$700 Billion Bailout

[mr_genius]

I saw today that that $72/hour figure or whatever it was is actually going to come down to about $44/hour in 2010 which is on par with the foreign companies in the US, but that GM needs a bridge to get there or the whole thing will collapse.

 

GM needs to negotiate immediate payscale restructuring. If the unions don't like it thats fine, they can go form go from $72 hour to $0 in 2009 when GM goes bellyup.

[southsider2k5]

http://www.reuters.com/article/newsOne/idUSTRE4AJ1GV20081120

 

Financials need at least $1 trillion: analyst

Thu Nov 20, 2008 1:45am EST

 

(Reuters) - The U.S. financial system still needs at least $1 trillion to $1.2 trillion of tangible common equity to restore confidence and improve liquidity in the credit markets, Friedman Billings Ramsey analyst Paul Miller said.

 

Eight financial companies -- Citigroup Inc, Morgan Stanley, Goldman Sachs Group Inc, Wells Fargo & Co, JPMorgan Chase & Co, American International Group Inc, Bank of America Corp and GE Financial -- are in greatest need of capital, he said.

 

"Debt or TARP capital is not true capital. Long-term debt financing is not the solution. Only injections of true tangible common equity will solve the current crisis," he said in a note dated November 19.

 

Currently, the U.S. financial system has $37 trillion of debt outstanding, he noted.

 

Combined, these eight companies have roughly $12.2 trillion of assets and only $406 billion of tangible common capital, or just 3.4 percent, the analyst said in his note to clients.

 

Miller said these institutions need somewhere between $1 trillion and $1.2trillion of capital to put their balance sheets back on solid ground and begin to extend credit again, given their dependence on short-term funding and the illiquid nature of their asset bases.

 

Since the summer of 2007, Wall Street has been hammered by a sharp pullback in debt markets, which began with mortgage woes and escalated into a credit crisis, slowing economic activity around the world.

 

RECAPITALIZATION NEEDS

 

The bulk of the capital will have to come from the U.S. government, Miller said. The government needs to take the initial steps to begin the process, and private capital and earnings can finish the job.

 

"The quicker the government acts, the sooner the financial system can work through its current problems and begin to supply credit again to the economy," he said.

 

The U.S. government must declare a bank-dividend holiday and convert the TARP funding into pure tangible common equity to get the credit markets functioning.

 

Also, the government should support a centralized CDS clearinghouse that backstops all transactions and eliminates the cross-default problem, the analyst said.

 

Top U.S. financial regulators said on Friday they were working on developing a centralized clearinghouse for credit default swaps, the exotic instruments that have exacerbated the financial crisis of recent months.

 

The weakened economy and global credit crisis had pushed the U.S. government into bailing out companies including insurer AIG, investment bank Bear Stearns, and mortgage companies Fannie Mae and Freddie Mac.

 

Regulators have also shown a willingness this year to intervene when banks appeared to struggle. They pushed Wachovia Corp into finding a buyer and arranged for JPMorgan to buy Washington Mutual Inc's banking assets after worried customers began to yank deposits.

 

Miller, however, said it could take three to five years for the financial system to fix itself completely, with adequate capital and appropriately priced interest rate and credit risk.

 

(Reporting by Neha Singh in Bangalore; Editing by Vinu Pilakkott)

 

© Thomson Reuters 2008 All rights reserved

[Balta1701]

Yet again, we have someone who knows a little, but not enough, about swaps (the author). People are undoubtedly making money on trade differential on these swaps, as well as cash flow for covering. The problem is, if there are $65B in CDS on GM debt, that means that if GM goes bankrupt and defaults on the debt... the Receiver holder on the swap will get "called" on the swap. Who is on the receiving side? Because those parties will suddenly have to PAY $65B to the Pay side holders. If they can, at the very least, they'll be out a ton of money. If they can't then the Receiver is screwed. Either way, there is going to be $65B worth of screwing going on with some IB or trading firm or whomever.

 

This is why the swaps market needs regulation. The downstream effect of defaults could be staggering.

How is that any different from what I and the author there wrote?

[southsider2k5]

I'd love to see Congress's reactions if we tried to regulate the government like this. Hell their waste factor is bigger than any other industry in the country, yet they are immune to things like Sarbane's Oxley and all of the other regulations they pass on to businesses.

 

http://www.businessandmedia.org/commentary...1119135110.aspx

 

Politicians, Journalists Have Eyes On The Wrong Ball

Portrayal of AIG conference as 'wine, women and song' shows ignorance of business.

 

By Dan Kennedy

Business & Media Institute

11/19/2008 1:54:33 PM

 

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The news media have, for two weeks, endlessly expressed outrage at AIG’s spending several hundred thousand dollars on a sales conference held at a Phoenix resort – after getting federal bailout billions. The impression conveyed has been that AIG executives took money from us taxpayers and immediately turned around and blew it on wine, women and song, hanging out at a hoity-toity resort, wallowing in caviar on our dime. As usual, the reporting is grossly inaccurate.

 

And the posturing politicians demanding tighter government watchdogging and control over how the bailout dollars invested in AIG and countless other companies is spent is outrage misdirected.

 

The facts about these big AIG meetings are that sponsors, predominately financial product providers and other vendors, subsidize large portions of the budgets for these meetings. They directly underwrite or reimburse for expenses as well as rebate after the fact based on sales made to and through AIG. Attendees also pay to attend.

 

The $300,000 cost of the event splashed all over the TV screen in reporting on this is likely the budget but not the actual, net cost incurred by AIG. Further, these types of events are part and parcel of fueling sales in advance and rewarding salespeople for results.

 

Those reporting only the sensationalist aspect of all this – the cost, the fact that they occur at fancy locations – are either ignorant of or, more likely, deliberately omitting the other facts. That’s either to protect the tabloid value of the story, or due to another agenda.

 

The politicians who propose micro-managing these companies’ use of funds are nothing but blowhards. They know full well such oversight is impossible. Once funds are lent or invested, they merge and commingle with all other funds and no one can trace a dollar spent on a spa treatment for a top producing sales agent’s spouse back to its origin.

 

Further, the politicians’ fake outrage would be better replaced with real rage directed at themselves for complete and utter failure to oversee and regulate the one thing that really matters: Is a company like AIG maintaining the necessary financial reserves to support the insurance it is selling?

 

This incidental example gets to the core problem with almost all politicians’ meddling with business, and all media’s reporting on it. They are pontificating about things they do not understand, opining about things they are ignorant of.

 

It’s fair to expect politicians like Gov. Sarah Palin ought to know geography, although it turns out those rumors of her ignorance were made up. Politicians also need to learn how business works or employ advisers who know before investing billions of our dollars in them, and journalists ought to pass a business basics course before reporting on these matters.

 

In short, our present economic trauma has much to do with our electing ignorant, unqualified dunderheads to Congress, and employing equally ignorant journalists to serve as the public watchdogs over them. We need smarter, more knowledgeable people in these positions.

 

If we had citizen government instead of entrenched royalty, Congress would be populated by business owners, salespeople, shopkeepers, financial professionals and others who, back home, hold real world jobs, run real world businesses, meet real world payrolls, and have some firsthand practical knowledge. Instead we are the victims of career politicians completely distanced and divorced from the world you and I live in, and the businesses they attempt to regulate.

[kapkomet]

I'd love to see Congress's reactions if we tried to regulate the government like this. Hell their waste factor is bigger than any other industry in the country, yet they are immune to things like Sarbane's Oxley and all of the other regulations they pass on to businesses.

 

http://www.businessandmedia.org/commentary...1119135110.aspx

Brav-f***ing-O.

 

[Balta1701]

I'd love to see Congress's reactions if we tried to regulate the government like this. Hell their waste factor is bigger than any other industry in the country, yet they are immune to things like Sarbane's Oxley and all of the other regulations they pass on to businesses.

 

http://www.businessandmedia.org/commentary...1119135110.aspx

While yes, Congress probably wastes more money on these sorts of things than anyone...regarding that article defending AIG...if this conference wasn't another luxury gig, if it wasn't another deal paid for on the taxpayer's dime, and if it was so necessary for their business...then why were they so desperate to cover up that it was AIG running it?

[kapkomet]

While yes, Congress probably wastes more money on these sorts of things than anyone...regarding that article defending AIG...if this conference wasn't another luxury gig, if it wasn't another deal paid for on the taxpayer's dime, and if it was so necessary for their business...then why were they so desperate to cover up that it was AIG running it?

With all due respect, you have no idea how this works.

 

[Balta1701]

With all due respect, you have no idea how this works.

And based on the couple trillion we're spending bailing out the banking business...I'd say no one else does either.

[NorthSideSox72]

How is that any different from what I and the author there wrote?

You indicated that GM failing would end up making a lot of money for some people I am saying, no, it won't. That money has already been made. It will end up COSTING the financial industry billions on a net basis, and nobody wins.

 

[Balta1701]

You indicated that GM failing would end up making a lot of money for some people I am saying, no, it won't. That money has already been made. It will end up COSTING the financial industry billions on a net basis, and nobody wins.

Ok, that sort of makes sense, so the odds of GM going down increasing have already pushed up the prices of those CDS instruments to the point that there's very little money left to be made if they actually go down.

 

Anyway then...doesn't every negative comment or bad day that GM execs have on the hill serve to push up the value of those CDS's even more as GM's failure becomes more likely?

[southsider2k5]

While yes, Congress probably wastes more money on these sorts of things than anyone...regarding that article defending AIG...if this conference wasn't another luxury gig, if it wasn't another deal paid for on the taxpayer's dime, and if it was so necessary for their business...then why were they so desperate to cover up that it was AIG running it?

 

Um did you see the headlines blastered all over the place and the blustering Congressmen taking shots at their expense?

[Cknolls]

GM meet your new CEO: RON GETTLEFINGER. That's my solution.

[Balta1701]

Um did you see the headlines blastered all over the place and the blustering Congressmen taking shots at their expense?

And the reason it was believable was that AIG had clearly thought they were doing something that deserved that sort of blustering.

[southsider2k5]

And the reason it was believable was that AIG had clearly thought they were doing something that deserved that sort of blustering.

 

Or they knew that the media and the Congress don't understand the business and would completely over-react.

[kapkomet]

Or they knew that the media and the Congress don't understand the business and would completely over-react.

Nah, that couldn't be it, considering that they just had big mamma and pappa getting on their ass for the same thing 3 weeks earlier, when most people don't have a f***ing clue how this stuff works.

 

It sure sounds good to blast these evil business motherf***ers, though.

 

[NorthSideSox72]

Ok, that sort of makes sense, so the odds of GM going down increasing have already pushed up the prices of those CDS instruments to the point that there's very little money left to be made if they actually go down.

 

Anyway then...doesn't every negative comment or bad day that GM execs have on the hill serve to push up the value of those CDS's even more as GM's failure becomes more likely?

Buy the rumor, sell the news.

 

No one in their right mind will be willing to buy into the Receive side of these CDS's at this point.

 

[NorthSideSox72]

UAW says they will suspend the Jobs Bank (paying 95% of salary to thousands of workers not actually working), and allow for deferred payments to health care, in addition to the concessions they accepted for 2009, to help the auto industry in the US survive.

 

Linky.

 

[mr_genius]

UAW says they will suspend the Jobs Bank (paying 95% of salary to thousands of workers not actually working), and allow for deferred payments to health care, in addition to the concessions they accepted for 2009, to help the auto industry in the US survive.

 

Linky.

 

IMO these need to be long term changes not just a quick fix which will be reversed after they get the billions of bailout money. The US auto companies need long term stability.

[Balta1701]

IMO these need to be long term changes not just a quick fix which will be reversed after they get the billions of bailout money. The US auto companies need long term stability.

One could have wished someone would have had the same concern about the banks and their hundreds of billions of bailout money.

[mr_genius]

One could have wished someone would have had the same concern about the banks and their hundreds of billions of bailout money.

 

i believe we can now put the bank bailouts into the multiple trillions of bailout dollars category. the 700 billion, the secret 1 trillion, and i'm sure theres more.

[kapkomet]

i believe we can now put the bank bailouts into the multiple trillions of bailout dollars category. the 700 billion, the secret 1 trillion, and i'm sure theres more.

Which secret trillion? There's about two or three of those that I'm aware of.

 

Does anyone understand at all what's really happening here? It's just plain frightful.

 

 

 

[mr_genius]

Which secret trillion? There's about two or three of those that I'm aware of.

 

Does anyone understand at all what's really happening here? It's just plain frightful.

 

these bailouts are all a complete disaster

[Balta1701]

Which secret trillion? There's about two or three of those that I'm aware of.

 

Does anyone understand at all what's really happening here? It's just plain frightful.

There are a couple people who are at least tasked with the job of finding out what is going on, Dr. Warren is one of them, she was in the news yesterday saying that there's pretty much no plan at all for how this is being done.

 

In the original bill, there was a position created of an inspector general whose job included oversight of the bailout. That nomination has been hung up by a hold in the Senate. We think that Senator Bunning may be the one who is holding it up (haven't checked the news fully yet today)...but so far, the Treasury Secretary has pretty much what he asked for; complete authority to hand money to whomever he wants, with only limited numbers of people looking over his shoulder.

 

Somehow, I find this to be a very fitting denouement to the last 8 years.

[mr_genius]

Somehow, I find this to be a very fitting denouement to the last 8 years.

 

the Democrats voted for this thing in full. They are in control of congress. Look towards your own party for once. The Democrats are totally pro-bailout.

[Balta1701]

the Democrats voted for this thing in full. They are in control of congress. Look towards your own party for once. The Democrats are totally pro-bailout.

You know what? I'm not totally sure that the bailouts couldn't have been done correctly, in a well planned, well administered way, if there were good people actually at the top running it. But hey, the guys in Congress keep doing this. George W. wants to invade Iraq to protect us from terra? Who are we to say no. George W.'s guys want an infinite amount of money to save us all? Who are we to say no?