According to an unnamed source[“Tim Geithner”], the US Treasury may set up an $18 billion fund to prop up unprofitable car parts manufacturers, so their failure doesn’t end up shutting down GM.
Archive for the ‘Financial Collapse’ Category
Next bailout? Car Parts companies
Friday, February 27th, 2009Life Insurance downgrades
Thursday, February 26th, 2009S&P downgraded 10 life insurance companies today. For some reason, Bloomberg’s story singles out MetLife for special mention.
If/when these companies become insolvent, they will make the banks look like small potatoes, and almost nobody seems to have this on their radar.
Bloomberg on Geithner
Wednesday, February 25th, 2009A -very- long article about Timothy Geithher – who he is, where he came from, the problems that he faces.
It’s important to keep in mind that Bloomberg is not an observer just standing on the sidelines. Bloomberg’s own investment advisor is the guy just named to run the GM/Chrsyler auto bailout project for Tim Geithner, and Bloomberg’s terminals are used by subscribers to access the Treasury’s “temporary” Commerical Paper funding program (and probably other things).
The article mentions a number of times that the Credit Default Swap market needs a marketplace to increase transparency of the risks. I wonder if Bloomberg has any interest in running that?
The final nail in the GM coffin
Wednesday, February 25th, 2009One of the reasons for GM’s prosperity in the “good old days” was GMAC. The amount of money that GM made selling a car was secondary to the money it could make from the financing of the car through GM’s car financing subsidiary.
President Obama’s idea to get the US government involved in car loans tries to replace the market forces that drove GM to seek profit from lending money for cars rather than building cars with a central government controlled agency which will be motivated by policy objectives and government control. Create a fund like this, you put everyone else in the financing business out of business. Car finance companies don’t have a printing press that lets them print money to lend.
If the US Government starts becoming an auto loan lender, how can it avoid repeating the mistakes of Freddie Mac and Fannie Mae? What if someone wants to borrow money to buy a car made by a non-UAW manufacturer?
The woman who was widely mocked for saying that now that Obama is President, she won’t have to make her house payment and will get a free car was telling you the truth – the problem is people didn’t believe her.
…rosebud…
Wednesday, February 25th, 2009Hearst newspapers says it will probably have to sell or close the San Francisco Chronicle.
Question to think about: once all the newspapers are dead, where will Matt Drudge get his news?
Fidelity Investments reports huge loss
Tuesday, February 24th, 2009Story here and Here
Like WTF?
Fidelity – the mutual fund folks in Boston spent the 4th quarter of 2008 buying up CitiGroup stock! Perhaps it was them trying to “double down” or just being insanely stupid or trying to help out a “friend”.
A lot of people have money at Fidelity (I have a 401(k) there)… time to read up on what happens if a mutual fund family fails…. In theory, each mutual fund is firewalled off from the main company – but then again, in theory Bernie Madoff was buying the stocks for his clients.
*** Update ***
Friday, panic selling of CitiGroup caused a record one day trading volume in a single stock – 1.87 billion shares. The prior record holder was Worldcom on July 1st, 2002 – after it was charged with improper account by the SEC and three weeks before it filed for bankruptcy.
Ethanol from grain – bad idea getting worse
Tuesday, February 24th, 2009The nation is filling up with “ethanol from grain” refineries that are filing bankrupcty.
Renew Energy
Central Illinois Energy
Verasun
E3 Biofuels
Under the most optimistic assumptions, including using irrigation to grow grain, ethanonal returns only slightly more energy than the energy that was needed to make it (fertilizer, running tractors in the spring, harvesters in the fall, trucking the grain to the refinery. Conventional gasoline/oil pipelines cannot transport ethanol, so it must either be trucked half way across the country, or shipped via rail (and few of the specialized rail cars exist).
Intensive production of corn is itself releasing more CO2 as more land is cleared to grow crops, farm runoff is expanding the “dead zone” in the Gulf of Mexico, non-renewable topsoil is being consumed and washed away, and the country’s nonrenewable underground aquifers are being depleted for irrigation. Irrigating for 20-40 years always leads to salinity of the soil high enough that no crops will grow on the land. This was a really bad idea, funded by ADM and with no science behind it.
Ethanol from sugar cane or biomass may have some role in the future, as they offer substantially higher net returns on energy inputs .
If you’re still unconvinced with ethanol from grain is a bad idea, did you know that ethanol plants are large generators of Co2?
AIG “investment” going sour
Tuesday, February 24th, 2009Remember when the US Government stepped in to “Save” AIG? (even though AIG is an insurance company and not a bank). At the time, various people in the government suggested that in the long run, the taxpayers would make a profit.
Now AIG says it is going to convert the Preferred shares we (the taxpayers) bought into common shares. They can’t afford to pay the 10% interest that the preferred stock requires. That was the whole point – that this would make the “investment” temporary and force AIG to quickly pay off the US Treasury by buying back the preferred stock.
That’s not what AIG is proposing. Like CitiGroup, they want to take the US Treasury from the front of the line to get paid, and put them at the end of the line – so if/when AIG declares bankruptcy the US Treasury is holding only worthless common stock.
The bizarre part of this notion is that AIG thinks converting preferred stock to common stock is -their- decision. That’s not how preferred stock works. The owner of the stock decides when or if they wish to exercise their conversion option, usually based on the common stock getting above the conversion price by enough to justify letting go of the guaranteed interest income stream.
They’re talking like they have a friend inside the US Treasury (Geithner comes to mind) who is agreeable to this. It’s time to say “NO” to AIG.
What is going on here is that most people do no realize their life insurance policies and annuities have no government “insurance” protection.
Insurance company policies are typically guaranteed by a state run Guaranty Fund. The fund has no assets of its own – the only tool it has to stand behind insurance policies is to impose an assessment on the other insurance companies that haven’t failed (making them more likely to fail, also). Unfunded Insurance Guaranty funds are completely unprepared to deal with the largest insurance company in the world failing.
When people realize their insurance policies and annuities are at risk, a “run” can begin on insurance companies as people withdraw the “cash value” of their whole life policies or demand an early termination of their annuity.
This has happened before – in 1933, regulators declared an “insurance holiday” to stop runs on the insurance companies. Here is the story in Time Magazine from April 1933.
We have a Car Czar now (or do we?)
Monday, February 23rd, 2009Just when you think it can’t get stranger. After Tim Geithner and President Obama declare they really don’t need a Car Czar after all (just the money), Steven Rattner appears to be assuming that role.
Steven Rattner is the founder of Quadrangle – a private equity firm with a long history of deal making in the major leagues of finance. That’s not totally surprising – the talk is that for a GM/Chrysler bankruptcy deal to happen, the government needs private equity money driving the process. More importantly, they need a “kick ass and take names later” guy to make the painful decisions and tell people “the way it is going to be”. Think of Danny DiVito’s character in “Other People’s Money” and that pretty much sums it up. I’m actually having a twinge of optimism now.
The “kicker” about Mr Rattner is he is the man who manages the finances of New York City Mayor Michael Bloomberg.
Health Insurance Stocks being hit hard
Monday, February 23rd, 2009On second review, the reason for the drop today is a sector wide drop of 10%+ in the health care insurance stocks.
Humana, Healthspring, United Health, Coventry Health Plan, Wellcare Health plan, …
Ford announced a deal with the UAW over retired health care coverage. There is also a blurb about TARP funds being pushed into Medicaid, or maybe something is happening behind the scenes regarding universal health care….
*** Update ***
And the answer is – the Obama adminstration has found a place to cut spending – Medicare!. Expect the media to howl about President Obama wanting to kill all the old people… what’s that silence?… Hello?…. Anyone there?….