What is the USA trying to accomplish with GM?

GM has revealed it's super strategy to make itself turn around:

Borrow a LOT of money... lower production.... sack all it's workers.

Tadaa.

Negotiations to lower it's non-production related costs? (bondholders, UAW, Executive salaries, DELPHI...) ... not needed!

... I thought the whole point of the USA bailing out the autos was to save jobs?

Turns out that the USA would probably have saved more jobs if they had just let GM go into receivership, or even better, just NATIONALISED GM, by making a mandatory public offering for it's outstanding shares. Would have only cost it 2-3 billion, as I said before.

... What nonsense about "no one will buy a car from a company about to go bankrupt"?

GM is now persona-non-grata for the nonsense it is performing now.

This whole bailout issue and Rick Wagoner's dishonesty (his claim of a turn-around, his prior claims to only need 15billion turning into 30billion), the claims that bailing out GM would save a million jobs, then turning around and firing 47,000 workers...

WTF???

You think that anyone will want to buy your stupid General Motors cars now??? Your entire brand name is POISON!!! .... Seriously, at this point, far far better just to declare bankruptcy, and repackage the cars under a new brand name... like... errr.... ok, I will admit that I fail at coming up with creative/ popular names... the only thing going on through my mind is Marshal Motors or Corporal Cars. ... sigh.

Look, the amount going into the mortage bailout is 80 billion.

You think that stopping GM from going bankrupt is 40% as important as stopping the rash of home foreclosures?

GM needs 2 billion a month just to stop itself going bankrupt!

OK... 2.6 billion in April, actually. (2billion Febuary)

...

The entire business is doomed and flawed. If Obama and his team do not realise this, they are just being obstinate/stubborn.

Rick Wagoner and his big talk.

Rick Wagoner, CEO of General Motors, SAYS that GM will turn around and repay it's loans.

Well, let him put his money where his mouth is, and I bet you he will tell a different story.

Ask him to put in 75% of his networth into GM as a loan... which will be BELOW the American taxpayer in seniority, of course! In fact, the US should make this loan on of the lowest in terms of seniority.

Fact of the matter is, it is now becoming a certainty that GM bondholders will be making huge losses on the loans they gave GM. So, why would we assume that any other creditors would not?

The ONLY way GM can turn around is if everyone that GM owes money to forgives a huge bulk of those loans.
It's essentially insolvent.

The Bailout Game!

http://www.thebailoutgame.us/

Now you too can be a Paulson or Bernanke! Good luck!

It's a fun little game. :)

FED is setting precedents. Bad ones.

Time to test your parenting skills. Ok now, you have 5 children. One day, your 2 eldest childred are caught shoplifting in a candy store, which you disapprove of. What do you do?

a) Punish them and make sure to do a better job teaching your kids the difference between right and wrong.
b) Take money from your other 3 kids and give it to the first 2, so they won't have to steal so much.

Evidently, America thinks that the correct answer is b).

Yes, essentially, those who commit crimes are being rewarded, to the detriment of those who behaved themselves.

...

This is rather short sighted of them.

If the American government were TRULY confident in a recovery, they would have let all those big corporations go bankrupt... after all, it would only be a temporary delay in recovery, not something permanent, right?

...

BUT... doing things like these bailouts IS PERMANENT. Or it has a very very long lasting effect...

Essentially, they are creating the next set of problems, 5-10 years down the road, or even sooner, there will be another mess caused by companies taking on too much risk. Because America has stupidly more or less announced to Wall Street: No matter what you do, no matter how big a mess you get in, we will bail you out... and the MORE damaging the mess you make is to America, the MORE likely that the FED will be forced to bail you out using taxpayer money.

None of those high flyers who created this mess have been punished, penalised, or suffered significant losses.

The moral of the story? You can and SHOULD do as much of this funny business as possible... because history has shown that you can and will get rich... and you will not have to face any consequences whatsoever.

...

Yeah yeah, the current argument now is that "these businesses are too large to fail", and "it will make the economy collapse even further".

... I got news for you:

It won't.

In fact, a business collapsing will cause a new equilibrium to be reached. As long as there is demand for a service, the supply will be filled. It's a truism of capitalism.

Letting a COMPANY collapse does not necessarily mean the collapse of the BUSINESS TRANSACTIONS of the company... like energy, this business is not destroyed, it merely changes form/ company. Other companies will prosper in the wake of rival companies closing down.

Whether or not the corporations are bailed out, the amount of investment banking, mortages, and auto sales will generally remain unchanged. The only difference is that workers, customers, and money will all flow from the liquidated companies to the stronger companies.

Whether or not the corporations are bailed out, staff layoffs will occur, output will be reduced, branches will be closed... and it will follow the rule of EXPECTED DEMAND for services... it in fact has only a tiny correlation with whether individual companies are saved or go bankrupt.

So, what is the point of this entire bailout exercise?

Seriously, these bailouts are not saving jobs, or creating liquidity (which is another debatable issue), or generating growth... the only achievement is propping up Wall Street, and keeping certain politicians rich with ill gotten wealth.

What is with all these terms of the bailouts anyhow??? America is talking rubbish now about "not wanting to nationalize too many companies" and "history has shown that the government does not run businesses well".

Er... you know what? At the moment, that is REALLY obvious... in fact, at the moment, the FED is showing it's stupidity by not accepting CONTROL over the companies... not demanding a share of REWARDS for these companies... but it is accepting a huge share of the RISK!!! You know... refuse to partake any of the good stuff, but accept to share all the bad stuff?

Anyhow, I don't see any CEOs being forced to put their own personal wealth into loans into the companies involved. Now... THAT would make me have confidence in GM recovering... if you could get Rick Wagoner to invest 90% of his networth into General Motors... with lower seniority than any bondholders and taxpayers! Yeah, that's right... if Rick Wagoner agreed to sink 90% of his networth and he would only be paid back after everyone else is paid back, that would make me absolutely certain that he has confidence in his own company.

The truth is, Rick Wagoner knows that GM is doomed. He would never agree to such a deal. Heck, he would not even agree to put 90% of his networth into a loan which would only be behind the American taxpayer. He KNOWS that any taxpayer money put in will be at huge risk, very likely to go up in smoke.

...

They are setting a VERY bad example and precedent. The motivation is now HUGE for anyone to do repeat exactly what caused this current crisis. America is in fact REWARDING THE IRRESPONSIBLE and PUNISHING THE RESPONSIBILE.

Mark my words... in 10 years time, the FED is going to look back at this current period and say, "We shouldn't have done all those bailouts... they went against the very principles of free market, capitalism and democracy. They set a bad precedent, which is causing history to repeat itself."

General Motors Bankruptcy

Hard to tell, at the moment, but my personal bet is that General Motors is going to declare bankruptcy.

TARP aid? You must also realize something... when they say the autos might get TARP aid, they mean they might get it after Obama comes into power. Cause there isn't much money left in TARP currently.

Anyhow, at this point in time, it has come to the stage where it DOESN'T MATTER whether they get bailed out or not. And I think that some people realize this.

GMAC is pretty much dead, and without GMAC, GM can barely make sales. GMAC has always provided inventory funding to the tune of 80% of all new GM vehicles.

GM is going to cut production in the first quarter of 2009 by an additional 30%.

GM has stated that it is over-represented at the dealership level and needs to cut back around 2,000 dealers

It's pretty obvious at this point that GM is basically a failing business, and all their talk of a turnaround is rather far fetched.

They think that declaring bankruptcy will not endear them to car buyers? ... Do they think that taking taxpayer money to cover their own mistakes will make people fall in love with their cars???

Anyhow... this is looking more and more like a big huge delaying tactic... pass the buck onto the new administration, wait for GM to fall apart... BTW, by 5pm GMT we will watch as GMAC's attempt to become a bank fails. At which point, extending a loan to GM will be pointless. Truly truly pointless. Because it will become UNABLE TO SELL CARS, as there will be NO FINANCING.

The first recipient of the stimulus package in 2009?

Taken from: http://news.yahoo.com/s/nm/20081205/us_nm/us_economy_california_shortfall

"SAN FRANCISCO (Reuters) – California is on track to run out of cash in February or March and faces a $15 billion cash shortage by the end of its fiscal year in June unless officials plug an $11.2 billion budget gap, according to the state's budget director"


Well... there you go. Obama, there's your first request for that stimulus package.

As Obama said, America will have to spend hundreds of billion in this stimulus package to create new jobs/ protect existing jobs.

Looks like California wins the race to request the first USD15 billion in order not to have to cut back on state government spending...

Or is Obama going to spend ADDITIONAL money on top of the bailout? Well, guess if Detroit starts asking for money for the state budget too... if every state asks for their fair share... looks like this is going to be a very VERY VERY expensive year for America... watch their Deficit go from below 1 trillion to 4-5 trillion in 18 months, maybe?

GMAC's bank holding plan = FAIL

Condensed from: http://www.thestreet.com/story/10452422/1/gmac-extends-deadline-for-tender-offers.html

"NEW YORK -- GMAC Financial Services, the financing arm of General Motors, said Wednesday that it hasn't raised enough capital to become a bank holding company and qualify for aid under the government's $700 billion bank rescue plan.
In a last-ditch effort to raise the needed cash, GMAC extended the early delivery time for its private exchange and cash tender offers by three days, to Friday and warned that a failure to convert to a bank holding company would have a "material adverse effect" on its business.
Wednesday's move marked the third time that the New York-based company, which is majority owned by the private equity firm Cerberus Capital Management LP, has extended the deadline in hopes of drumming up the needed funds.
In order to approve GMAC's application to become a bank holding company, the Federal Reserve has said the company needs at least $30 billion in regulatory capital. In order to meet that requirement, GMAC said it would have to have about 75% participation on its offers.
So far, only about $6.3 billion, or 22%, of the outstanding GMAC notes have been tendered and about $2 billion, or 21%, of the outstanding ResCap notes have been tendered, GMAC said.
If the offers aren't successful, GMAC said it will withdraw its application to become a bank holding company and it's unclear what its next move would be.
GMAC said that if it's unable to transform into a bank holding company and complete the GMAC and ResCap offers by the end of the year, it would have a "near-term material adverse effect on GMAC's business, results of operations, and financial position."
The company, which is 49% owned by GM and provides both home-mortgage and vehicle loans, has been hemorrhaging money this year, hurt by both the crisis in the mortgage lending industry and slumping demand for vehicles.
Last month, GMAC warned that ResCap could fail. The business accounted for about $1.9 billion of GMAC's total $2.52 billion third-quarter loss.
GMAC has also slashed its costs in an attempt to stem the losses. In September, the company said it would close all of its 200 retail offices and lay off about 5,000 employees, with the bulk of cuts coming at ResCap. "


Summary. They've extended the deadline 3 times already... and this 3rd time they only got 3 days?
They need 30 billion and only got 8.3 billion so far...
Somehow, I don't think they will raise the other 22 billion in 3 days. How about you?

The point is, if they could raise 30 billion, they wouldn't need a 10b bailout effective immediately, would they? !!!

So, yet another "clever scheme" unravels.

FAIL.

Citibank Buys Spanish Highways!

http://www.thestreet.com/story/10450542/1/todays-outrage-citi-takes-cash-to-spain.html
http://www.marketwatch.com/news/story/citi-fund-buying-spanish-highways/story.aspx?guid=%7BC58D2714-519F-4995-98EA-3CFBA8BF1681%7D&dist=TNMostRead

"Citi Infrastructure Partners is buying most of Itinere Infraestructuras from Sacyr Vallehermoso (ES:018287021: news, chart, profile) , a Spanish construction group eagerly trying to shed debt as the Spanish housing market weakens. "


Oh man oh man! Is citi TRYING it's level best to make the American public angry with it???

Bad enough when taxpayer dollars were going to big banks, and they bought out the little American Banks...

Now Citi is taking that bailout money and using it to bailout a struggling Spanish Highway company? (Itinere)

I've said this once, and I'll say it again. Paulson should have criminal charges pressed against him.
America's bailout money, approved by congress to help the average American and his debt, is going to shore up Spain's failing infrastructure.

I'm ANGRY... and I'm not even American! I wonder how they are taking it?

Ooh. Citigroup shares just fell 10%... I guess we have our answer right there folks.

Big 3 turns into 1, 1 and 1.

I knew it couldn't last.

According to this article:

http://www.nytimes.com/2008/12/01/business/economy/01auto.html?pagewanted=1&hp

the Big 3 have decided to abandon the image of camaredie and save their own skins.

Basically, since the government is asking for viable plans... they are each going to submit their own plans. And be judged on their own personal merit.

It's every man for himself now! OOH.

In fact, it is very likely that someone will ask: so... if we can only bailout 2 of you and the weakest has to declare bankruptcy... which one is the weakest?
And then... it will turn into the biggest pile of backstabbing ever. Ha. Actually, Ford might encourage that, since Ford is apparently in the strongest position.
Truth be told, the smartest thing Ford could do now is let the bailout fail entirely.

That would save Ford. If GM and Chrysler cease operations, and Ford scoops up all their customers who love American Cars... yes. That would pretty much put Ford firmly in the black, I think.

I think.

In fact, I would go so far as to say this: If GM and Chrysler go bankrupt, I would put 20%-40% of my total networth into buying Ford shares. And I would expect a 250% return on my investment in 5 years.

At the moment, though, I'm not touching any of the 3.

Citigroup bailout is an outrage!

http://www.thestreet.com/story/10449706/1/todays-outrage-citis-not-worth-45-billion.html

"Now Citi's the latest bailout story, with the U.S. government donating $20 billion to the cause. That's on top of the $25 billion in taxpayer funds Citi received last month.
So why doesn't the government own all of Citi now? For $45 billion, it should -- the bank was only worth about $20 billion at Friday's closing share price of $3.77. (For what it's worth, Wachovia's trading above $4.) "

Yup... even at the price of $6, citi is still worth less than $45 billion.

GEEZ. The American government is psychotic. GM is set to be next.

The GM bailout is looking like it's going to be using 10 billion to bailout a company worth 2 billion.

Yeah, they're talking about potential earnings, and damage, and blah blah blah.

Imagine if your rich, fat, lazy, neighbour got a loan for RM50 million from the government, at 5% interest. Your neighbours job? He's the kampung moneylender. Oh, and BTW, his enforcers just came by your house yesterday to inform you that you now have 1 month to pay back your loans (at 25% annual interest)

Yeah, no wonder Americans are really angry with the rubbish going on there right now.

What the FED? TALF Credit Card Bailout is NONSENSE!!!

Excerpts from: http://www.thestreet.com/story/10450220/1/what-the-fed-talf-makes-me-ralph.html

"Treasury and the Federal Reserve on Tuesday said they will provide $200 billion in financing to investors buying a variety of consumer debt, including credit card loans. The program, called the Term Asset-backed Securities Loan Facility, or TALF, is supported by $20 billion in credit protection from the $700 billion Troubled Assets Relief Program, or TARP, approved by Congress last month.
In theory, the TALF program is intended to provide liquidity to the system, allowing big pocketed investors like hedge funds to buy up debt and allow lenders will make more loans. Moreover, the government loans are non-recourse, meaning if anything happens -- if the borrower goes bust -- taxpayers are on the hook.
Not a bad deal for the lenders. They make more loans and collect more interest from borrowers, and the government shoulders the risk. But as the lenders get sweetheart deals from the government, they are playing games with their customers.
Citigroup recently informed customers -- even those in good standing -- that it would jack interest rates from 9.99% to 24.99%, according to a letter one recipient shared with TheStreet.com. The customers can reject the higher interest, but that means they can't charge any more on their cards and must pay off the current card debt.
You'd think a company that just received a $20 billion bailout from the government -- in addition to the coming TALF aid -- might be more mindful of customer service
The TALF loans are for one year, but the Fed said it would extend the term, if necessary. The loans are also not subject to mark-to-market accounting. If you take in collateral without pricing it, you are buying it. Read between the lines -- there is no "lending" happening here.
Wouldn't it be nice if while the Federal Reserve was making all these deals to help our banks and credit card companies they forced them to do a little something for consumers? Couldn't the Fed force the banks to limit the interest rates they are charging? Force them to cap late payment fees?
Yes. The Fed could do all this and more. But the Federal Reserve is not helping taxpayers. The Federal Reserve is helping badly run banks. "

Oh geez, where to start?

This is really really looking to be a big huge RIP-OFF of the American public.
In my opinion, they should freeze Paulson's bank accounts and suspend his travel documents.
I am almost CERTAIN he has been accepting enormous bribes at this point.

The 700 billion bailout was voted YES by congress... to help MORTAGE HOLDERS and the American Public! ... and AS SOON as it was approved, Paulson decided not 1 cent would go to American citizens... he gave half of it to the banks! Who then used it to pay bonuses (until Goldman showed that you COULD refuse to give bonuses and somehow retain your staff, proving the previous claims to be a pack of lies) and also to buy up other ailing banks in a predatory vulture style of behaviour.

Now, this TALF was meant to help out Credit Card debtors (ie 99% of americans), students, and auto loan applicants.
Instead, WTF??? This has turned into a massive gift to credit card companies... and these companies have turned around and basically frozen credit to their existing cardholders, and raised interest rates too???
Hello??? This plan is obviously to enrich credit card companies at the expense of the consumers AND the taxpayers!!!
Let's look at the details of this loan again... it is non-recourse??? In other words, the borrowers can just declare "oh. We are short on cash this month. Therefore we are defaulting. Sorry." and you basically can't do ANYTHING???

Secondly, the loans are non marked to market. NOT MARKED TO MARKET! Yes! That means that even if the credit card debt used as collateral for this deal becomes 100% non-performing loans, ie there is 100 billion worth of loans and ALL of it becomes bad debts... it is still going to show up as 100 billion worth in book value!
Heck, non-marked to market means that you could use an uninsured HOUSE worth USD1million as collateral... and when the house burns down (uninsured), you would still list it as worth USD 1 million even though there is nothing but a pile of burning timbers!

Obviously, this is insanity.

Paulson should go to jail for this. I am not joking. I am not joking whatsoever. There are laws about this sort of thing, go look up the rules about Accounting Practices, Paulson. There are rules about duty and agreements and such, and Paulson has clearly ignored the rulings that Congress made regarding the bailout. This is a travesty.

Update: http://www.nytimes.com/2008/11/26/business/economy/26tarp.html?ref=business

FINALLY, it's time for an AUDIT and OVERSIGHT COMITTEE to go submit a report on the bailout effort thus far.

Some stuff I saw today.

"We demand that your governments give us 100 BILLION DOLLARS, or terrors will be unleashed upon your country, devastate it's economies, the people will suffer!"


Sound familiar?


Well, no wonder, you must have just watched IGOR today, like me! Watch as the Evil Scientists blackmail the world into giving into their demands for cash, in order to enrich themselves!







Oh, what, you thought I was talking about America's Banks and Auto Industry?





...





Nah. Those guys are Truly Evil, Igor is PG rated... I mean corporate America is blackmailing/ demanding hundreds and hundreds of billions, otherwise the damage will push the whole world into years of recession and blah blah blah.








Also, I watched Quarantine today. Scary. But there's a very important lesson that people can learn from it:





Sometimes, you can't save EVERYONE. When you have someone who is guaranteed going to die, you can't go risking all these healthy people's lives.





If someone had stood up and culled out the infected while they were still catatonic, everyone else would have been fine.





Instead, they tried to save everyone. And in the end, everyone dies. It's that OVEROPTIMISM thing I keep talking about. In an ideal world, everyone would be wealthy, and no one would be unemployed or homeless... but in fact, this is not such an ideal world as you might hope.



You know what? It's become painfully obvious that in this economic crisis, YOU CAN'T SAVE EVERYONE. There's just too much damage, and not enough resources. At the end of the day, you gotta make some tough decisions. Who will live, and who will die, so to speak.


At the end of the day, everyone knows this. But, sometimes the heart rules the head, and some decisions are just too painful to make all at once.

Pakistan is a messed up country

Excerpts from:
http://thestar.com.my/news/story.asp?file=/2008/11/16/apworld/20081116132745&sec=apworld

"Pakistan's decision to borrow $7.6 billion from the International Monetary Fund to stabilize its economy at a time of rising militant violence could lead to a public backlash"

"their nation's front-line status in the fight against al-Qaida and Taliban militant "

"ordinary Pakistanis, two-thirds of whom live on $2 dollar a day or less."

"However, nuclear-armed Pakistan's strategic importance in the U.S.-led war on terror makes its financial and political stability of particular concern to the international community"



Pakistan is a seriously messed up country. They're fighting an expensive war, they spent who knows how much on nuclear weapons... and 2/3 of their people live on less than USD 700 / RM2500 a year.

The IMF is willing to send them money... to repair the money supply?

WTF?

No wonder people are angry. Yeah, I know that IMF does not consider people's LIVES as part of their agenda, but... it does seem rather insensetive doesn't it?

Makes you realize that your own country is pretty good after all, doesn't it?

Treasury Bailout is FAILING

http://www.thestreet.com/story/10447356/1/treasury-mulls-private-role-in-tarp-report.html

Some excerpts:

"Treasury also is unlikely to conduct any auctions to purchase bad loans and other troubled assets -- the original intention of the $700 billion rescue plan. Instead, Treasury is expected to continue focusing on injecting capital directly into the financial sector, the Journal reports."

"Treasury has just $60 billion left in its rescue fund, and either the current or next administration will have to turn to Congress to request the second half of the promised $700 billion, the Journal reports. Treasury has so far committed $250 billion to banks and is spending an additional $40 billion to buy preferred shares in American International Group"

...
...
...

These IDIOTS are running out of money.

A LOT of people said 700b was a lot of money. A LOT of people said that 700b was not enough.

Looks like they were right.

Well, DUH, it's not enough, when you totally disregard the initial purpose of the bailout and use it in ways it was never meant to be used!!!

It is starting to look VEEEEEERY suspicious to meeee.... If I was American, I would request that someone starts looking at the PERSONAL BANK BALANCES of all those decision makers for Treasury/Fed. Is it coincidence that the money is going to really really rich fellas that can afford to pay whopping huge bribes?

...

You know what? ... all those homeowners with their mortages and loans? Who were cheering and celebrating when this 700b bailout was announced?

They are crying right now. They are going to lose their homes and they are well and probably going to go hungry the next few years. And declare bankruptcy.

Cause the money that was meant to go to them is going to go to America's BANKS. The Large Rich Banks. Specifically, it is going to end up paying for CEO bonuses for their "wonderful" job performance.

Too Large to Fail? That's the catchword going around lately.

Too BIG to be allowed to Fall?

How about: Too small to fail?
As in... the little fellas. The many MANY little fellas. Who are in fact the FOUNDATIONS of your country compared to the corporate figureheads on the top.
If American Government does not help them, who will?
Seriously, why can't Goldman Sachs go and get a 10b loan from China, 10b from Brunei and 10b from selling bonds internationally?
But poor Joe Six Pack... no one outside the USA is going to save him!

Which do you think hurts the country more:

5000 multimillionaires losing 10 million each?
Or 1,000,000 Average Joes losing 50,000 each?

I don't know the answer myself... but I do have my suspicions!
My theory is... the rich can afford to lose a lot of money. They'll still keep their homes, have enough to eat, and frankly, you know that a few years after the recession ends, they'll have earned it all back.
Those million upon millions of low-middle income citizens? They are going to SUFFER. And their children will feel the lingering effects as they will likely not be able to recover from these losses before their children are born and working.

America. Fed. Treasury. You DUMBASSES