Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses.
November 19, 2008
Mitt Romney: "Let Detroit Go Bankrupt."
A NYT op-ed:
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Besides, if we bail them out they will just draft more temperamental, injury-prone wide receivers. We have to watch them get pounded on Thanksgiving every year. Haven't we given enough?
"Only Nixon could go to China."
Restructure itself? Um - he's obviously not considering the very likely scenario that they are not even allowed to restructure themselves, and Japan gains the market share.
And once that's done, Japanese companies would actually not be under any pressure to produce cars in America.
The figure I've read is 2 million jobs lost if the Big 3 go bankrupt.
Not that this shouldn't happen. But the Republican meme that this is painless is absurd.
All bleeding must stop ...eventually. Repeated transfusions to the patient while ignoring the fatal wounds to major arteries merely delays the inevitable, and all that effort is wasted.
"But the Republican meme that this is painless is absurd."
And complete fiction as well, invented by DTL his own self.
Complete fiction? Did you even read the article? Describing bankruptcy as a "win-win" sounds pretty "painless" to me.
Imagine how much money Detroit could get from Washington if it had nuclear weapons and was fighting a war against Christian terrorists who rule Canada.
Billions.
That's what's happening with the other big bailout case: Pakistan.
It just got $7.6 billion from the IMF and wants another $10 to $15 billion.
Double-digit inflation, currency down 25%, interest rates 15%, no one pays taxes there, massive fuel subsidies, plus a war and a corrupt government.
At least Detroit will recover in a non-violent fashion. Every penny we spend on Afghanistan weirdly makes the situation in Pakistan worse and more politically unstable because the average Pakistani resents US presence next door and collateral civilian deaths.
I have heard the labor cost averages $73 per hour. If that is correct, the unions need to step up and offer to take a big pay cut.
The auto unions have been oddly quiet. Maybe Ron Heffelfinger, the union Prez, could take a pay cut too.
Would someone please tell me why three companies with a combined market cap of about $7 Billion should be lent $70 Billion of taxpayer money?
Especially when they're burning through about $12 Billion in cash per month?
Especially when this is almost uniquely a problem directly caused by the UAW and its earlier ability to extort much greater than market-clearing wages and benefits out of the Detroit Three?
Now that the Detroit Three are functionally insolvent, the UAW and the Democrats they've supported so loyally are trying to extort a continuation of that situation out of us.
It is no accident that the four most heavily unionized sectors of the American economy -- government, education, autos, and airlines -- are the least efficient and most failure prone of any.
Airline bankruptcies have beaten some sense into their unions. Detroit autos should be next.
Mitt is correct. The only thing that will ultimately save those jobs is some form of bankruptcy that allows them to shed their penion problems onto the Feds (PBGC) and eliminates work rules as well as perks for unions and mgt.
as I understand it, he big 3 have invested 500 billion over the last 10 years and now have a total capitalization of around 15 billion. that means that they have pissed away 485 billion of US savings/investment with nothing to show for it. They could have BOUGHT Toyota, Honda, and VW for far less than that. Bad decisons by management, Unions and shareholders. All deserve to take a bath here.
high quality cars can be made by US workers that US consumers want. They just can't be made by the current regime under the current rules and overhead.
Restructure itself? Um - he's obviously not considering the very likely scenario that they are not even allowed to restructure themselves, and Japan gains the market share.
And the idea that Chapter 11 necessarily would mean Chapter 7 is a scare tactic. If the government guarantees debtor-in-possession financing, there is no reason at all why the auto companies could not use bankruptcy to reorganize rather than liquidate (as many other companies and industries have done). Chapter 11 can't scare off customers any more than the present sense of impending doom is already doing.
The ONLY reason to avoid bankruptcy is to enable the automakers to continue to conduct business as usual (subsidized, money-hemorrhaging business as usual).
The Detroit automakers do now have some excellent products. Properly streamlined, they might be successful. But they need to have labor contracts, legacy costs, and dealer franchises reworked. Labor costs need to match Honda and Toyotas as do the number of dealerships (the Big 3 have several times more dealerships even though they sell about the same number of cars). GM needs to shed brands (Pontiac and Saab need to go -- Buick, too, except in China). One luxury brand (Cadillac), one mainstream brand (Chevrolet), and maybe one alternative/youth brand (Saturn).
And yes, this will hurt. Many jobs will be lost in the closed dealerships. Existing UAW members (not just 2nd-tier new hires) will be earning lower wages. UAW retirees will have to manage on Medicare like the rest of us. But the alternative is, as Romney suggests, continuing on along the path of stagnation, inexorably shrinking market-share, and eventual demise.
I think the airline example is a mixed bag. Is there an example of a legacy airline that is actually doing well? Maybe Continental, but I don't know the data.
I think the problem may not be the contracts, but the workforce itself. If you rip up the contracts, you still have a bunch of embittered old union remembering workers and a new contract doesn't change their attitudes. So even though nearly every legacy airline got to rip up their union contracts and start over, but with the same workers, they still would all be toast if not for their monopolies on some hubs. Meanwhile, Southwest and JetBlue, with new workforces not tainted by the good old days, are doing fine and their workers are actually happy.
Maybe we really do need the Big 3 automakers (and all the legacy airlines) to actually die. Someone will still make cars and fly us around.
Even if the big Three go bankrupt, Toyota and Honda will STILL build cars in the US. Why?
Because we buy so many of them that it's CHEAPER to build them here than it is to build them in Japan and ship them over.
Why didn't the Republicans have this sane man run for President?
I've said it before: Govt money would be better spent on infrastructure needs (there are plenty) and on basic scientific research. Propping up a faltering business is throwing good money after not so good.
DTL-
You flunk reading comprehension. Mitt's piece says "It is not wrong to ask for government help, but the automakers should come up with a win-win proposition."
I think Mitt has figured out that a majority of voters do not like Congress as a financial cornucopia.
The biggest mistake this country could make is to bail out detroit. We need small nimble companies that make only a few models each. The only way to get this is for the big 3 to go bankrupt and sell off their assets to create new companies.
There is a strong possibility that if the 3 declare bankruptcy, that they will simply close down operations and will cease to exist. And a large number of jobs in the auto-supplier business will go bankrupt as well, because they only build parts for American cars, even if the auto-suppliers themselves are efficient.
And have you figured out the cost to the American government if there are 2 million more unemployed in this country. What does that mean in increased unemployment insurance and lower tax revenues? A lot more than 25 billion.
Again - when the argument is being framed as in "Let's not spend 25 billion on Detroit, let's just let them go bankrupt" and you ignore the other side of the ledger - well - I have trouble taking that person seriously.
Also - why are GM's sales plumetting - down 45% in October? No matter how inefficient you think GM is, the sales are plummeting because of the horrendous economy and the uniqueness of this credit crisis. Do you want to allow a huge part of American manufacturing go away forever because of a once in a 100 year financial event?
I guess we know the answer from the Bush administration already.
I've already said let them go bust - I think it will be a great addition to the Bush legacy.
Well, as far as GM goes, I've heard that they have already renegotiated a contract with the union that will go into effect at the beginning 2010...so they believe this bleeding is temporary, and that it became an emergency with the credit crunch. Plus, they have high hopes with the Chevy Volt.
I also read that GM is still out-selling it's competitors, so if they could get the costs down, which is not too far on the horizon, might it not be worth saving?
I do understand what Romney's saying, but letting the Big 3 go under would devastate Michigan.
And Bob R: Very funny! Only a bit painfully so! :)
A rich white private equity fund manager from a slightly cultish religion.
The perfect Republican!
The GOP does really love destroying blue collar pensions, sort of a favorite hobby.
Speaking as a member of the GOP, they should just all shut up and go into the wilderness to pray for guidance.
downtownlad: There is a strong possibility that if the 3 declare bankruptcy, that they will simply close down operations and will cease to exist.
Nobody who uses this scare tactic seems to feel the need to explain WHY they believe this is so when so many other companies and industries have gone through Chap 11 (and without the U.S. govt backstop that Detroit would certainly get in financing).
The only explanation I've seen is, "Because people won't buy cars from a bankrupt company". But that's nonsense. Car shoppers have all heard the news. They know GM is headed for disaster already. An approved chapter 11 plan would inspire more confidence, not less, than the current uncertainty and pending doom.
save_the_rustbelt: The GOP does really love destroying blue collar pensions, sort of a favorite hobby.
That, too, is nonsense. Blue-collar level pensions are guaranteed by the PBGC (up to $40-$50K per year depending on when you retire). It's the higher management pensions that would see significant reductions (down to the max $40-$50K) if they went to the PBGC.
Romney has decided never to run again (or is on a kamikaze mission), and good. I loathe this cultist douchebag.
Bye Romney, and good riddance. Another fucking dunce. LMAO.
Where do republicans find these people?
Because people won't buy cars from a bankrupt company
I agree it's nonsense. People fly on bankrupt airlines all the time. Wouldn't you think that if bankruptcy were such a horrible thing that they'd avoid such an airline?
I loathe this cultist douchebag.
Bye Romney, and good riddance. Another fucking dunce. LMAO.
You must have really low gas bills, with all that hate keeping you warm at night.
It's losing, not loosing.
http://www.redflagdeals.com/forums/archive/index.php/t-542217.html
In losing, veritas?
Bart Hall, re. the relationship between value of the companies and the cost of the bailout. I'm reminded of the folks who urged us to build a 400 million dollar stadium for the Twins, who were worth about 125 million at the time.
There is a strong possibility that if the 3 declare bankruptcy, that they will simply close down operations and will cease to exist.
The plant assets, operational systems, and know-how have value, so there will be some car maker using them. They won't just go away.
But Mitt is right. When industries/products get so out of line with the markets, the only way forward is to do whatever it takes to meet the market. Any government intervention that delays those adjustment only delays the inevitable, and makes the future adjustment more catastrophic.
It is like a large fault line: it is better for it to readjust a little bit each day than to hold off the readjustment for a long time and have it suddenly, catastrophically readjust.
You try to save a few tens of thousands of jobs now, and you wind up losing (ht) millions later when the thing completely collapses under its own weight.
Why do pundits always blame the unions for causing this mess? Boo ho, workers demanding a living wage is economically unsustainable. Yet year after year of CEOs take, not pay checks, but the bonus theron, of (in GMs case) 60,000,000 dollars every year.
I'm sure the twenty or so executive VPs on "earned" half that.
60,000,000 million dollars would keep 1000 workers working per executive! No, no, it's not company funded private planes for each board member that was untenable. It's dental care for a man who works on the floors family.
But UWSguy! Without the obscene paychecks you can't get the best and brightest to steer the helm! ...AIG, leman brothers, et al sure did have a bunch of winners eh?
UWS guy said...
"Why do pundits always blame the unions for causing this mess? Boo ho, workers demanding a living wage is economically unsustainable."
If it's sustainable, why is Detroit is crying for a bailout? The two possibilities are that Detroit won't make cars that the market wants to buy at a price the market is willing to buy, or that it won't. The latter is highly unlikely. Is not the most likely reason for the former, then, that production costs are too inelastic and too high?
It's easy - lazy - to toss out the claim that the unions aren't really at fault. But that position isn't credible unless it's backed by an alternative claim: What do you believe is Detroit's problem, if not high labor costs?
DTL,
Your understanding of how a bankruptcy might play out is way off. The idea that any of the big three would shut down in an insolvency proceeding is presposterous. Buried underneath all the accumulated baggage of these operations is a business operation which, with the right number of plants, right number of employees, right contractual obligations, right number of brands, is viable. That is what would emerge, whther out of a Chapter 11 proceeding or a Chapter 7. That "value" won't go poof.
In fact, many other western countries (the UK for example) have no concept of a Chapter 11 reorganization and instead handle all insolvencies by way of liquidation (the idea being that someone will step in and buy the viable portion of the business and leave the crap behind)?
Also - what Republican ever said this would be painless? Certainly not Romney.
Please try to be more than a tool of the UAW.
"What do you believe is Detroit's problem, if not high labor costs?"
Easy answer, as we've already seen deployed in this converation: BUSH! BUSH! BUSH! REPUBLICANS! BUSH!
Should work for the cultist democrats for at least another couple of years.
I'm sure lawyers and doctors would be in a financial pickle as well if their guild were forced to accept competition from korea, india, mexico.
What wage price in america would make the auto-workers competitive against koreans? Average household income in korea is around 10,000 dollars per year.
I honestly don't know what the answer is. Universal health coverage for auto-workers untenable? I donno, the CEO is still commuting from seattle to detroit 3x a week at 20,000 dollars per trip in his 100,000,000 dollar private jet....
Simple answer here -
If all the Dems and others calling for the bail-out simply take THEIR OWN MONEY and buy, buy, buy GM, Ford, and Chrysler stocks, then the companies will have the infusion of cash they need, and these same folks can dictate, as shareholders, whatever the hell they want with those companies.
Put your own money where your (big) mouths are.
Or, just hand direct management of the companies over to the UAW (as opposed to the present indirect management via contract). Put the union leadership in charge of the companies.
In other words, you Dems need to quit your incessant bitching that someone else needs to solve problems (that you largely created yourself) and, instead, do it your own damn self.
Hey bender, point me to a michigan republican who's opposed to the bailout.
Show me that brave free-market ayn randian republican you're talking about.
UWS guy,
There is no guild that protects lawyers. Lawyers compete. Plenty of unemployed or underemployed lawyers out there.
really? no guild to protect lawyers? No initiation hurdle? Anyone can practice law if they want? What do you think the Bar exam is?
Even home decorators/interior designers now have their own guild and barriers to competition.
UWS guy,
You are being silly. There is no equivalent for lawyers to the "closed shop" which prohibits other Americans from offering their services to Detroit. Is there an artificial shortage of lawyers? No - plenty of 'em who compete against each other every day. Are clients prohibited from canning their lawyers and hiring new ones at cheaper rates or for some other reason? Certainly not.
If GM, Ford and Chrysler all go bankrupt, will I still be able to buy a new car when the need arises?
Yep.
There are plenty of other car manufacturers that will continue to provide a wide selection of new cars.
The (formerly) Big Three followed a failing business model. The UAW was a willing participant, and has utterly failed to recognize its role in this debacle.
I took my motorcycle to a dealer for an oil change one day last summer. While waiting in the customer lounge I struck up a conversation with another guy who was also waiting for service work to be completed on his bike.
His story: He was laid off from a GM assembly line in Texas. Being laid off meant he was collecting 85% of his regular pay for up to two years. He was planning on being called back to work for a couple of months at model change-over, then being laid off again. He was thinking about spending a year in Mexico.
Sorry, that's part of a contract with the UAW that took GM to where it is today.
Let them go bankrupt.
What wage price in america would make the auto-workers competitive against koreans? Average household income in korea is around 10,000 dollars per year.
Wrong question -- Detroit's main problem is not competing against Korean autoworkers, it's competing against AMERICAN autoworkers in Toyota, Honda, Nissan, etc plants (mostly in southern states).
Will all the folks who own foreign cars but think the UAW is not the problem, please raise your hands.
"Wrong question -- Detroit's main problem is not competing against Korean autoworkers, it's competing against AMERICAN autoworkers in Toyota, Honda, Nissan, etc plants (mostly in southern states)."
You can add Mercedes and BMW too.
UWSguy said...
"point me to a michigan republican who's opposed to the bailout."
You're right that Michigan's Congressional delegation all seem in favor of the bailout. What does that prove, apart from the fact that politicians pander and that the House GOP could stand to lose a little more fat?
Peter Hoh:
Personal opinion -- not one cent of public money should be spent on sports, nor on the arts, with the exception of youth programs.
I seem to recall that the Twins were on the list for "contraction," along with my old team, the Expos, now the Nats.
Montreal's stadium cost $1.7 Billion (1976 money -- roughly $7 B in today's money, ignoring exchange rates). It was built at a time when all of Montreal's sewage (population 3 mil) went into the St. Lawrence river without even removing the 'floaters.' Sure, it was used for two weeks for the Olympics, but I hope you get my point.
So ... I agree with you about the Twins, and I hope you'll expand that perspective to all government subsidy of private operations.
To underline that position: I make my living as a farmer, without one cent of government subsidy. I'm eligible for 'farm program' money, but I told 'em to go to Hell.
I am allowed to criticize the UAW workers and blame them for this mess.
I am allowed, you see, because I make far less than those fat-cat UAW workers and "retirees." I have far less wealth than those fat-cat UAW workers. And instead of folks saying that we should take from those who have less and give it to those who have more, why don't we do what you keep insisting that we do? Let's spread the wealth around.
Instead of the poor and middle class paying to bail out upper income UAW workers, why don't we demand that the bail out be paid for by those same upper income UAW workers? (and they are upper income compared to the national average -- UAW workers and "retirees" make probably twice what the average annual income is in the country)
You know, a greedy rich person does not suddenly become a good guy simply because he got his wealth via a UAW contract.
If the politicians in Michigan truly wanted to fix their state, they'd make Michigan a right-to-work state and step aside while the automakers restructured.
That would take courage, so it won't happen. Meanwhile, people from all parts of America are being told that their money will be used to temporarily shore up a failing industry.
I understand the current economy. I am (or correctly, was) a 100 unit per year home builder. I'm now down to approximately zero units per year. My employees and subcontractors are all suffering because of layoffs and lack of business.
I did nothing to cause this mess, yet it is wreaking financial ruin on my family and associates. I ran a financially conservative company. I paid my bills on time, and paid fair wages and benefits to my employees.
Where the hell is MY bailout?
All I get the the 'pleasure' of listening to some gasbag turd congressweasels who caused this mess by failing to correct the problems at Fannie and Freddie insist that the Big Three get a bailout.
I cannot recall a time when I have been so implacably angry with government, both parties, no exceptions.
The Big Three need a cash infusion. How does declaring bankruptcy put more money in their pockets?
Further, the feds have given one insurance company, AIG, $125 billion, without even asking for an accounting. How has that cash infusion benefited even one taxpayer? Why balk at giving three companies that actually make things and hire people in the US one-fifth of the government largesse given to an international outfit that took their profits in Bermuda and Barbados? Why reward the i-bankers who spent the past decade blowing their "capital gains" on bottle service, hookers, and cocaine?
People fly on bankrupt airlines all the time.
Yes, but they do not pay in advance for all the airline tickets they expect to use over the next five years. A car is a durable good, a flight to be taken next month is ephemeral.
failing to correct the problems at Fannie and Freddie insist that the Big Three get a bailout.
Anybody who thinks the problem was caused by lack of oversight of Fannie and Freddie, instead of $43 trillion of CDOs, merely displays his ignorance. Further, Fannie/Freddie did not buy any significant amount of sub-prime and Alt-A paper until 2006, when Republicans ruled Washington, and Republican BS artist Richard Shelby could not get Chuck Hagel's reform bill out of the Senate Banking committee he controlled.
former law student said...
"The Big Three need a cash infusion."
Says who?
FLS numbers looked suspicious so I googled and found this-
"The International Monetary Fund has released a useful paper analyzing the pricing of complex instruments such as collateralized debt obligations (CDOs). The paper suggests that further writedowns by banks and other holders are likely once they fully recognize the lower values of their structured assets.
The valuation of CDOs and asset-backed securities (ABS) caused many of the world’s largest banks and other major global financial players to underestimate the danger and likelihood of a subprime mortgage crisis and its impact on those securities. Subprime mortgages have a total value of about $1 trillion. The total value of the global asset-backed CDO market, in comparison, is only worth $400 billion."
I just want to reiterate that GM did renegotiate a reasonable contract that will make them far more competitive in a year's time. What they didn't expect is the credit crunch. And they are not asking for money that will go down the rabbit hole...they are asking for a loan that they feel they would have gotten had the banking crisis not derailed them.
Also, to those who say that people will buy a car from a company in bankruptcy I say that is pretty naive thinking. Auto companies sell their products largely on the quality and warranty/service.
So, no loans, and I do think we're talking about these companies going under. I'm having great difficulty seeing how this is a good thing for our economy.
There is a strong possibility that if the 3 declare bankruptcy, that they will simply close down operations and will cease to exist.
DTL needs to understand the difference between Chapter 11 and Chapter 7 bankruptcy. For the auto makers to go into Chap 11 and be able to restructure, offload the legacy (pension benefit package) to the PGBC, eliminate the union contracts and rehire those "qualified" employees at lower wages.
They should close or sell of the unproductive plants that they have in the unproductive and difficult to supply urban areas and move their plants to less costly areas with willing workers.
PG&E went through a similar restructuring and has emerged a stronger company. Lots of companies have survived Chapter 11
Will it be painless? Hardly. Some people will lose their jobs or will have to take lower wages. The wages and benefit packages are obscene right now. Cry me a river.
Others who are retired will see lowered benefits. Many of these retirees are in their 50's!!! and are completely able to get other jobs. Get up off of your dead asses and get a job just like the rest of us.
I also like Romney's idea that the top management must go. They have managed the company into the ground. Poor performance should not be rewarded with tax payers money.
rich b's numbers looked suspicious so I googled and found this:
http://www.bloomberg.com/apps/news?pid=20601087&sid=ad71potU0EbM&refer=home
Derivative Trades Jump 27% to Record $681 Trillion (Update1)
By Hamish Risk
Dec. 10 (Bloomberg) -- Derivatives traded on exchanges surged 27 percent to a record $681 trillion in the third quarter, the biggest increase in three years, the Bank for International Settlements said.
Dust Bunny Queen: Would you really buy a car from a company in bankruptcy? Would you buy anything where you would need to rely heavily on a warranty from a company you knew was in bankruptcy?
Darcy: Would you really buy a car from a company needing government handouts? Would you buy anything where you would need to rely heavily on a warranty from a company you knew needed taxpayer money to operate?
At this point, Chapter 11 company or government-strings-attached company, it's all the same to the prospective car purchaser -- the same amount of risk is involved. Besides, if the car companies were to go under entirely, many of the current dealership mechanics and car parts companies could simply pick up the slack to service those new cars.
" Yet year after year of CEOs take, not pay checks, but the bonus theron, of (in GMs case) 60,000,000 dollars every year."
This is misleading information because much of the bonus and pay, especially for the upper management, is in the form of incentive stock options that they can exercise at a later date. Below explains how the options are valued according to the new rules for fair market evaluation of such securites.
Beginning January 1, 2003, the Corporation began expensing the fair market value of newly granted stock options and other stock-based compensation awards to employees pursuant to SFAS No. 123, “Accounting for Stock-Based Compensation.” The fair value of stock option grants are estimated on the date of grant using the Black-Scholes option-pricing model. The fair value of other stock compensation awards is determined by the market price of GM $1-2/3 common stock on the date of grant. The total expense for 2003 was $229 million ($142 million net of tax), recorded in cost of sales and other expenses
In December 2004, the Financial Accounting Standards Board (FASB) revised SFAS No. 123 (SFAS No. 123R) requiring companies to record share-based payment transactions as compensation expense at fair market value. SFAS No. 123R further defines the concept of fair market value as it relates to such arrangements.
What this means is that if the option granted in 2007 is to be able to buy 10,000 shares of GM at (for example) $25.00 the fair market value of the option is $250,000 and is recorded expensed for that year but is not taxable to the employee until exercised. Most options have other restrictions among those one that they can't be exercised before a one year period or that they are vested on a schedule to the employee and can't be sold all at one time.
So even though they were expensed and included in the figure that UWS states. The executive has the right to buy 10,000 shares of GM at $25.00 and the current price is $2.46. .....Just how valuable do you think that option is right now for the executive?
It isn't as simple as the simpletons in the news media want you to believe.
The above is a very simplified explanation. The taxes for ISO and NQSO are complex.
Bender: You may understand that, and I may understand that...but I don't think the average consumer would. Perception is everything.
Bankruptcy would doom them, I think.
Darcy - The other factor is, with an uncertain economy, consumers will be putting off big-ticket purchases for a while, whether it is bail-out or bankruptcy.
I have an eight-year-old car and, in a vibrant economy, might consider trading in for a new one. But with the possibility of being laid off myself, I'll just have to get by with my old one.
Would you really buy a car from a company in bankruptcy? Would you buy anything where you would need to rely heavily on a warranty from a company you knew was in bankruptcy?
No. I wouldn't. However, most people don't go and buy cars annually. So a Chapter 11 reorganization would take a bit of time, and the company might lose a few new car buyers in the interim, but they would come out of the reorganization stronger. As it stands now, the company has about a zero chance of surviving at all. Chap 11 would at least buy them some time and loyal brand buyers might wait to see what happens.
All my vehicles (one new within 2 years and 4 older vehicles) are Chevy or GM so you might say I'm loyal :-0
FLS-
You need a course in basic financial literacy. Collateralized Debt Obligations or CDO's are not the same as derivatives. You quoted a figure of $43TN for CDO's which was off by more than an order of magnitude from the actual number. CDOs are a type of derivative, actually funded by an underlying debt instrument.
Derivatives encompass far more than CDOs. I know that the nominal value of derivatives is in the $100sT, although your number sounds toward the high side. Nominal values make the amount sound larger and scarier. In fact, many of those derivatives are offset by other derivatives, which means that the net amount at risk is much smaller.
I think your source, which is from December of 2007, refers to the volume of trading and not the amount of derivatives outstanding at one time. Analogy - trading volume in equities can exceed the value of equities outstanding as the same shares are sold multiple times.
Try to be a little more precise in your posts.
Here's a link that discusses expensing of Incentive Stock Options.
http://en.wikipedia.org/wiki/Stock_option_expensing
As I said. It's very complicated.
Who the hell buys GM or Chrysler passenger cards anyway? My Civic has 100,000 miles on it--I need new wiper blades and maybe battery. My Honda Odyssey has 84,000 miles and needs new rear brake pads.
Before he totaled it, my son's Plymouth had 86,000 miles on it and needed a over $4,500 worth of repairs (we were going to junk it at the next inspection.)
I've owned three GM cars. Only one made it to 126,000 miles and it was barely drivable when I scrapped it.
Ford makes an excellent, quality version of the Focus in Europe. The one here stinks.
On a recent vacation, I drove some GM brand. The dashboard and controls were designed by an idiot. (On the other hand, to be fair, I rented a brand new Pontiac G6 a few years ago and it was awesome.)
The reality is that GM, Chrysler and Ford make really crappy, poorly designed cars that don't last. (Non-Thai versions of the 90s Taurus lasted, but in their brilliance, Ford dropped the line.)
Ah. According to the Times of London, in September the entire credit derivatives market (not counting other derivatives, but comprising CDOs among others) was valued at $62 trillion.
Thanks for your replies, DBQ and Bender.
It seems like everybody has made their minds up, and it's frustrating. We're going to let these legendary American institutions fold without getting all of the facts?? Do you believe we have all of the facts?
I'm just as frustrated at the where the union has taken these companies. But don't the facts matter, here? GM believes this is a loan, not a gift, and they believe that they'll be in very good shape a year from now when the new contract kicks in, according to all I've read and been told. The union did finally make significant concessions. Both sides know how dire this is and want to make it work.
Again, I ask, how do people really think letting these companies fail is going to help the economy? I think, just like with the banking crisis, the reaction to federal aid is a bit too emotional and rash. It may not be the right thing to do here, but I certainly think it deserves a very hard look.
Letting GM and Chrysler go into chapter 11 will help the economy because it will force them to either stop being a corporate dinosaur or liquidate. For the wonders of the free market to work (and it does work), there has to be a free market. Among other things, chapter 11 will free GM from it's horribly archaic dealer and parts system (I've done some computer work with the GM parts system--it's beyond horrible. Revamping just the parts delivery system would save the company millions a month.)
Moreover, given the sucky job done so far with the hundreds of billions given to the government, why does any sane person believe this will make any difference?
Again, I ask, how do people really think letting these companies fail is going to help the economy?
Chapter 11 bankruptcy is not failing or a guarantee that the company will go out of business. Quite the contrary. Just like Joe said. It would allow them to shed the unworkalble contracts and outmoded business model that is dragging into certain bankruptcy.
I know they "think" and "say" that this is a lone. But I believe it is just another giagantic example of a sub-prime loan. Making a loan to a company that has a poor track record or that is unable to make changes to improve their business model(as they are now, shackled with the pension and benefit costs) is just throwing money away.
I would suggest they go into Chap 11. Reorganize and THEN look for some financial assistance from the government. The reason they need financial assistance now is that their debt instruments (bonds and notes) that they would normally use to get funds, are un-sellable. No one in their right mind would buy a GM or Ford bond at this time.....that's why they are begging the government
sigh.....loan. not lone. DOH!
I don't want the companies to fold, Darcy. But I do think it necessary to break the union which bears at least half of the responsibility for causing this mess.
Having lived in Southeast Michigan for half my life, I know how the unions have destroyed that state. From the auto industry to education to government -- all union dominated, all going down the drain. There is a reason that Michigan's unemployment rate is nearly 10 percent, and why Michigan's economy has been crap for the last 30-40 years. Much of it has to do with the union attitudes of "take from others (management)" and "we got ours, screw the rest of you." It is that kind of union leadership that has destroyed Michigan and seeks to make all of America look like the abject Hell that is called the City of Detroit.
Thanks, Bender. I live in Livonia, and we're going to just die from this, I think.
You're right about all of that, of course. I had nothing to do with any of that, I just simply have lived here all of my life. I guess that was my mistake. ;-)
Well...that sounded pretty whiny. LOL. I'm pretty worried, though.
downtownlad said...And once that's done, Japanese companies would actually not be under any pressure to produce cars in America.
So called Japanese companies produce quality, profitable cars right here in America. That wont stop. In fact an increase in market share means they increase production at American based plants.
integrity said...Romney has decided never to run again (or is on a kamikaze mission), and good. I loathe this cultist douchebag.
You and Mike Huckabee.
Bye Romney, and good riddance. Another fucking dunce. LMAO.
Where do republicans find these people?
Near the top of the graduating class at Harvard Law school and Harvard business school.
Romney/Bible Spice 2012!
All this nonsense about how "jobs will be lost" if we don't bail out the Big Three is a bunch of horseshit. If you're relying on government bailouts for your job you haven't GOT a real job. You're just another welfare recipient.
A real job is one the economy actually requires. The economy has been signaling for years that it does not need badly-made, overpriced cars. It isn't going to require them next year, either, or five, ten, fifty or a hundred years from now. You can blame the unions, you can blame the management, you can blame the network of laws hamstringing American car companies, but when all is said and done the fact remains that the Big Three make products people don't want.
They should go bankrupt. That's the appropriate fate for inefficient companies. It is why free markets work.
darcy-
Would you buy anything where you would need to rely heavily on a warranty from a company you knew was in bankruptcy?
Why does a "new" American car require a "warranty"?
I have never, ever bought a car that even had a "warranty"- Yet I still buy a car every 5-6 years.
I buy a "used" Honda or Toyota... because they have a long history of selling autos that you can drive for 200K+ miles.
I bought a 79 Toyota Celica in 85.
I bought an 85 Honda CRX in 91.
I bought a 94 Honda Civic in 2001.
I bought my current 2001 Toyota Corolla in '06. (only because I "rolled" the Civic three times at 65MPH- I could have gotten another 2 or 3 years easy...)
The only reason buyers want a "warranty" is if your product is known to be crap.
Fletch, I do appreciate that. I buy used, myself. And I love to get as many miles out of a car as I can!
But I do think that the perceived stability of an auto company is going to affect sales.
Anyway, I'm done whining here. I recognize it's a regional problem.
I believe that while the U.S. worships at the alter of free market capitalism, we are also utterly terrified of it. Pure free market capitalism is actually the financial analog of evolution, natural selection, and survival of the fittest. One assumption of evolution is adaptation, another is extinction. Do we have faith that if we allow the mechanisms of free market capitalism to operate without interference that we will ultimately be left with the most adaptive financial gene pool.....and who among us will become extinct?....and do we, as a society have any obligation to care for those who do not financially survive?
I appreciate Romney staying visible and attempting to forge a constructive role for himself in addressing some of America's grave problems. Credit him with not being the whiny pissant Huckabee has become "Romney didn't respect me!!".
His article was a well-timed, welcome contribution to the debate.
I agreed with most of Romney's op-ed in the NYTimes. It also took some political courage to buck the "just a little money to bide us through and we won't be back, honest!!" line of crap Detroit execs, unions, and area politicians are dispensing. Romney showed some hardass brass balls we need more of in the "the main thing is to sooth all victim's feelings and economic well-being", pandering America, of the early 21st Century.
DTL - Did you even read the article? Describing bankruptcy as a "win-win" sounds pretty "painless" to me.
I guess you didn't read it that closely..Romney said long-term it is win-win, in the short term, it has to be made painful for CEOs, shareholders, and Unions because pain is a necessary part of reorganization and shedding costs.
Shedding workers and execs, giving up big chunks of exec compensation, and unions choked by Chapter 11 into having to surrender the ruinous contracts they negotiated IS painful for all.
downtownlad said...
There is a strong possibility that if the 3 declare bankruptcy, that they will simply close down operations and will cease to exist.
I don't think you know the difference between a Chapter 11 and a Chapter 7 bankruptcy. And unlike other Chapter 11s where the consumer was screwed with courts ordering warrantee cancellations and lack of parts support for past products...Romney and others say that car purchasers would have to be protected with gov't help as a necessary part of reorganization, as well as the sales force..in order to keep selling cars and eventually emerge from Chapter 11.
Even, if, God forbid, DTL, it went to Chapter 7 - then it becomes a liquidation with the government as a stakeholder in who would come in and prder rules to bid on assets necessary for national defense, maintain the domestic market for heavy manufacturing so it doesn't disappear as a national asset. You don't walk away from 200 billion in assets that it would take to rebuild Detroit from scratch elsewhere. (Even if the financial markets say the assets are only valued at 7 billion in the current duress and credit crunch as "what people would pay for Detroit with all the present union contracts, work rules and retiree obligations in place".)
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Darcy said...
Dust Bunny Queen: Would you really buy a car from a company in bankruptcy? Would you buy anything where you would need to rely heavily on a warranty from a company you knew was in bankruptcy?
I dispute your read on it and DBQ's assuming that the warrantee problem would be allowed to exist in a Chapter 11. Other firms making durable goods have gone into Chapter 11 (Caterpillar, for one, I believe, and maybe Harley-Davidson or it was rescued before Chapt 11) and the courts administering the bankruptcy have been especially attentive to the fact you cannot expect a re-org to work if you destroy the market and consumer base in the process and lose all your cash flow. So funds are set aside in Chapt 11 to honor warantees and to keep a viable sales force and distribution network intact. Romney in his article briefly addressed those points. Those of us MBA types familiar with reorgs know what he is talking about.
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Not mentioned in the discussion was the central, salient fact Romney brought up that legacy and excess union costs add 2,000 more in cost to each car Americans make in Detroit compared to cars American workers make for Toyota, BMW, Honda down South. He said that means you either may 2,000 more for a GM car over a comparable American-made Honda, or you build the GM car with 2,000 less in quality and materials than the Honda.
2,000 bucks per vehicle is a huge competitive disadvantage that if not fixed, guarantees that the Big 3 and the unions will be back every quarter asking for more taxpayer money. Some politicians embrace the "high-tech" miracle idea..that the government will spend billions to make US cars more "high-tech" like the Chevy Volt! The Chevy Volt! and Deus ex Machina will give Salvation to Detroit to do "business as usual and keep the union contracts going." That is fantasy, because technology diffuses and with the inbuilt competitive disadvantage
you once again end up competing with an Alabama-made Toyota version of the "Volt" in a few years that costs 2,000 less than a Chevy or has 2,000 bucks more quality of labor or materials put into it.
That is way Romney says you have to have structural change, since the 2K is built into the cost structure. You have to get rid of the cost differential - not effectively give Detroit a (unlikely to be just one-time) 2,000 dollar subsidy from taxpayers in CT, Alabama, Ohio in order to compete against an American-made car in Tennessee.
And if Detroit gets it, what about the rest of us? Michael_h, I believe, mentioned he works in the devestated home construction industry, about 10 times larger than Detroit. 250 billion for them from taxpayers sound good? Or will homebuilding industry owners and workers expect that they must move on to different work?
PS - I did appreciate the comments from the usual Lefty suspects more or less to the effect "Whatever our hero union workers demand from the taxpayer, they should get!"
Darcy,
You can't just look at how willing people are to buy from a bankrupt company. You have to consider how willing they are to buy from a company that can't survive without regular infusions of government cash, too.
Would you rely on a warranty knowing the company that issued it needs to lobby Congress for the money to pay for your car repairs?
No, Revenant, I guess not. I also guess I'm pretty transparent in my grasping here. :)
I'm scared. I have two sisters and a brother-in-law at GM, and a brother at Ford. Lots of nieces and nephews depending on them. Plus, I live in a town that was pretty much built up around the GM plant.
I know what you and DBQ, and the rest are saying is true. I actually feel like an ass for writing all of this stuff when I know better.
If they actually perform a needed service at Ford or GM, odds of them surviving a bankruptcy reorganization are pretty high. Ford and GM *can* make good cars and sell them profitably, they just can't do so while stuck in the web of union obligations and regulation they tangled themselves in a generation or two ago.
Darcy-
I can respect a "regional" argument- Columbus watched many jobs die with the closure of the massive GM "Fisher-Guide" plant on the westside a few years back...
But Honda is still making money 30 miles up the road in Marysville (with many of the same people).
The only difference is the UAW and current GM management.
Bankruptcy is the solution.
Darcy - you are in my prayers. It is times like these when it makes sense why they put "In God We Trust" on money -- the money itself, material things, jobs and homes, will one day all turn to dust. On these things we cannot put our trust. On these things our hope cannot rest. We can only trust and place our hope in that which eternal.
In the meantime -- for the love of all that is holy, get the hell out of Michigan! Move! I know you have friends and family there. I know that it can be and once was a very nice place, but Michigan is one of those places that have long since been dead, and the corpse is now festering and threatening to poison us all with sepsis. Leave before it is too late.
Revenant, Fletch, and Bender...thanks!
And Bender: It's not so easy, but it's something I'm thinking hard about.
The only way out is chapter 11 reorganization. If GM goes, so will Ford and Chrysler and followed by every UAW shop in the mid west. Otherwise it will be a 25,then 50 then perhaps a 150 billion plus in loans only to find the money spent and the industry finally having to be liquidated.
To be brutally honest, the companies have screwed the shareholders so hard and so long they may never find willing investors again. They would have done better by the shareholders shutting down US manufacturing years ago and becoming design and engineering centers for their foreign subsidiaries and importing cars for the US market for their overseas operations and contracting manufacturing to Toyota USA and other foreign companies in the US.
Still, chapter 11 is the only viable solution for domestic manufacturing but that would require a true house cleaning of the entrenched management and unionized redundant workforce provided the post 11 financing is in place. That is where the government should step in, to provide the interim financing during the reorganization.
Anything else is a waste of time and a colossal waste of money.
We cannot afford to let them go bankrupt. I know it is easy to for me to say this. I am an engineer working for an auto supplier. My employer like many other companies supplies to the U.S. automakers. We want to supply to foreign automakers in the U.S. but it is difficult to get into this market. Foreign automakers mostly get auto parts from their homeland not the United States. Also, think about this; what other industries are left in the United States? Does the United States still make any clothing, furniture or anything else in the homeland? Most if not all are made in China. If automotive is allowed to go down then the rest of the country will follow. I agree to certain point that the UAW has do more in concessions and they probably will continue do so. Unionized work force was and is an important factor to the middle class in this country. The UAW also but more products, houses and paid their fair share of taxes in this country. Also, the United States automakers are building cars better and more efficient which require fewer workers (UAW) to put them together. I also believe that some or most of the CEO's in the automotive companies need to resign and or take a huge pay cut. They seem clueless about this industry and there are far better people out there that should replace them. Think about this for a minute. The dollar in value has plunged against foreign currency. Foreign products should be more expensive right? How do they sell their products to us then? Do they devalue their currency? Why have United States companies failed to capitalize on exports when the dollar has plunged? The answer is we design and manufacture less today than we have years ago and also because other countries close their ports to our products. Last point, if the auto companies are allowed to fail we will have higher unemployment, paying fewer taxes. How is our government going to be supported if this happens? Higher taxes for what’s left of the working class. Last, last point (I promise) when the tragic 911 attacks happened, the big three contributed financially as well as providing vehicles (Trucks) to help get the United States back on track. What did Honda and Toyota provide to us at that time of crisis? Zero, Zilch Nada. So much for a company that makes and sells cars in the United States.
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