions practically renders the securities worthless, albeit they still have a value (which for some mystery reason is never mentioned anywhere).

Now all banks sit on securities which no one would touch with a long pole while wearing a biohazard suit being encapsulated in a nuclear war safe panic room. Everyone is only looking at their own balance sheets trying to maintain cash reserves. What's best to maintain cash reserves? Stop giving it away to others!
All banks need each other for daily interbanking operations. Money flows through the system like blood through the human body. Clog one blood vessel and the system fails. First you start with deep vein thrombosis, then work up to pulmonary embolism, then a stroke and finally cardiac arrest. Market radicals claim not to intervene with deep vein thrombosis, assuming new blood vessels to grow around. Given enough time this will and can work, assuming you survive the initial life threatening situation. It's like not hitting the break when racing towards a tree. You never know whether the tree might step to the side unless you try.

What happens when banks stop lending each other?

It's simple - the credit market comes to a halt. At first the public thinks it's a good idea if greedy people don't lend money to other greedy people, they clearly deserve it after collecting high bonuses for years and so on. Then they see the credit lines of their employers getting cut, he defers the purchase of new corporate delivery cars and factory machinery renewal. The car makers and factory machinery suppliers see their sales shrink. They recalculate their options, close down a factory and lay off 10% of their workforce. Credit car companies see a decrease of percentage in employment of their customers. So they cut the credit lines. For those already above the line they experience the same as the greedy Wall Street banks did - a margin call. For many it's a pain, for others it means personal bankruptcy and foreclosure. Car makers see people loosing their jobs and they experience rising car loan default rates. Since those who aren't already financially troubled will defer consumer spending till the storm has passed by the car makers cannot sell many new cars. So they have an oversupply of new cars and unexpectantly rising used car stocks from defaulting customers (defaulting on credit card, mortgage or car loan - they try to cash in the value of the car) which wreaks havoc of used car sales prices and new car sales prices too, another blow to the sustainability of valuations. Car makers lay off people too, please go back to start and read through this partial spiral again.

Now already pressurized house prices will see another wave of people defaulting, go back to the banking part and read through the whole spiral again.

Meanwhile companies see their credit lines getting cut and they fall short of liquidity for daily operations. Now they don't lay off 10% of the people, but 100%. Another time to go back and reread the spiral development.

When will this spiral stop?

There are a few crucial points to get system back online.

Banks need to deleverage. That means the gap between the value of the securities and the outstanding loans need to get marginalized. Then they will start trusting each other again and the interbanking lending market will be functional again. This will take some time. How long? No one knows, predictions go from anywhere between 6 months for an initial easement and 25 years for a final clear up - a ridiculously high spread which renders it meaningless. In such cases you go from timing predictions to binary yes / no predictions. So will it work? Yes. That's the good news after the Paulson Plan approval. Hopefully it will put an end to the bankruptcy of major institutions.

House prices need to stabilize

House prices at some point need to stabilize. This is a hard task. First they will come off from their highs even more. This is expected to happen till 2010 / 2011 - again no one knows. It's just a projection based on what happened in the past, but we have a house price bubble and a financial crisis. Usually the financial system bails out the housing bubble, this wont work now. Sometime in the future the banks will have written off enough loans the match the underlying collateral. This is the point where increased sales should get reported the first time, assuming the employment market wont totally tank. Everything connected with house prices will recover alongside. An upward spiral starts and we'll end up in another bubble (it's inevitable, just the natural way things work).

Will a recession get avoided by the Paulson Plan?

Frankly, no. Unless you declare all corporations and institutions debt free by the government a recession cannot get avoided. That's easy to claim since we're already in it. Expect corporate earnings to fall from here, the DOW, NASDQ and S&P will follow accordingly. I wouldn't be surprised to see a 25% decline. That leaves investors with 75% of their equity as compared with a depression where it would play out the other way around. Time to panic? Temporarily yes, but it wont help the cause. There are going to be mass sell offs like the day the US government rejected the Paulson Plan the first time, causing the biggest daily point drop of the DOW in history. Yet this daily drop pales in comparison to other stock market crashes lowering the DOW 20% in a mere trading session. Remember, lower stock values result in less equity for a company to borrow against and sometimes even worse, margin calls sending companies down the drain. Sustaining stock market value contributes positively to solve the crisis. The Paulson Plan is serving the purpose to provide a certain bottom for the market. avoiding a full crash. Never overestimate the ability of trees to sidestep a racing car.

What's the most basic punchline of the Paulson Plan?

To acquire securities based on home mortgages to strengthen balance sheets of banks and re institute the trust among banks to get interbanking lending back up again. Get the money flowing again and avoid total system failure.

Why is the system worth saving if it's so faulty?

Well, we don't have another system. The faulty part has stopped and it's unlikely we will see an identical event of things again very soon. Future financial institutions will still carry the same names (for those still existing), but they will operate along altered terms and conditions. Explosive growth will be a thing of the past. Investors are very risk averse now and will continue to be for a long time to come. High yields represent high risks, so we will likely see a yield compression of low risk investments. The future market participants, which is the sum of all of us combined, will determine the future development. Low risk investments representing corporations working along very reduced risk positions will be expensive and the high fliers of the past cheap. In order for a company to refinance at good rates they will want to position themselves as risk free as possible. One could say a there would be an environment of common interest in risk reduced corporations and what they do. Drawing a line under everything it means the system we don't want to save in fact wont get saved. It will get morphed into a new system which, at some point, will morph again and again.

But I didn't want to bail out greedy bankers!

You didn't. You bailed out the economy as a whole since there is no economy without a working financial system. You may not like it, but it's the way it is. No approval rate poll will change facts, they only show how the general public interprets facts, carefully colored to portray it this or that way. Naming it the Wall Street bailout plan basically predetermined on how the general public will interpret it. More cold blooded analysis will lead to the inevitable conclusion that an economy is an interconnected system of which each part needs to work and serve it's purpose. Take out a random gear wheel from an engine and it might sputter along a short time before it blows up. The Paulson Plan is getting portrayed as engine grease (and due to his links to Wall Street as corporate welfare for his friends) but it's glue to kit a large gear wheel to keep the engine running till one can afford to the replace it with a new one.

But now everything has to jumpstart upwards!

No, it wont. The Paulson Plan is to prevent a fatal system failure, not more fuel for an economy running red hot to unseen heights. Politicians of all coleur have made bold claims how healthy and fundamentally strong the US economy is. They either did it on purpose to prevent a panic, out of total lack of understanding or because they had been badly advised. It is understandable the general public now expects everything to be good, especially after getting told all is totally fine, then it wasn't but now there is a bailout plan and so on. It is important to understand that housing bubbles never land soft, they crash with a heavy impact and enough momentum to derail the economy in good times. In bad times they derail the whole system. If you have ever survived a bad car crash you should know that it's not a binary event where you're either dead or alive. If you survive the damage needs to get assessed, you'll spend some time in hospital and the have to start looking for a new car and eventually for a new job too. You may have to make punishment payments too, as well as cost for ongoing physiotherapy.

Disclaimer: This post is personal and not meant to steer anyone to purchase or sell stocks, bonds, real estate or to carry out any action whatsoever. Feel free to point out errors and correct me where I'm wrong, but spare us all mindless election babble. Remember disagreement is fine and very welcome as long as it is backed up with facts and / or good thinking. My post does not contain links to sources, if you answer to agree / disagree please spare me / us the usual youtube crap but take your time and process your thoughts in own wording. I've gone through that pain for you too.

I should add a small correction and the inevitable addition I did not think about first hand since it's the major consequence of a dead interbanking market but it should get written.

The latest benchmark for mortgage backed securities is 10 Cent on the Dolar, a 10 billion transaction by Deutsch Bank. If you think about they acquired 100 billion in toxic papers for 10 billion. If the benchmark rises up to a still disastrous 20 Cent they'll get praised for making a phantasitic bet, or the other way around of course.

Now the consequences of the dead interbanking lending market

Some, if not all or at least many banks have issued out long term loans and refinanced them with short term loans to collect small margins of the differing interest rates. This is not following book teaching, also known as the golden rule of banking "never refinance long term with short term" but very much commonplace. Now these short term refinancing loans expire and due the dead capital market there is no way to refinance, no matter what no matter how. This is totally unrelated to any toxic papers as the press now loves to call them - this is the immanent system failure which should get prevented with the Paulson Plan. That means even a bank with zero exposure to any problematic assets could go under overnight despite having never ever done anything wrong, never conducted bad lending practices, did never bet on any derivatives - anything. It's silly I forgot to write the most pressing problem while being so busy explaining the outcomes and causes, apologies to the readers (assuming someone took the time and effort to decypher my post).
If you wonder why some banks acquire other banks currently, respectively get panic-merged, it's the stable consumer deposits they are after. Merge ML with Bank of America and you'll end up with a consumer bank and a stabilized investment banking division. Those who didn't merge turned themselves into commercial banks (Goldman Sachs and Morgan Stanley) to get direct access to the FED window. This access allows them to refinance directly via the FED rather than the capital market. Why is that important? Because the capital market is dead and they need to refinance daily, just as any other bank.

BNA: I want to thank you for posting your series of articles on the current economic crisis. Your insight is both thought-provoking and eye-opening.

I am no economist, and though I do understand a lot of what has and is happening, there is much that is still beyond me. Thank you for taking your knowledge and sharing it in a way that laymen such as I can digest.

phantazm11 wrote:

BNA: I want to thank you for posting your series of articles on the current economic crisis. Your insight is both thought-provoking and eye-opening.

I am no economist, and though I do understand a lot of what has and is happening, there is much that is still beyond me. Thank you for taking your knowledge and sharing it in a way that laymen such as I can digest.

Thank you very much - I'm glad you like it.

I'm no friend of overly complex explanations, albeit some are still too long.

The best for interbanking lending is probably:

5 banks need to show one USD every fifth day to be ok. The total amount of USD on the market in circulation is 1 and each bank has 1 USD to keep in reserve by law.

Bank A shows 1 USD on Monday and passes it along to Bank B Tuesday morning, Bank B shows 1 USD on Tuesday and passes it along to Bank C on Wednesday morning...

All fine as long as they continue to do so.

Next Monday morning Bank A wakes up and doesn't find it's 1 USD on the bank account. They call Bank E who had it last on Friday and find out Bank E just filed for Chapter 11, so there wont be a buck in the mail today. So they call Bank C to ask for 1 USD and they tell you they can give 1 USD earliest Wednesday evening after they did show it.

You negotiate with person you have to show the money to and they say it's fine, but don't ask twice. Now you call Bank B and tell them just for one time they'll receive their 1 USD on Thursday rather than Tuesday - they should just call the money man and tell him.

Then on Wednesday evening you still have no money in the mail and call Bank C, but they can't give you a dime since they are still waiting for Bank B which is waiting for Bank C to get the money delivered by Thursday. It goes on endlessly till the next quarterly earnings report.

All of a sudden each bank shows 1 USD write off because the system got stuck. Now all they're left with is the 1 USD they have to keep in stock, but they still got warrants of each other for 1 USD. In order to get it flowing again they need to sell this warrant to somebody for 1 USD. But since each has only 1 in Stock and nothing in cash they all refuse each other. Now the 4 remaining banks go to mother FED or similar like a resolution trust corporation and sell their warrants for 25% of face value each. Now everyone gets 25 Cent to show. Now they call the money man and tell him they're not going to show 1 USD each weak, but 25 Cent each day. He okays that in 3 out of 4 cases, he doesn't like Bank A since they show on Monday morning which is always a bad day. Now Bank A calls Bank B, C and D to ask for 25 Cent each.

But beware - fool me once, but don't fool me twice! Well knowing what happened on Friday with Bank E they refuse and bang - Bank A is gone too.

Meanwhile the consumer rings and asks for a loan - guess what's the answer...

BNA! wrote:

Meanwhile the consumer rings and asks for a loan - guess what's the answer...

According to this Video, the answer might be "Why yes of course, Sir !"

http://video.google.com/videoplay?docid ... 2583451279 ( to be taken with a grain of salt like most of these kinds of videos )

rebb wrote:

BNA! wrote:

Meanwhile the consumer rings and asks for a loan - guess what's the answer...

According to this Video, the answer might be "Why yes of course, Sir !"

http://video.google.com/videoplay?docid ... 2583451279 ( to be taken with a grain of salt like most of these kinds of videos )

Thanks for writing one line, a smiley and linking to 47 minute presentation I cannot watch for time & travel reasons (not time travel). I was kindly asking people to respond in writing.

Can you please sum up what you link for me to read?

The next institution to fail: HypoRealestate
You don't know them? Don't worry, news will educate you tomorrow.

It's a split division from German HypoVereinsbank running on their own since 2003. They emit mostly excellent papers from state financing and currently troubled real estates. None of their original businesses is subprime - they lend money to governments, but hold US mortgage papers too which has led to severe write offs this year. Ultimately they found a large private investor, J.C. Flowers (Goldman Sachs alumni like Hank Paulson) who overtook 25% (I think) this summer at 22,50 € / share. Last week you could have gotten them for 3,-€ / share, last year for 45,69 € / share. This weeks share price is only double the dividend of 2006 earnings - billions of life savings already destroyed, US life savings too. They have a subsidiary in Ireland (go there, save taxes, have very little regulation - all the US often wants to be, expect being Irish) which does state financing. They have to refinance their business but can't.

The German covered bond market is the second largest in the world and never ever did one of these papers fail, never ever. the HypoRealEaste bank represents 20% of this market which has a volume of 900 billion Euros or 1,260 trillion USD.
They cannot refinance now their short term loans - the capital market is dry, or as an user here triumphantly put it, completely misplaced and misguided, "Ding dong, the wicked bitch is dead" when they rejected the last chance to save it. These people have no idea, frankly, they should be held accountable for their destructive behaviour not to save the market as long as they still could. They had time to give TV interviews reciting polls that they might make a decision against current sentiment in the general public, a general public which cannot tell a CDS from a CDO but is sitting on ARMs covered by revolving credit cards! Shame on politicians! Their only work is the make the right decisions, not the most popular decisions! Ah, enough venting.

Now this bank would need a 12 months lifeline of 100 billing Euro, or ~ 140 billion USD. That is a bank which just wants to refinance secure German covered bonds! We're not taking Countrywide Financial stuff here!

That is five times more what was needed to save Bear Stearns, almost 2 two times as much as the lifeline thrown to AIG or exactly 20% of the Paulson Plan total volume. I hope even the simple minded seeking relief by mindlessly repeating election phrases or media one liners will finally come to accept this is a crisis they cannot resolve by closing their eyes and weeping "just make it go away, it's ugly" in a rocking chair.

Why is this potential bank failure so remarkable (along with Fortis, Northern Rock, HBOS...)?
The US says "hey, we send you a problem" and we say "ok, thanks, we'll let it wreak havoc here and send it back with increased strength".

I hope they are going to save it, but if even much larger US banks cannot throw AIG a lifeline of 50% the size, how could our small, often joked about institutes stem double the amount? All bets are open. I wish I had more dry powder sitting on the sidelines.

OK, just a few more numbers before I leave you alone:

The measure of credit risk the market perceives in the US economy can always get looked up when watching the TED spread.

The TED spread is the spread between interest rate paid on three months US T (reasure bills) vs. E (uro) D (ollars) contracts. T-bills are considered one of the most secure investments and Euro Dollars are deposits held at banks outside the US in USD currency. The rate at which Euro Dollars get handed out is called LIBOR (London Interbank Offering Rate).

The spread between those two measures the risk the market sees in the US economy. If banks want to lend each other they ask for a risk premium over T-bills.

When all goes well and along the lines, the spread is somewhere around 0,50%. If a T-bill pays 3% the LIBOR will be 3,5% on a regular, sunny day with mild clouding and moderate temperature, no planets are required to line up.

The days the house voted down the Paulson plan the TED spread went up to 3,5%. that is a 600% premium over regular business.

Now of course spin doctors will step in depreciating the factual truth by claiming the TED also shot up in the new economy bubble blow up and the 1990ies recession. Yes, that's true and at that time there has been no shortage of doomsday sayers. but in both cases the spread was "only" 1,25% alas half as bad as it is now, but at the time is was considered the end of the world. So basically we're now at double-end-of-the-world or six times out of regular planetary alignment. There once had been a phase where it was almost as high (iirc), that was October 20th, 1987 - the day after the DOW dropped 22,6% in one day, also referred to as black Monday. It was the largest stock market decline in history. However during this phase there was no crisis of sort, therefore the crash hit the markets in a more healthy condition. Preceding the event was a soft landing of US economy.
So far we're not even near such a market correction yet, let alone a soft landing of the US economy or plenty financial institutions accumulating cheaply post-crash priced stocks.
I remember these events since they took place exactly a month after my 18th birthday and everyone looked pretty much concerned while I was pressing for my own car :oops:

Now if someone steps in here and says "fine, credit has become more expensive, so shall be it" then it's unfortunately half true, not even 10% true. The TED spread measures the cost, but not the activity.

To see an image of how such a spread looks like go to the Financial Times:
http://ftalphaville.ft.com/blog/2008/09 ... rice-risk/

As they put it nicely - the statistical chance something like this can happen is once every 6800 years.

The Great State of Massachusetts also needs a little assistance from Uncle Sam.
http://www.foxnews.com/story/0,2933,432841,00.html

Remember, California needs a 7 billion dollar loan from the Treasury. The government is now in the business bailing out private & semi-private organizations and states. Thank goodness we have such a gracious and caring government! But... the government cannot create its own wealth. All its money comes from the US tax payer which means every time they "save" and industry or company, the tax payer is footing the bill. I live in Wisconsin. Why do I have to pay taxes to cover the butts of other states that cannot balance their budgets due to excessive social spending?

The federal government WAS NEVER INTENDED TO BE THIS POWERFUL. The founding fathers inherently did not trust government and the Constitution is written to limit the government's power, not the people's. The was (and still is) a radical departure to how countries where organized and governed. What's going on right now is one of the biggest hoaxes in our history. The government does not need to save us, we need to save ourselves from the government.

These institutions (financial markets, states, corporations, etc...) will continue to operate in a reckless manner knowing that they can always get a little help from the US tax payer when the sh*t hits the fan. This needs to stop. Its called a moral hazard.

California needs to run out of money. Massachusetts needs to run out of money. Perhaps then the voters will realize that liberal social spending policies do not work and that states cannot tax tax themselves out of deficits.

Government is never "the answer", its usually the problem.

I contend that you cannot put a cost on what the government is doing right now. In the long run, this is not "the right thing to do". Freedoms are being lost, the free markets are not as free as they once were, and the government continues to get bigger and more powerful. How do you put a price on that? Its a thousand times more than 700 billion dollars. Once the government gets more power, it never gives it back. And we are supposed to feel good about this? Am I supposed to call my Senator and thank him for this?

We are in big big trouble.

Its a hoax being played out on the US citizens, plain and simple.

So you propose the US, henceforth the world to run of out money.

Moral hazard it currently is, indeed - or should I say it was?

I agree no government should be so powerful, ultimately the government is to serve the population, not the other way around. What better way to serve the population than to save them from a collapse? Liberal spending is tax cuts while burning money - give it to everyone. Blue collars sit in the weapon factories happily slaving away, white collars invent nice vehicles to collect the money, the middle class prospers till the day the bubble bursts.

All state spending should be in a balance. Much of every national economy depends on state spending (infrastructure to name one of the biggest chunks). I appreciate your input, yet don't you think all you post is incredible one sided? I mean you never got down to the substantial issues, all you post is a seemingly holy crusade against anything that's not Republican party.

To each his own, that's what democracy and freedom of speech is for, but I don't get the impression you even tried to read a line of my posts. This is an US issue, not a partisan issue, sending out daily shock waves with increasing power throughout the world.

For the record, I have an MBA from NYU and back in late 90's I worked on at least a hundred mortaged backed securities deals on Wall Street. I know the ins and outs of mortgage lending and securitization.

I stand by my assessment that liberal policies initiated as far back as Jimmy Carter greatly contributed to the credit crisis we are in.

http://www.washingtonpost.com/wp-dyn/co ... 26_pf.html

I could go on and on with names upon names of leftist democrats that pushed for "affordable housing" & sub-prime lending, and then tried to cover it up when the sh*t began to hit the fan. The HUD and Fannie Mae/Freddie Mac were directly involved in this scam, but it goes all the way back to Jimmy Carter.

But there's more to this problem than just troubled sub-prime loans. Credit default swaps are also to blame. This is a largely unregulated financial intrument & the market is estimated to be as large as 60- 70 trillion dollars (that's more than twice the stock market). Wait until this shoe drops...

http://www.time.com/time/business/artic ... 52,00.html

pbmax wrote:

But there's more to this problem than just troubled sub-prime loans. Credit default swaps are also to blame. This is a largely unregulated financial intrument & the market is estimated to be as large as 60- 70 trillion dollars (that's more than twice the stock market). Wait until this shoe drops...

http://www.time.com/time/business/artic ... 52,00.html

Now we're together with the numbers and the issues.

I'm not an economist but this is how I see it. I'm very interested in BNAs take on its accuracy.

The free market works like this: People try to buy low and sell high. Simple so far. Now, every time that happens; money is made, but for every action there is an equal and opposite reaction and either someone has to loose that capital, or capital has to be injected from outside that system. Without capital being ploughed in, just as much capital would be lost overall in a days trading as made, which clearly isn't the case. So every day seed is thrown to the pigeons from mortgage borrowers interest etc and the birds scrap over it. In this highly competitive feeding frenzy a system is needed to bleed the highest possible amount out it. Once you're confident of making capital, the best thing to do is to plough as much as possible into it to get the highest return, and every one else does the same. Then people realise that they can use make believe capital and as long as they're up, no harm done. So everybody used make believe capital, that they called credit, based on how much they were owed by the mortgage borrowers interest etc. This is what created a make believe value on assets. Now, the equal and opposite reaction to this bubble of make believe capital was a very real negative equity bubble. As they are two haves of the same coin, they burst together and cover us with make believe capital which is now next to useless (and therefore greatly devalued) in a market that's not buying, and a very real shower of shitty assets and dept.

But it's not that simple. Here's why I don't think there should be a European or any other bailout: Like most people are aware; it's a lack of confidence that's making it a lot worse than it needs to be. The pigeons are now holding on to their capital because exchanging it for assets when there's the chance of even more bail out bird seed being thrown in is just too tempting to ignore. It turns out that the eight dimensional bubble thing from earlier doesn't burst but bounces, and now we're getting a new bubble building up of real capital in the form of money people are holding onto, and make believe toxicity in the form of assets that are now greatly undervalued. They will buy again, just leave 'em to it and ride out the storm instead of dragging it out, and then bring in new global laws banning the trading of make believe capital.

Here's why really I don't like capitalism in its current form: It is totally dependent on growth. The ridiculous thing about it is that those pigeons can then go and exchange the seed they've accumulated for real life things like houses, cars, you name it. And the really annoying thing is that they make us exchange the leftover seed back to them because we want to live, and then in some places they take more of our seeds by force because they've run out. Then they blame us for not spending any fucking seeds and slowing growth. And the totally stupid thing is that the seeds aren't even real. The only thing that gives it any value is that other people value it, just like anything that's traded but the difference is that anything else has an inherent value in itself. Money is just a number.

Here's why it's just evil: They don't want us to pay off our debts. If the lower classes live dept free, comfortable lives then the upper classes can't live the high life because everything is relative in the sense that the growth that's essential to capitalism requires us to struggle and be tempted into the finance that powers our "growth", if we want to have things. For every person that does well, somebody else struggles, and if everyone stopped spending and decided to save for the future then the economy would totally grind to a halt and people would loose their jobs and not be able to save money anyway. So the system needs lots of people to struggle or it doesn't work. And the more we struggle, the more money there is at the top for the greedy shits who have no idea what being a decent person is about, to through onto the fire in one of their fifty houses.

To me a ban on the trading of credit would create a more modest, but more stable economy without the false growth of recent years.

I don't have any kind of deep understanding on the subject, this is just how I see it.

wal wrote:

Here's why really I don't like capitalism in its current form: It is totally dependent on growth.

There is no way to reply to your post with a post short of a line of books.

I want to tackle just the one point most people fall short to understand since it's hard to model into any numbers.

Growth is a relative thing, not necessarily an absolute thing. Ideally the economy should grow along the population growth on absolute terms (in my opinon).

But there is the other side of growth - quality. Quality growth is not absolute, it's relative. Say you get your first job and your first car. Then you level up, the usual result is you go after a larger car, you go from a Yugo to a Porsche in three decades. In a sense of exchanged items nothing has changed on an absolute level. If we live in a time of prosperity Yugo will cut down business, Porsche will scale up, total item sales will rise either at the expense of sold metro line tickets and bicycles, or, it will only affect metro line tickets and people keep their bicycles too.
In a downturn more Yugos will get sold, along with metro line tickets and bicycles, Porsche will scale back. If you take just cars, metro line tickets and bicycles into the equation you will have 100% transportation units to get sold. It's just the shares within this peer group will grow and shrink at the expense of each other. You could also look at expensive Mac sales vs dirt cheap notebooks from a no name company.

The whole thing about emerging countries is not economic growth, it's quality growth. What drives us all as humans? Economic growth or quality growth? I'd be willing to bet my entire, currently reduced, net worth it's quality growth. We all want two thing: more and better, if we can't have more we want it better. Do you need two cars to ride to work? No. Assume you can only have one since no more parking slots are available - what will you do in times with growing income? You'll go for higher quality, level up from company to company, engine to engine...
You work while travelling a lot - will you upgrade your notebook to a lighter, faster one which is nice to look at and fun to operate? Or will you downgrade on purpose to a 60 minute battery life second hand model weighing 8 pounds and needs a separate suitcase to carry?

People in emerging countries don't really fantasize about trading in their 7 series BMW for a Porsche 911 turbo, they dream about moving from bicycle eventually to motorbike. From rice to meat two times a week.

It looks like economic growth, but in effect it's only a growth of balance sheets, not a growth of exchanged items in relation to living conditions. Moving gravel to asphalt roads is quality growth, from canned food to fresh vegetables, from living in one room with 12 people to have a two room hut, from this to that...

I'm sure there are good economic writeup's, but that's just my personal take on things. When I look around my home, I see mostly quality improvements, not really increased item head-counts. I work on a dual monitor, which is a quality growth rather than a item number increase, albeit economic spread sheets would report it as item growth.

We'll see postponed quality growth, but eventually it'll pick up fast in late 2009. It's not only more money, it is to a large degree more quality.

Quote:

To me a ban on the trading of credit would create a more modest, but more stable economy without the false growth of recent years.

I don't have any kind of deep understanding on the subject, this is just how I see it.

Trading credit is not a bad thing, no not at all. But trading it over the counter, excluding it from balance sheets and structuring it in a way no one can even come close to understand it should get regulated to the point where investors flock to easier to understand things. I've worked on credit transactions north of 20 billion USD and they all had been understandable transactions. But I can easily see how much of a black box they become in an instant if I'd take them all, put them into a securitisation portfolio and mix it up other portfolios which got securitised a year before. It's the same as looking under the hood of a 1950 VW Beetle and a 2008 Porsche 911 (they share the same base, add some heavy evolution). The first will be easy to fix if something small stops working, the latter one will be like a black monolith the monkey people in Kubrik's 2001.
We all like to drive Porsches, but when it comes to fixing it on a dark, rainy highway at 3am you prefer a 1950 VW Beetle.

Circuit City goes Chapter 11.

We need our electronics plus Best Buy would become too powerful. I think Circuit City needs a bailout too.

*************************

The Treasury Secretary was given unprecedented power under the bailout legislation and now law makers are having second thoughts...

http://www.msnbc.msn.com/id/27635885/

pbmax wrote:

I think Circuit City needs a bailout too.

If you'd think you wouldn't write such a post.

pbmax wrote:

The Treasury Secretary was given unprecedented power under the bailout legislation and now law makers are having second thoughts...

http://www.msnbc.msn.com/id/27635885/

I wish they had second thoughts when they started a crusade all over the world.

New York Times article on the bailout frenzy. Everyone and their brother trying to get a piece of the Treasury's bailout pie...

http://www.nytimes.com/2008/11/12/busin ... ref=slogin

Yay socialism for corporations!

Hehe.

Where are all the people crying "SOCIALISTS!" and "WE R GOE ING DAWN DA PATH OV DA COMMUNISMS!!!!1111ONEONE!!!1111"?

Now would be a good time to talk about the consequences of socialism for the wealthy, the dangers of corporate welfare and how corporations aren't learning responsibility and independence. They're learning how to be lazy system-sucking moochers.

This is your cue, pbmax!

Quote:

I wish they had second thoughts when they started a crusade all over the world.

A second thought would require there to be a first thought, instead of shoot first ask questions later.

Paulson now says bailout money will not be used to by junk assets from banks. Does anyone in Washington really know what this guy is upto?

http://www.foxbusiness.com/story/market ... ut-update/

pbmax wrote:

Paulson now says bailout money will not be used to by junk assets from banks. Does anyone in Washington really know what this guy is upto?

http://www.foxbusiness.com/story/market ... ut-update/

Well, since many American institutions have turned to junk it's easier to buy their shares instead.

In fact the purchase process of bad assets was too complicated and therefore the banks get a direct capital infusion. It's probably already a socialist Obama thing (seize control over the banking system like Chavez)

Now congressional democrats are trying to re-write the bailout legislation so the Big Three automakers can get into the act. But get this, the federal government will get an ownership stake in the companies.

Wait it gets better... the Big Three want 25 billion just to keep production going and 25 billion to cover healthcare costs for the United Auto Workers union! Its worth repeating. The automakers want the American tax payers to cover the union's healthcare.

This is absolutely insane and we all should be livid over this- liberals & conservatives. I'm beside myself. The federal government might own part of Ford, GM & Chrysler.

Where's the end to this bailout? This is not the answer. The government taking over industries should be absolutely frightening to all of us (and I'm not trying to be alarmist).

http://www.foxnews.com/story/0,2933,451064,00.html (its an AP story)

I agree with you that it should NOT be the taxpayers who foot the bill for The Big Three's total fuckup and poor management of the auto industry.

On the other hand, I don't think that over 3 million people losing their jobs if "The Big Three" go under is going to help the economy or consumer confidence.

Yes, these automakers are knee deep in shit because they refused to build cars and vehicles that people WANT to buy. They latched onto the overpriced, gas-guzzling SUV as a way to quickly make money after the launch of the Iraq war and the poor assumption that gas and oil prices would stay low since we'd probably find a way to tap into Iraq's supplies, either through "payment" for our occupational and defense services or simply being overly friendly with whatever government we installed.

The Big Three totally fucked up, got it all wrong, and are now looking for someone else to pay for their incompetence. And yes, it's wrong that people like you and me are going to pay for their terrible choices.

However... I DO agree that the government should get some sort of control over the companies, and here's why:

First, assuming the auto companies recover and start turning a profit again, the taxpayers should be paid back for their 25 billion dollar loan. One way to guarantee that is through shareholder stakes.

Second, for years, the auto industry has ignored, shot down or fought against any sort of moves towards "green" technology because they already had an infrastructure set up to make tons and tons of money off of a oil/gas-powered combustion engine. They didn't care about pollution. They didn't care about the cost to the environment or the economy or our national security. They cared about making a profit and didn't give a shit about the costs. And even when the signs were looming in the not-to-distant future that gas-powered cars weren't the best thing for our environment, our economy or our national security, they still shot down and pissed all over alternatives and did what they could to make sure those alternatives never had a chance. In other words, they were anti-capitalist and anti-competition.

Well, now that stance has bit them in the ass and they've run their companies into the ground. They are behind on innovation. They are behind on cost-effective designs. They are behind on ecologically friendly systems. They are behind on reliability. And most people don't want to buy their shit.

One of the positives of the government having a stake in these companies is that we may be able to change the "stick in the mud" mentality and finally get The Big Three to make cars that meet the needs of today's consumer: eco-friendly, fuel-efficient, reliable, etc.

I actually see the timing of this to be a bit of a positive... we're on the brink of needing to make HUGE changes in how we produce and use energy, and I think having both the government and the auto makers on the same page could be very beneficial to everyone.

For the short term, though, millions of people's jobs and, yes, even their health insurance policies are in the balance, and suddenly having all those people either out of work or suddenly without health insurance would be a huge mistake. As much as it sucks for our taxpayer dollars to go towards footing that bill, it's better than the alternative, in both the short and long run.

Of course, there may be some better way to ensure we don't have a huge industry go belly-up that isn't so costly... although I can't think of it. The best solution I can see is that the people who work for the Big Three could be put into intensive training programs so that they're on the front lines of making the new, innovative, eco-friendly, energy-efficient and cost-effective cars that the American consumer is both needing and has been begging to have for a while now. That would keep all of those people employed (and probably would spring a need to employ even more people since it would be a thriving, fresh industry again) and benefit our country in a lot of ways... we "could" be leading in terms of the environment... we "could" be leading in terms of reliability... we "could" be making products that are superior to the competition... but I think we sort of need a fresh start, and given how terrible things are right now for the Big Three, there's no time like the present.

According to the article, the $25 billion would come from the $700 billion. I don't see a problem with that to keep the automakers going and people working, if in turn there are some form of stipulation for them to begin creating new technology that people have been looking elsewhere in their vehicles.

So far good portions of the first half of the $700 billion has gone to AIG, which in turn, good portions of that money is going towards luxury meetings and bonuses throughout the company. The Second half was believed to be going towards buying bad mortgages, which as of yesterday has been completely scrapped by Paulson. I say take the $25 billion from whats left for the auto industry before Paulson does whatever he wants, since he has unlimited power to do whatever he wants with all of the money, which was a bad idea when going into the bailout. There needed to be some form of accountability, and there isn't.

goliathvt wrote:

I agree with you that it should NOT be the taxpayers who foot the bill for The Big Three's total fuckup and poor management of the auto industry.

It wasn't poor management that landed them in this predicament, they followed market demands. The market demanded huge bloated SUVs, they provided them. It bit them in the ass when the market shifted to lighter more fuel efficient cars made by companies that use temps paid at 1/2 the wages.

If you are against GM being bailed out, you are essentially telling 2.5 million people that they can kiss their living wage jobs good buy. You might want to rethink that position.

That isn't even remotely true. The majority of U.S. Americans haven't wanted SUVs, as evidenced by the fact that even while SUVs were supposedly "booming," Honda, Toyota and other fuel-efficient cars were gaining steadily in sales. If U.S. Americans really wanted SUVs, then Japanese-made cars would have seen at least a dip in sales. No, instead, the Big Three spent billions of dollars trying to convince Americans that SUVs were the best things ever and their overpriced gas-guzzling, feature-poor models were worth it. Sure, a number of people bought the hype. But that's mostly what SUVs were... a hyped up craze. Now no one wants those hunks of junk and The Big Three have no viable alternatives. They also bought into a faulty business model that assumed gas and oil would remain cheap and, again, have had almost zero alternatives on the table to handle a time when that situation might change... and change it has.

Look, for over 40 years, the car companies have been insulated from the need to be innovative and competitive, thanks to an enormously strong lobby, taxpayer subsidies and protections provided by the U.S. government. The management is terrible... these are the same people that rejected seatbelts because they weren't cost-effective. They resisted air bags for the same reason. They have lobbied the government every single year to skip out on making their vehicles more fuel-efficient. They haven't kept up with the competition one fucking bit and the management of each has run their business into the ground. Frankly, they should all be fired.

And as I pointed out in my earlier post, I wish there was an alternative to bailing out the industry but it's too risky and not to mention morally shallow to allow the Big Three to tank because 3 million hardworking people rely on those companies for their paychecks. The bailout should happen for their sakes, not the worthless management that should be fired on the spot.

Yay capitalism! Banks receiving money from the bailout bill are hoarding the money, declaring dividends for shareholders, paying out bonuses and deferred compensation to executives and talking about getting their share prices up INSTEAD of taking the risk to begin LENDING again, which was the whole purpose for the bailout, right?

http://www.washingtonpost.com/wp-dyn/co ... 33_pf.html

http://www.bloomberg.com/apps/news?pid= ... E&refer=uk

From the Wall Street Journal:

Quote:

During the Depression, the Reconstruction Finance Corp. bought billions of dollars of preferred stock that came with voting rights. The government then barred banks from paying dividends until they had bought out the government's stakes. This time, the government stakes are nonvoting and the dividend restrictions are less onerous.

"It looks like a pretty good deal for the recipients and probably a pretty tough deal for taxpayers," said John Kanas, who was CEO of North Fork Bancorp until selling it to Capital One Financial Corp. in 2006. "It seems quite explicit that there's no strings attached to this money...It seems like a gift."

http://online.wsj.com/article/SB122398468353632299.html

Yay deregulated capitalism! Let's reward the criminals that got us into this mess and pay for the reward with our grandchildren's taxpayer dollars! Yay free-market capitalism! What a healthy, fair system!

goliathvt wrote:

That isn't even remotely true. The majority of U.S. Americans haven't wanted SUVs, as evidenced by the fact that even while SUVs were supposedly "booming," Honda, Toyota and other fuel-efficient cars were gaining steadily in sales. If U.S. Americans really wanted SUVs, then Japanese-made cars would have seen at least a dip in sales. No, instead, the Big Three spent billions of dollars trying to convince Americans that SUVs were the best things ever and their overpriced gas-guzzling, feature-poor models were worth it. Sure, a number of people bought the hype. But that's mostly what SUVs were... a hyped up craze. Now no one wants those hunks of junk and The Big Three have no viable alternatives. They also bought into a faulty business model that assumed gas and oil would remain cheap and, again, have had almost zero alternatives on the table to handle a time when that situation might change... and change it has.

The problem with this reasoning of yours is that it leaves out the people that purchase the Japanese or Korean cars because of the price. Remember, Toyota and Honda are very effective at union busting, and while they may have a comparative wage to the big 3, an insanely large proportion of their work force in the US is made up of Temps making half the wage and none of the benefits allowing them to sell a cheaper product.

Quote:

They have lobbied the government every single year to skip out on making their vehicles more fuel-efficient. They haven't kept up with the competition one fucking bit and the management of each has run their business into the ground. Frankly, they should all be fired.

Care to explain how they are going to make these vehicles more fuel efficient and environmentally friendly? (The answer you'll get when you talk to the engineers that really are trying to accomplish what you want)

Yes, they have made bad decisions like Ford stopping production of the escort that could achieve 50 MPG off the lot, or Chrysler stopping production of the Colt that got similar mileage, but to fire every single manager is stupid as you will lose good managers as well as bad.

Quote:

And as I pointed out in my earlier post, I wish there was an alternative to bailing out the industry but it's too risky and not to mention morally shallow to allow the Big Three to tank because 3 million hardworking people rely on those companies for their paychecks. The bailout should happen for their sakes, not the worthless management that should be fired on the spot.

Again, only some of the managers should go. Like American Axle's Dick Douche who got a nice raise after forcing through two buyouts that effectively cut wages in half (The UAW is partly responsible for that by not paying strikers more than $200/week, but hey...).

I guess I should clarify... I mean the top-most level of management... the ones that are obviously blind to market demands and who seem focused on short-term profits over company and product viability. Unless there's a case to be made that the top-level management has actually done something worthwhile? Not from what I've read though.

You do make a good point about the unions. Honda, Toyota, Nissan, etc. are definitely anti-union and forcefully so. On the other hand, the concessions that the U.S. auto companies push for and actually get are pretty scary too... lately my blood has boiled listening to how, all of a sudden, people's pensions that they worked 30+ years to earn will not be available to them. That's outrageous to me, esp. when the upper management (the kinds of people I would want fired) have seen huge pay increases during that time.