Archive for the ‘Financial Collapse’ Category

Dodd says “Short Term” nationalization is necessary

Friday, February 20th, 2009

Senator Chris Dodd, head of the US Senate Banking Committee (who has not yet produced copies of his sweetheart mortgage deal with Countrywide Mortgage) says that “Short Term” Nationalization of Bank of America and CitiGroup may be necessary.  Bloomberg Story

Remember that once the government gives itself “temporary” powers, it never gives it back voluntarily.  US Treasury dictator Timothy Geithner will release details of this plan “next week”, unless of course he’s too busy saving the automobile industry.

Madoff faked trades for 13 years?

Friday, February 20th, 2009

Bloomberg reports that Bernie Madoff made no trades at all to buy the securities that people believed they had in their “accounts” – for the past 13 years.  (which goes back to before George Bush took office….)

This makes almost no sense.  Every trade at Nasdaq has a buying firm and a selling firm, and each trade is reported to the Clearing Corporation (not part of Nasdaq) in close to real time – so that the back office of the firms can reconcile any differences and arrange for transfer of the stocks if they are in certificate firm. 

I believe that Madoff had no certificates for 13 years, and it may be possible his investment firm held no stocks – but it is impossible that there weren’t trades reported to the Clearing Corp from the Madoff broker/dealer firm unless the Clearing Corp itself was in on the ponzi scheme.  I don’t think the SEC still has a handle on what was going on.

So why not Chapter 11 for GM?

Friday, February 20th, 2009

The Wall Street Journal lays out the case for GM to let the bankruptcy process resolve their issues here

This is exactly why the bankruptcy law was created in the first place.  It allows a company with an unviable business model to either do the things it needs to do to fix itself, or be sold off or dismantled in way that protects the interests of the people who are owed money or who have purchased the company’s products in the past.

Having worked inside GM (not as an employee), the thing that I think the Harvard Law Professor is missing is the “cost” of cutting loose those “legacy” costs of the promises to the UAW workers.  Many of the people in the UAW are third generation auto workers.  Reducing the pensions and retiree benefits to a current worker’s father and grandfather will lead to sabotage, aggression, violence and deliberately defective products.  I can’t see a GM filled with angry UAW workers surviving, and I doubt Toyota wants to buy additional assembly plant capacity and the “legacy” that GM leaves behind.

TheStreet.com seems to be thinking the same thing.

Zimbabwe Stock Exchange reopens

Friday, February 20th, 2009

Things are looking up in Zimbabwe.  The Zimbabwe Stock Exchange has reopened, and $30 in stocks was traded the first day.  Inflation has been running at 79,600,000,000%, so this is a major step forward.

The story has no update in it about how the cholera epidemic is going, other than a lot of people are getting drunk.

Good luck Zimbabwe!

Bankruptcy Watch – Saab

Friday, February 20th, 2009

Svedish car maker Saab (owned by GM) has sought protection from creditors.   GM had previously intended to sell Saab, but apparently has decided to jettison it.

The cost of zero interest

Thursday, February 19th, 2009

The Federal Reserve has pushed interest rates as close to zero as is possible.  While on the surface, you might think “Wow, free money!”, this policy has many unintended consequences.

One that is likely to hit you personally in the near future involves Money Market funds.  These are the funds sold by mutual fund families,  that are typically used to “park” investment money while people are deciding what to do.

With short term treasury bills offering essentially no interest (the rates have gone negative a few days), money market funds have a serious problem.  If they invest their money in short term “safe” investments (like lending it to Lehman Brothers), they risk finding out their $1/share product is not worth $1 (“breaking the buck”), and they have very little cushion to “absorb” unexpected losses. 

If they invest 100% in short term US Treasury bills, they have no risk – but also no income.  The meager income would be less than what they have to charge to manage the fund, and people are unlikely to park money in a fund where they are guaranteed to lose money. 

If they invest their funds in slightly longer treasury securities to get better yields, they risk being unable to deal with a surge of withdrawals without realizing losses by dumping the T-Bills/notes before maturity.

Look for money market funds to begin to shut down or stop accepting new money if this interest rate environment continues for much longer.  This isn’t because they are “insolvent”, it is because there is no way to make money doing this.  Unless you’re the government, you can’t afford to throw away money doing things for no purpose.

Strength of the Dollar

Wednesday, February 18th, 2009

Contrary to what many people seem to think, and especially promoted by the companies trying to scare people into buying gold – the US dollar has  been getting stronger, not “falling”.

Back before this global panic started, it took about $1.28 to buy one Euro (the most important benchmark currency).  When the panic started breaking out, the US dollar got up to about $1.45 to buy one Euro, but it didn’t stay there very long.  As of today, the dollar is back to $1.25 for a Euro.  While the dollar may decline in the future, for now the world continues to believe that the US is the safest place to weather this storm.

Drove my Chevy to the levee….

Thursday, January 1st, 2009

It’s been coming for 6 months, so few people are going to be surprised.  That doesn’t mean it won’t be unpleasant.

June 1st is Bankruptcy Day for Generous Motors.   Germany and Canada are making last minute adjustments to spin off Opal.  Hummer is probably going to China.  Saturn is probably kaput.   The “good” GM is going to start making cars that nobody will buy (unless forced to by the Obama administration, which is entirely probable).

All of the companies in the auto supply business (unless they do big business with Ford) are going to be selling off their parts for spare parts and going under.

The UAW won one “concession” that one plant that will make 160,000 tiny cars a year will stay in the U.S. and not move to China.

Companies that are owed money by G.M. will now be compelled to write off their accounts receivable.   Depending on just how thoroughly Mr Geithner has “backstopped” American Business, that might cause other companies (like radio companies) to topple.

While interest rates eased on Friday, the U.S. dollar lost significant value.   You can fend off one or the other, but not both.

“Bye, bye, Miss American Pie…  drove my Chevy to the levee and the levee was dry… singing this will be the day G.M. died….”