News Can the market alone fix the economy?

[WhoWee]

Some of the headlines for 1 day (March 30, 2009) in the life of President Obama:

Obama says the US Government is standing behind car warranties...
http://finance.yahoo.com/news/White-House-questions-apf-14783031.html?sec=topStories&pos=2&asset=TBD&ccode=TBD Obama favors Chapter 11 for GM
http://online.wsj.com/article/SB123841609048669495.html?ru=yahoo&mod=yahoo_hs

Obama: US must lead on clean cars
http://news.cnet.com/8301-11128_3-10207074-54.html

Obama let's GM CEO go
http://www.politico.com/news/stories/0309/20625.html

GM CEO to get $20 million
http://www.huffingtonpost.com/2009/03/30/gm-ceo-rick-wagoners-20-m_n_180774.html

Obama proposes courtship of Chrysler and Fiat
http://www.npr.org/templates/story/story.php?storyId=102515066

Obama heads overseas to tackle world economy
http://www.usatoday.com/news/washington/2009-03-29-obama-trip_N.htmAgain, (from an earlier post) Obama IS an expert on Constitutional Law and civil rights/neighborhood economic development and "on behalf of families who are having a tough time and are seeking out the American dream."...therefore, he must know something about Executive powers that previous Presidents didn't act upon.

 

[WhoWee]

Gibbs offered the best explanation of the day:

http://www.huffingtonpost.com/2009/03/30/gibbs-struggles-to-contra_n_180787.html

"Robert Gibbs had to know it was coming. The press briefing on Monday was sure to focus on an apparent double standard from the administration when it came to the auto industry and financial sector bailouts.

But when asked to explain the disparity -- such as GM's CEO Rick Wagoner being forced to step down while bank CEOs remain in their perches -- the Obama administration press secretary seemed to struggle for words.

Was there a double standard? Read Gibbs' answer for yourself:

"Understand that we have taken and are prepared to take extraordinary steps to help the auto industry get it back up on its feet, to put it on a firmer ground, and see it return to a stronger position, to support the companies, the workers and communities they are in," he replied. "I think if you look at, I think this question was asked over the course of the last 12 hours. The original agreements contemplated a March 31 deadline whereby you would either give additional assistance or call the loan. So what I think what the president and his task force are doing is taking the steps forward to help these companies. At the same time [we are] expecting a plan for viability in the future. I would also say that the decisions that are made on any entity receiving assistance is done in a way that we think will stabilize the economy, create jobs, in some cases it is to protect jobs, and have to a have manufacturing base, like with GM, Chrysler and others. It is to get lending moving again. But I think that this administration is rightly matching and balancing the notion for responsibility, at the same time understanding that we want to be a partner in ensuring strong and viable auto industries moving forward."

Say what?

Some members of the press in the room snickered. One reporter muttered under his breath: "that made absolutely no sense." Luckily for Gibbs, and those who wanted answers, he was given another bite of the apple. Responding to a question on the sacrifice that mid-westerners were being asked to make, he noted that Obama himself had traveled to those hard-hit towns and was acutely aware of their despair. Gibbs himself said he had spent the night before on the phone with Michigan Gov. Jennifer Granholm."

 

[Astronuc]

I was listening to someone musing why the financial industry is treated one way and the auto industry another way. If GM is allowed to fail, why not AIG. Of course, Bear Stearns, Lehman Brothers, and Merrill Lynch were allowed to fail.

Meanwhile -

Four smaller regional banks on Tuesday became the first financial institutions to return the federal money they had received under the government's banking bailout, leaving a program that placed restrictions on their executive compensation and other spending.

The banks: Signature Bank of New York; Old National Bancorp of Evansville, Ind.; Iberiabank of Lafayette, La., and Bank of Marin Bancorp of Novato, Calif." said they had bought back a total of $338 million in their preferred shares, which had been sold to the government in the fall under the $700 billion Troubled Asset Relief Program, or TARP, in exchange for capital.

A number of banks have been chafing under the restrictions imposed by TARP. Northern Trust of Chicago said in February that it would repay more than $1.5 billion “as quickly as prudently possible” after a hail of criticism from Capitol Hill over its lavish entertainment spending at a golf tournament in suburban Los Angeles.

Goldman Sachs, Wells Fargo, JPMorgan Chase and Bank of America are among the biggest banks that have said they are aiming to return the government's bailout money.

The big banks were told in the fall by then-Treasury Henry M. Paulson Jr. that they were required to accept TARP money in order to strengthen the banking system, which had been severely shaken by the global financial crisis. But President Obama's economic stimulus plan, enacted in February, changed the rules to allow banks to pay back the money ahead of schedule. It also tightened the restrictions on bonuses and other spending.

http://dealbook.blogs.nytimes.com/2009/03/31/4-banks-become-first-to-repay-tarp-money/

It seems some banks are doing well.

 

[Astronuc]

U.S. plans to ease GM into bankruptcy: report
http://news.yahoo.com/s/nm/20090401/ts_nm/us_autos_report_sb

WASHINGTON (Reuters) – The Obama administration is seeking to ease General Motors Corp into a "controlled" bankruptcy by persuading some creditors to agree to a plan that would divide the company into two pieces, the New York Times reported on Wednesday.

Citing people briefed on the matter, the Times said the plan is to push GM into a structured bankruptcy "somewhere between a prepackaged bankruptcy and court chaos," using taxpayer financing for leverage.

The administration is drawing in part from its experience with troubled banks, seeking to create a new, healthier GM, but leaving behind its liabilities and less valuable assets, possibly for liquidation, the Times said on its website.

Under the plan, GM would file for prearranged bankruptcy, the report said, and would then use a sale authorized under Section 363 of the U.S. bankruptcy code to sell off desirable assets to a new company financed by the government.

I imagine that GM will be delisted from the Dow30.

But which will be the real GM? And the US government is going into the auto industry?

 

[WhoWee]

This is the part I can't comprehend...Saturn may very well be the best American car ever built. I have one with a 4 cylinder motor and approaching 300,000 miles...it just goes and goes...and averages about 32 mpg.

Yet, the top priority is to get rid of this division. Saturn should be the platform for green development.

http://www.autonews.com/article/20090318/ANA05/903179965/1197

Instead of selling Saturn (or any auto company) to a foreign group...a spin-off/IPO should first be attempted. If necessary, GM and US-Obama Car Corp. can retain equity, package up and attach a few $billion of legacy costs in the form of low interest long term debt and set it free.

The combination of employees, dealers and customers might be a wide enough investor base.

 

[turbo]

And the US government is going into the auto industry?

I sincerely hope not. The wrong-headed business-plan of the last few decades seems to have been driven by a reluctance to re-design and re-tool (something the Japanese excel at) in order to hold down costs and inflate short-term profits. I don't think a team of political appointees would do any better. Honda should buy GM's physical plants to secure entry into the light-truck market. Toyota is doing quite well in that market (considering weak automotive sales overall) and they could use a nimble competitor. I'd like to see Subaru jump into light trucks, too, but they seem quite content to stick with full-time AWD passenger vehicles and light SUVs.

 

[WhoWee]

I have a two-fold solution, given that Obama says that health care (includes accidents) is a major problem with the economy and also given Hillary Clinton's stipulation that we are the root of the problem (our national drug addiction) with the Mexican drug cartel problem.

Here it is...a ZERO TOLERANCE drug policy for ANYONE who receives federal or state funds for ANY reason.

Obama has allocated $634billion to address health care (with no particular spending plan), so why not use a few $hundred million to drug test every federal and state employee, employees of every company taking bailout money (every employee of banks and auto companies included) or working on a government contract (including sub-contractors), everyone on unemployment or food stamps or receiving EIC or (again...FOOD STAMPS), SSI, Section 8, medicaid, other state benefits, all postal service employees, all employees of state universities (yes professors are included) EVERY MEMBER OF GOVERNMENT (Exec, Judicial and Legislative including staffs)...EVERYONE that receives more than $1.00 per year from any branch of government.

If Hillary is right...drug use should drop a little, Obama will have a specific use for some of the funds, anyone testing positive could be given a program with re-testing to follow or be cut from benefits or terminated (this might reduce costs), the testing and oversight will create jobs, and companies that produce test strips/lab work will flourish.

Private life insurance companies test people all of the time, so do employers...why not everyone who receives taxpayer money?

 

[Evo]

I have a two-fold solution, given that Obama says that health care (includes accidents) is a major problem with the economy and also given Hillary Clinton's stipulation that we are the root of the problem (our national drug addiction) with the Mexican drug cartel problem.

Here it is...a ZERO TOLERANCE drug policy for ANYONE who receives federal or state funds for ANY reason.

Obama has allocated $634billion to address health care (with no particular spending plan), so why not use a few $hundred million to drug test every federal and state employee, employees of every company taking bailout money (every employee of banks and auto companies included) or working on a government contract (including sub-contractors), everyone on unemployment or food stamps or receiving EIC or (again...FOOD STAMPS), SSI, Section 8, medicaid, other state benefits, all postal service employees, all employees of state universities (yes professors are included) EVERY MEMBER OF GOVERNMENT (Exec, Judicial and Legislative including staffs)...EVERYONE that receives more than $1.00 per year from any branch of government.

If Hillary is right...drug use should drop a little, Obama will have a specific use for some of the funds, anyone testing positive could be given a program with re-testing to follow or be cut from benefits or terminated (this might reduce costs), the testing and oversight will create jobs, and companies that produce test strips/lab work will flourish.

Private life insurance companies test people all of the time, so do employers...why not everyone who receives taxpayer money?

All of the Government workers I know have mandatory drug testing, plus background and security checks.

Are you saying politicians?

 

[WhoWee]

All of the Government workers I know have mandatory drug testing, plus background and security checks.

Are you saying politicians?

My post sounds tongue in cheek...but I'm serious about this Evo.

Any government worker employed in a sensitive area should be subject to review...and yes, politicians should be held to the same standards as everyone else.

As for the rest of the categories...health care is a major problem...illness and accident. Abuse of controlled substances (I'm not talking about legal prescriptions) do not make accidents less likely to occur or cure illness.

I am not a fan of Hillary, but she is correct. If we didn't consume illegal drugs, nobody would try to smuggle them into the US...can't argue with her logic.

Putting everyone who consumes drugs into jail (including investigations, arrests, trials, temporary lock-up) has a tremendous financial cost attached...so does locking up every street level drug dealer. I think we can all agree it's been proven not to work.

Likewise, building fences and sending troops to the borders are also expensive. The idea of taxing drugs has been discussed for years...also not likely, but would generate some form of revenues. But, the revenues would probably be gobbled in in the form of lost productivity, increased health care costs and social support problems.

Given all of the above, the obvious solution is to lessen demand...and you have to start somewhere.

The government (state, local and federal) has control over an ever-increasing amount of money. The old saying of "he who has the gold makes the rules" has always been valid.

I think it's more than fair to require EVERYONE who receives ANY amount of taxpayer money to demonstrate they are clean...especially anyone who receives free or subsidized health care or entitlements.

 

[Astronuc]

This is the part I can't comprehend...Saturn may very well be the best American car ever built. I have one with a 4 cylinder motor and approaching 300,000 miles...it just goes and goes...and averages about 32 mpg.

Yet, the top priority is to get rid of this division. Saturn should be the platform for green development.

http://www.autonews.com/article/20090318/ANA05/903179965/1197

Instead of selling Saturn (or any auto company) to a foreign group...a spin-off/IPO should first be attempted. If necessary, GM and US-Obama Car Corp. can retain equity, package up and attach a few $billion of legacy costs in the form of low interest long term debt and set it free.

A friend of mine has bought several Saturn models over the past decade, and after about 5 years, they are nothing but trouble. He had them in the shop so many times it was ridiculous. He's seriously considering Honda or other Japanese car maker for is next car.

I've been with Honda since grad school, and I'll continue to buy Honda's because of the quality and cost.

 

[turbo]

A friend of mine has bought several Saturn models over the past decade, and after about 5 years, they are nothing but trouble. He had them in the shop so many times it was ridiculous. He's seriously considering Honda or other Japanese car maker for is next car.

I've been with Honda since grad school, and I'll continue to buy Honda's because of the quality and cost.

one of my wife's co-workers got rid of her Saturn, though she couldn't get rid of it soon enough because the difference between what she owed and what she might get in a sale was too big. It was under warranty, but it nickle-and-dimed her to death for years until she was able to afford another car. The major problem is that the nearest Saturn dealer is over an hour away, and she had to arrange rides to get repairs done, and take time off from work to do drop-offs and pick-ups. She's a nice young lady, and she fell for the "Saturn=quality" assertions. My wife tried to steer her toward Accord, Camry and other models that had been proven over the years to be reliable, but she liked the slick Saturn commercials and the styling of the car she had picked out.

 

[WhoWee]

I've owned 3 Saturns total and have never had a serious problem. My mechanic (GM factory trained) is on his 2nd...he loves them too.

In all fairness, I had an Accord. It was very comfortable and I compiled about 250,000 miles with nothing more than a clutch repair and routine maintenance.

The Saturn SL-2 beat the MPG of the Accord, but the Accord was more comfortable...and cost more.

I still think Saturn should be spun-off in an IPO vs selling it to a foreign ownership group.

 

[WhoWee]

Let me back up a step. Saturn was reorganized somewhat a few years ago by GM. The division had losses. They basically quit designing Saturn cars.

The past few years, Saturn has been selling a US version of Opel models popular in Europe.

However, the Saturn owners are very loyal and the brand and dealers have a good overall image.

 

[Astronuc]

However, the Saturn owners are very loyal and the brand and dealers have a good overall image.

I understand the Saturn owners tend to be loyal, which is fine. As for dealers, perhaps it depends on the dealer. My friend has had problems with the local dealership.

One the last problems was with the replacement of the oil pan, which was done by the dealership. My friend got his car home and notice oil leaking on the driveway. So he got underneath to tighten the bolt sealing the drain. Without applying too much force, the bolt continued to turn, and turn. He took it to Sears and had them look at it, and they said the bolt was rotating. He went back to Saturn and they removed the oil pan. The bracket which forms the drain outlet had broken tack welds - and that had to have happened at the factory. So the oil drain wouldn't seal properly.

There were numerous other problems related to the steering, suspension and transmission, so much so, my friend has become discouraged about American cars, that is cars design and manufactured by one of the formerly Big 3.

I've leased a lot of cars, and have been reasonably satisfied by some of the economy and mid-sized cars. On the other hand, I prefer standard (manual) transmission, and I've never really been satisfied by American made cars with manual transmissions. Then again, I have not been very impressed with Volkswagen's manual transmission either.

I had a '71 Volvo that was great, and I had a Honda Civic (4-dr sedan), which attained 40-42 mpg. I'm inclined to buy another Civic.


Anyway - I read this in the WP.
Hard Line on Auto Aid Puts Bailed-Out Firms on Notice
GM Ouster and Bankruptcy Warning Resonate at Banks
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/30/AR2009033003409.html

. . . .
The administration's display of authority sent U.S. stocks tumbling and raised questions about whether the government would take similar steps against top executives at U.S. banks that are also receiving government bailout funds.
. . .
Obama said that if they fail to achieve those goals, GM and Chrysler might need to use bankruptcy as a "mechanism to help them restructure quickly and emerge stronger." Such a move would wipe out the mountain of debt weighing down the companies.

The administration's decision to oust G. Richard Wagoner Jr. sharply ratchets up its control over companies receiving government assistance in the face of criticism about a lack of accountability over billions of taxpayer dollars. The government demanded Wagoner's departure even though it does not own a stake in the automaker. The three companies the government does control -- American International Group, Freddie Mac and Fannie Mae -- were required to replace their chief executives. The government has not, however, required any banks in which it took smaller stakes to replace its top executives. It did pressure Citigroup to replace several members of its board of directors.

Now the president's aggressive move against GM has left some banking executives wondering whether they are next in line.

"Is there a heightened risk for the Obama administration" to remove a banking executive? asked Scott Talbott, chief lobbyist for Financial Services Roundtable. "I think you'd have to conclude that the answer is yes."
. . . .

The 2Q'09 should be interesting.

 

[WhoWee]

I'm sure there have been problems with Saturn cars. I've had good fortune with mine.

My concern is the business unit. Saturn was launched as an independent venture...even though the start-up saddled GM with losses. The dealer network is unique and the brand is well developed.

The potential for a successful IPO in the context of a spin-off is realistic. GM/US Obama Motors could retain preferred equity (non-voting)...and Saturn could remain US based.

Alternatively, I haven't found any independent value estimates for liquidation or a target sales price. I doubt if the price would exceed $1 billion? However, that is a very realistic long term debt load for a spin-off vehicle...structured over 25 to 50 years.

The key would be to have a lean/mean labor force with a modest base pay and performance incentives that would allow above average earnings potential...and a vesting process over time.

A single factory with 500 dealers could be very competitive.

I would pick up (and hold) a few shares of an IPO.

 

[WhoWee]

Let me throw something else out there...

There are massive spending programs in the works along with bailouts and a record high budget being negotiated. We are borrowing from the Chinese and printing money.

Inflation or hyper-inflation COULD result. I don't want to debate IF it will result.

Instead, let's consider the affect of 15% to 20% inflation on government and private payroll obligations where pay increases/Cost of Living Adjustments tied to CPI are in place...also social security/SSI increases.

Does anyone know if the government has maximum limits structured for COLA's...how about union agreements? Apparently, the federal retirement plan benefits have caps in place.

I haven't found one yet...has anyone seen a related projection?

 

[Ivan Seeking]

The DOW is up 234 and about to break 8000.

 

[Ivan Seeking]

HAH! Broke 8000.

 

[WhoWee]

HAH! Broke 8000.

...beware the BEAR...

 

[turbo]

...beware the BEAR...

We have to let the bear take bites whenever it is advantageous. That's how the market is supposed to self-correct. The perpetuation of a false bull market based on cheap federal money and trades in over-valued unsecured assets is what got us into this mess in the first place. Bears and contrarians can help keep the market healthy, and we need them to keep things honest.

 

[Ivan Seeking]

The DOW is up 23% from the low in early March.

 

[WhoWee]

As long as YOU aren't the one it bites...OUCH.

I picked up some GM shares at $1.52 a few weeks ago...and dumped them at $3.72 last week...if I had held...it's at $2.13 right now.

 

[Ivan Seeking]

I'm more interested in the economy than personal victories and losses. Obviously any particular stock buy has to be carefully considered.

How much wealth has been created since March 2nd?

 

[WhoWee]

Fair enough...up 23% from the low...down HOW MUCH from the high?

 

[WhoWee]

I'm more interested in the economy than personal victories and losses. Obviously any particular stock buy has to be carefully considered.

How much wealth has been created since March 2nd?

Created(?)...are you serious?

$7,974.44...down about 43% from the all time high...last year.

The answer is NOTHING ...$0 wealth has "been created" this year...anyone that held their positions...hopefully are buying now to lower their average cost of shares...are just beginning to offset their potential losses.

http://money.cnn.com/quote/chart/chart.html?symb=djia&sid=1643&time=2yr&Submit1=Refresh

 

[jal]

If you think that things are bad now, look at the alternative universe that could have been and the comments from this blog.

The GOP budget would have made a laughing stock of the USA at the G20.

http://firstread.msnbc.msn.com/archive/2009/04/02/1874883.aspx
CONGRESS: THE HOUSE GOP'S BUDGET
"House Republicans finally unveiled their 2010 budget proposal -- with actual numbers this time -- and proposed sweeping new plans to contain the cost of Medicare and Medicaid, ditch stimulus spending and enact a new round of tax cuts," Roll Call writes.

 

[WhoWee]

If you think that things are bad now, look at the alternative universe that could have been and the comments from this blog.

The GOP budget would have made a laughing stock of the USA at the G20.

http://firstread.msnbc.msn.com/archive/2009/04/02/1874883.aspx
CONGRESS: THE HOUSE GOP'S BUDGET
"House Republicans finally unveiled their 2010 budget proposal -- with actual numbers this time -- and proposed sweeping new plans to contain the cost of Medicare and Medicaid, ditch stimulus spending and enact a new round of tax cuts," Roll Call writes.

Cutting excessive spending...which would require us to borrow less money from China and print less dollars on the side would make us the laughing stock of the world (?)...you better quit watching MSNBC.

Even Obama thinks Medicare and Medicaid are out of control...what do you think he's talking about when he says "health care costs"...related to government spending?

As for stimulus spending...there is a lot of waste being uncovered...now that they've had a chance to actually read the Bill.

 

[mheslep]

Here's the consequence of spending like a mad hatter:

Britain's ability to borrow tens of billions of pounds to fight the economic crisis has been called into question after the Treasury failed to sell Government gilts [bonds] for the first time in more than a decade.

http://www.telegraph.co.uk/finance/financetopics/recession/5051738/City-alarm-as-Treasury-fails-to-sell-Government-gilts.html

Now if that happens here, the consequences will be far, far worse than in the UK. Foreigners, ceasing to buy bonds, also cease to buy dollars. The dollar enjoys a stability brought on in part by heredity at the moment, and once that's gone it will be absolutely hammered as the world looks elsewhere for stable currency. This budget proposal is a disaster.

 

[mheslep]

There are some objections to the spending spree in the UK. Dan Hannan is a conservative MEP, made this speech lashing PM Brown and his government, following the usual stuff from Brown in Brussels. Interestingly, the video has had nearly 2 million hits in the couple of days since it was posted. This guy can give a speech.

 

[WhoWee]

Oh, I'm proud to be an American...(governed by the G-20 central bankers)...

http://www.chinadaily.com.cn/china/g20/2009-04/03/content_7645212.htm

http://en.ce.cn/subject/g20london/g20londont/200904/03/t20090403_18703033.shtml

http://www.forexyard.com/reuters/popup_reuters.php?action=2009-04-02T173742Z_01_L2986994_RTRIDST_0_G20-REGULATIONS-FACTBOX

I guess Geithners request for more power )last week and before the Summit) was just a really big coincidence?

We/Congress/Obama better wake up, we account for 30 to 40% (?) of the world's economy...and we only get 5% of the vote...1 of 20.