Friday, December 12, 2008

While You Were Waiting

...for Preznitman to magically do something, GM decided to idle 20 plants for the entire month of January.
General Motors Corp. said Friday it will temporarily close 20 factories across North America and make sweeping cuts to its vehicle production as it tries to adjust to dramatically weaker automobile demand.

GM said it will cut 250,000 vehicles from its production schedule for the first quarter of 2009, which includes a cut of 60,000 vehicles announced last week. Normal production would be around 750,000 cars and trucks for the quarter, spokesman Tony Sapienza said.

Many plants will be shut down for the whole month of January, he said, and all told, the factories will be closed for 30 percent of the quarter.

"We're adjusting pretty dramatically," spokesman Chris Lee said.

The move affects most of GM's plants in the U.S., Canada and Mexico. During the shutdowns, employees will be temporarily laid off and can apply to receive a portion of their normal pay from the company. They can also apply for state unemployment benefits, Lee said.

Clearly GM is still expecting to be around, but if something doesn't happen soon, I'm betting a lot of those GM plants simply aren't going to reopen. Ever.

Still no bottom for the US economy. Still millions of layoffs, billions in bailouts and trillions in total losses ahead.

Epic Comparison Fail

When you compare a "bloated, non-competitive industry" like the Big 3 wanting a bailout to Blago selling his Senate seat on the same day something like the Madoff story breaks, you look like an asshole.

Just saying.


The Greatest Fraud In History

Even if the financial crisis wasn't upon us, the fact of the matter is the news that hedge fund guru Bernie Madoff has been arrested for a $50 billion investment scam would still be the biggest news of 2008.

Beleaguered investors face a "complete loss" from a scheme at the center of a major U.S. fraud case, which is likely to highlight their tendency not to question the legitimacy of big gains and ultimately lead to tighter regulation if the alleged fraud is proved.

A number of prominent funds of hedge funds are believed to have invested money in portfolios established by Bernard Madoff, a securities trader and investment adviser who was arrested yesterday before appearing at a Manhattan court charged with securities fraud.

U.S. authorities claimed Mr. Madoff told employees at Madoff Investment Securities earlier this month that the investment advisory activities of his business had been "a giant Ponzi scheme."

Christopher Miller, chief executive of London hedge fund ratings agency Allenbridge Hedgeinfo, said: "Some very big investor names are involved in this. The scheme could only work if enough investors were subscribing for him to pay money out. Some of the world's biggest hedge funds have been hit by this. There will be a monumental impact for the hedge fund industry, it could be larger then Enron.

"Some investors in Madoff's funds face 100% write-downs on the money they invested, they will suddenly be nursing full write-downs in December. When people realize the magnitude of this it will be fizzing around the stratosphere."

One asset manager based in Switzerland, home to many high-net-worth individuals who invest in funds of hedge funds, said: "Everyone's talking about this in Geneva. Several wealthy investors could be facing big losses."

Funds of hedge funds are already facing losses of 19.1% from their investments this year, according to the non-investible performance index from data providers Hedge Fund Research. This combined with investor withdrawals have left them with 14% fewer assets than they started with this year, and $140 billion, or 17%, less than their peak level in the second half of this year.

People didn't question Madoff because he was making money. The entire scandal is a microcosm of the entire financial crisis. As long as the money came in, nobody cared if it was legit or not. Nobody. It was only because the markets bombed and the resulting credit crunch dried up new investment in Madoff's funds that he was caught at all.

Mr. Miller said: "This is about the credulousness of investors to give the benefit of the doubt to good performance. What has caused all this to come to the surface is really net redemptions from the industry, because Ponzi schemes need net inflows to work. Some investors have the tendency to turn a blind eye to other possibilities when they get good news. But the impact of what has happened will be absolutely huge."

Mr. Miller said tighter regulation of the $1.6 trillion industry could result if the alleged fraud is proven.

Commentators have said losses from the fraud Mr. Madoff is alleged to have conducted could run to $50 billion. This scale of loss would make it the largest in corporate history.

Stop and think about how this was allowed to happen: pure, unadulterated greed. Once again the little guy has to foot the bill for the billions lost. Imagine if a terrorist caused $50 billion in damage to the US. No lives lost as a direct result, but the damage would have crippled the economy and wrecked countless lives. Bin Laden himself could not have done a better job.

How do you punish a man for causing this much damage? How do you truly punish a crime this large? There's no way Madoff would have been able to perpetrate this without the existing financial system itself, and it's just as corrupt as Madoff apparently is, if not more so. Any system that allows one person to do this much damage is a fundamentally broken system, unrecoverable at its core.

It must be thrown out, jettisoned wholesale into the sun. How many other Madoffs are out there yet to be caught? The entire global financial system is built on lies. The entire system is now coming undone.

What will replace it, and who and what will survive to do so?

Zandar's Thought Of The Day

Cutting UAW workers' wages from $28 to $25 is vital to getting $14 billion to the auto industry, but too bad.

Meanwhile over in the financial sector, we have one dude making $50 billion pyramid schemes.

Yeah, life's fair.

The Merry Go Round Broke Down

As mentioned in StupidiNews for today, the auto bailout is officially dead, the final sticking point being GOP demands that the UAW cut union wages to the level of non-union workers.
Republicans, breaking sharply with President George W. Bush as his term draws to a close, refused to back federal aid for Detroit’s beleaguered Big Three without a guarantee that the United Auto Workers would agree by the end of next year to wage cuts to bring their pay into line with U.S. plants of Japanese carmakers. The UAW refused to do so before its current contract with the automakers expires in 2011.

The breakdown left the fate of the auto industry — and the 3 million jobs it touches — in limbo at a time of growing economic turmoil. General Motors Corp. and Chrysler LLC have said they could be weeks from collapse. Ford Motor Co. says it does not need federal help now, but its survival is far from certain.

Democratic leaders called on Bush to immediately tap the $700 billion Wall Street bailout fund for emergency aid to the auto industry.

The wage concession was basically meaningless for the continued survivability of the Big Three, designed to drive a stake in the heart of the UAW and kill it. Putting an end to the UAW was the real point of the GOP Senate resistance, and it its zeal to bust the last big union, the GOP is apparently deciding to take out the auto industry and a couple million jobs as well.

Nice guys.

So what's next? As the article mentions, the President can tap the TARP fund to save GM and Chrysler, but Bush could have done that at any point in this mess, and he's refused to so far. He may change his mind after all, a legacy-minded Bush doesn't want to be the President that killed the American auto industry. On the other hand, expecting Bush to be a logical actor in any capacity is foolish given the last eight years.

The most likely outcome is a weekend deal that puts GM and Chrysler in bankruptcy soon.

Still, GM also has said it will lack the minimum $11 billion needed to pay bills by the end of this month, raising the prospect of bankruptcy should it fail to win a cash infusion. GM reported having $16.2 billion as of Sept. 30.

An attempt to restructure GM in bankruptcy would end up as liquidation, because sales would plummet as buyers flock to solvent car companies, Wagoner has said.

Chrysler has said it will run out of money early next year. It ended the third quarter with $6.1 billion in cash and needs at least $3 billion on hand to operate, Chief Executive Officer Robert Nardelli told Congress on Nov. 18.

Pressure was mounting on GM and Chrysler this week before the congressional failure as both faced demands from a small number of partsmakers for payments in advance because of the bankruptcy concerns, people familiar with the matter said.

GM is “deeply disappointed that agreement could not be reached tonight in the Senate despite the best bipartisan efforts,” according to a statement. “We will assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis."

The industry is effectively done at this point, it's either collapse under Bush or nationalization under Obama. GM and Chrysler will not survive bankruptcy, and if both of them go under, Ford will follow.

The ripple effects will be catastrophic. Millions of jobs will be lost as dealerships, parts stores, suppliers and auto mechanics go under. The auto suppliers service several auto brands and manufacturers that share costs. With the Big Three gone, Toyota, Honda, Mazda, Volkswagen and other foreign car companies will have to pick up costs that will be passed to consumers. Those folks will be hurt big time as well.

Obama will have no choice but to fund a massive nationalization project to save the Big Three, and the GOP will blame him for every cent he spends.

Remember that in 2010 if you still have a job in November when you vote.

[UPDATE] Nope, Bush doesn't want to be the goat on this.

The Treasury threw a lifeline to the beleaguered US car industry, saying it is ready to prevent the failure of auto makers until Congress reconvenes next month."

Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry,'' Treasury spokeswoman Brookly McLaughlin said.

The announcement came shortly after the White House said it will consider using the $700 billion Wall Street bailout fund to rescue the auto industry after the Senate refused to pass a $14 billion bailout plan late Thursday night.

"The current weakened state of the economy is such that it could not withstand a body blow like a disorderly bankruptcy in the auto industry," White House press secretary Dana Perino said.

The Bush administration has repeatedly opposed using the bailout fund, saying it was designed specifically to restore stability to the financial sector. But the White House said Friday it must reconsider after the Senate failed to agree on rescue plan late Thursday.

Considering the Dow is down less than a percent this morning instead of the meltdown predicted this morning, clearly the market is expecting Bush to step in and float the industry until Obama can act.

We'll see.


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