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Official U.S. Bailout Thread (pg. 3)
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| Fir3start3r |
Yikes!!
Even to be considering this doesn't look good...
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December 19, 2008
Bush Weighs ‘Orderly’ Bankruptcy for Automakers
By DAVID STOUT and MICHELINE MAYNARD
WASHINGTON — The White House said on Thursday that an “orderly” bankruptcy was one option being considered to try to rescue General Motors and Chrysler, which are seeking billions of dollars to avoid a shutdown.
President Bush’s spokeswoman, Dana Perino, confirmed growing speculation within legal circles that the president and Treasury Secretary Henry M. Paulson Jr. were considering the step as part of an overall rescue package for the automobile industry.
The action would be unusual, and would require concessions by the United Automobile Workers union, suppliers, investment banks, the federal pension board, bondholders and other stakeholders in the two auto companies.
Ford Motor, which does not face an urgent need for capital, is not likely to be part of any rescue package.
Under one possibility that has been discussed, the government would give G.M. and Chrysler enough financing to operate for several months. Then a government-selected overseer would bring together company executives and other representatives to map out steps that would be taken once the two companies file for Chapter 11 protection.
“It’s not going to be easy, it’s not going to be pleasant, or palatable, but it’s the only solution that makes the least bit of sense,” said Hugh M. Ray, head of the bankruptcy practice at the Houston law firm Andrews & Kurth, who has participated in many major bankruptcy cases.
Major banks would provide debtor-in-possession financing for the companies to operate while under bankruptcy, with federal funds as security.
“I will tell you this: the president is not going to allow a disorderly collapse of the companies,” Ms. Perino said Thursday at a news briefing. “Disorderly collapse would be something very chaotic that is a shock to a system,” Ms. Perino said. “There’s an orderly way to do bankruptcies that provides for more of a soft landing. I think that’s what we would be talking about. That would be one of the options.”
She quickly added that no final decision had been made. She said she could not be definite about the timing of a White House announcement, but that administration officials wrestling with the crisis were “nearing conclusion” of their deliberations.
“Any scenario that comes forward after this decision-making process, all the stakeholders are going to have to make tough decisions,” Ms. Perino said.
“I would just say that we want a robust auto industry in America, and we think that they can be competitive and viable,” Ms. Perino said. “But they’re going to have to make tough decisions to get there.”
President Bush said Thursday during an appearance that he was “worried about a disorderly bankruptcy” and the psychological implications it would have for an economy already staggering under the weight of a severe recession.
He said he also felt an obligation not to saddle President-elect Barack Obama with “a major catastrophe” on his first day.
But, Mr. Bush, answering questions at the American Enterprise Institute, said he was concerned about “putting good money after bad.”
Ms. Perino said Chrysler’s announcement Wednesday that it would shut down production for at least a month was one factor driving the White House deliberations. The car companies typically close for a couple of weeks over the year-end holidays, but Chrysler’s decision to close for a month or more because of plunging sales was seen as ominous.
Negotiations involving the White House, Treasury Department, General Motors and Chrysler on an emergency loan package of more than $14 billion have been going on for days. Legislation on a rescue plan for Detroit stalled last week in the Senate, essentially leaving it up to the administration to decide what to do.
The prospect of a managed bankruptcy for one or more of the companies has been explored for several weeks, dating back to an original request by the car makers to the Treasury Department for money from the Troubled Assets Relief Program. Mr. Paulson rejected that request, prompting the auto companies to appeal to Congress.
G.M. has retained Harvey R. Miller, a long-time bankruptcy lawyer, as its adviser. It is also being advised by William Repko, a long-time expert in restructuring with Evercore Partners who has worked with companies like United Airlines. And, G.M. is working with Arthur B. Newman of the Blackstone Group, another experienced restructuring adviser.
Chrysler has retained the law firm of Jones, Day to provide restructuring expertise, while several law firms in Washington and across the country also have been retained by companies that might be involved in a bankruptcy proceeding.
However, any filing by either of the automakers would not be imminent. It could take three months or more to reach the type of agreements the government might require before the companies seek bankruptcy protection. That time could give consumers used to the idea of dealing with a car company operating under court protection.
Some analysts have warned that Americans might be leery of buying cars from any company that was operating in bankruptcy. But other studies have shown that consumers would be assured if the companies received federal assistance, even if they end up in bankruptcy protection.
Ms. Perino took issue with arguments advanced by some conservatives that the car companies, which have been widely criticized for poor management decisions over several decades, should be allowed to collapse.
“Just to step back for a minute, if you thought that our economy today could handle the collapse of the American auto industry, then you might come to the conclusion that doing nothing was an option,” Ms. Perino said. “In a strong economy, we would probably come to that conclusion as well. But we don’t have a strong economy today. We’re in the middle of a recession, and we have continued credit and financial market issues that we’re trying to work through.”
David Stout reported from Washington and Micheline Maynard from Detroit.
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>>Source<< |
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| The17sss |
Cost of bailouts now exceeds total cost of all major American wars combined:
| quote: | According to CRS, all major U.S. wars (including such events as the American Revolution, the War of 1812, the Civil War, the Spanish American War, World War I, World War II, Korea, Vietnam, Iraq and Afghanistan, but not the invasion of Panama or the Kosovo War), cost a total of $7.2 trillion in inflation-adjusted 2008 dollars.
According to Bloomberg, the federal government has made commitments worth a total of $8.5 trillion in the bailouts of 2008. That includes actual expenditures as well as loan and asset guarantees.
Bianco Research puts the total value of the bailouts at $8.7 trillion. |
Sweet!
Source---> http://www.cnsnews.com/public/conte...px?RsrcID=40964 |
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| pmoisse |
I find it curious that the carmakers are asking for 25 billion and getting abused for it, while banks and dodgy lenders are getting money like a kid getting candy at Halloween (and then not lending it on to consumers as readily as people might like).
The Morgan Stanley bonus fund is HALF what the carmakers are asking for. And that's for bonuses!!!
Any bailout to the carmakers needs a lot of strings attached for sure, but the double standard is a bit much given what's at stake.
Sounds like they're trying to break the union by squeezing them right down to the wire. |
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| tathi |
wow. |
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| pkcRAISTLIN |
so, can someone ing explain to me who is overseeing how money is used and spent in the biggest example of business welfare ever?
like, . |
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| otec |
| quote: | Originally posted by pkcRAISTLIN
so, can someone ing explain to me who is overseeing how money is used and spent in the biggest example of business welfare ever?
like, . |
How cares?
As long as you have a printing press available down in your garage, why SHOULD one care? |
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| Fir3start3r |
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NEWS January 15, 2009, 5:00PM EST
A New Menace to the Economy: 'Zombie' Debtors
Call them "zombie" companies. Many more has-been companies will be feeding off taxpayers, investors, and workers—sapping the lifeblood of healthier rivals
By Peter Coy
Zombies. Seen one lately? If not, you may soon, because they are about to menace the U.S. economy. In financial lingo, zombies are debtors that have little hope of recovery but manage to avoid being wiped out thanks to support from their lenders or the government. Zombies suck life out of an economy by consuming tax money, capital, and labor that would be better deployed in growing companies and sectors. Meanwhile, by slashing prices to generate sales, zombie companies can drag healthier rivals into insolvency.
Sometime in the past few months, zombies went from being a latent risk to a genuine threat—one that is likely to increase in the months ahead. The Bush Administration has already ladled out billions of dollars in assistance to weak banks and automakers. As the economy goes into what may become the worst economic downturn since the Great Depression, the Obama Administration will come under even more pressure to prop up sick financial and nonfinancial companies to save jobs. The debate will center on wounded giants such as Citigroup (C), General Motors (GM), and insurer American International Group (AIG). Other sectors with their hands out include steel, airlines, retail—and homeowners, who may be the scariest zombies of all.
Hard choices lie ahead, so it's important to have a sturdy framework for making them. The right approach, say those who have studied the matter, is to prop up a company if its core business is healthy but its financing sources have temporarily shut down. Otherwise, let it go. Postponing the decision by supporting sick and healthy alike will only make the eventual pain greater and reduce growth. "If an institution is poorly managed and does not have a reasonable plan for working out its problems, they ought to go ahead and shoot it," says William M. Isaac, a former Federal Deposit Insurance Corp. chairman who now heads bank consultancy Secura Group.
Japan was plagued by zombies during its lost decade of slow growth in the 1990s. Weak Japanese borrowers used the proceeds from new loans to pay interest on old ones—a process called "evergreening" that kept banks from having to acknowledge losses. In the '80s, the U.S. airline industry was pulled down by Eastern Airlines, which was allowed to keep flying (and charging low fares) while in bankruptcy court. That doesn't help anyone. "At some point, you need to wake up and accept the fact that, 'Oops, that's not going to work,' " says Stéphane Téral, an analyst with Infonetics Research who tracked the demise of scads of telecom carriers in the early 2000s.
Protecting zombies can stunt long-term growth by blocking what economist Joseph Schumpeter called "creative destruction"—the painful but necessary reallocation of resources from declining companies and sectors to rising ones. That turns out to be crucial. In the U.S. manufacturing and retail sectors, a huge share of productivity gains have come from such reallocation, says economist Steven J. Davis of the University of Chicago Booth School of Business. Case in point: the growth of hyperefficient Wal-Mart (WMT) at the expense of mom-and-pop shops, which were allowed to die. The absence of such reallocation could slow productivity growth.
"LEMON SOCIALISM"
The problem with the current bailout is that the government may be giving money to companies that don't have a long-term future: zombies. On paper, for example, the Treasury Dept. says it invests Troubled Asset Relief Program (TARP) money only in "healthy banks—banks that are considered viable without government investment" because "they are best positioned to increase the flow of credit in their communities." That's the right idea. In practice, though, the criteria aren't so stringent. Banks like Citigroup still aren't strong enough to lend. "The bailout model is socialism," says R. Christopher Whalen, senior vice-president for consultancy Institutional Risk Analytics. He advocates selling failed institutions in pieces, as was done to resolve the savings and loan crisis in the late '80s and early '90s. In fact, Washington may be moving toward something like that with Citigroup.
When a big employer runs into trouble, it's tempting to keep it going at any cost. Economists call this "lemon socialism"—the investment of public money in the worst companies rather than the best. The impulse is misguided, says Yale University economics professor Eduardo M. Engel. "You don't want to protect the jobs," he says. "What you want to protect is workers' income during the transition from one job to another."
There's already a powerful and underused weapon against zombies: bankruptcy law. Bankruptcy courts liquidate the weakest companies while allowing the potentially viable ones to extinguish enough of their debts so they can make money again. Even GM, which is staggering now, could emerge as "a new, revitalized company" if it goes through a cleansing bankruptcy reorganization that changes its obligations to dealers, workers, and retirees, says economics professor Edward W. Hill of Cleveland State University.
Right now, the biggest zombie problem may lie in housing. Millions of homeowners are juggling mortgages they can't afford to pay alongside other debts: credit cards, auto loans, and so forth. In struggling to keep their heads above water, they're slashing consumer spending, which is harming economic growth. Until 2005, bankruptcy filings would have lowered their consumer debts, freeing up more money for mortgages. But a law passed that year has exacerbated the zombie problem by making it much harder to discharge bad debts. Halfhearted modifications of loan terms haven't helped much. According to a new study by Alan M. White, a Valparaiso University School of Law professor, only one-third of modifications of subprime and near-subprime mortgages in November 2008 involved reductions in the monthly payment, often because late fees got tacked onto principal. As a result, he writes, "many modifications are temporary." That's the zombie condition.
Looking ahead, economists are trying to devise ways to make the financial system more resilient and less likely to breed zombies. A group of 16 top financial economists calling itself the Squam Lake Working Group on Financial Regulation is quietly working on a plan it hopes will get the attention of regulators in Washington and other capitals. Kenneth R. French of Dartmouth College, who helped organize the first meeting at New Hampshire's Squam Lake in November, says one goal is to invent a way to shut down or restructure failing institutions with a minimum of collateral damage to other firms and the general economy.
Recessions cause great harm, but they can also do some good if they force a needed reallocation of resources toward the most promising sectors. "If we can ride this wave the right way, this is going to be great for the future of the American economy," says Massachusetts Institute of Technology economics professor Daron Acemoglu. Right. Just as long as the zombies don't get in the way.
BUSINESS EXCHANGE: READ, SAVE, AND ADD CONTENT ON BW'S NEW WEB 2.0 TOPIC NETWORK
Loose Loans
During the credit bubble, lenders competed for business by waiving many of the standard terms that force borrowers to stay financially healthy. Without strong loan covenants, zombie borrowers are "underperforming but refuse to die," wrote Louise Bowman in Euromoney's November 2008 issue. Bowman says the lax language in the loans "acts as a life support machine to a terminally ill patient."
\To read the article, go to http://bx.businessweek.com/bailout/reference/
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| pmoisse |
Yugo and Lada used old Fiat dies and tooling from the 60's.
Fiat is now a solid brand with a great small-car lineup.
I don't think it's a good idea for Fiat since they don't stand to gain much, and they could lose a lot more.
If they could get entry into the US domestic market quickly with their new 500 and the Punto, things could work out though |
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| atbell |
| quote: | Originally posted by Groundhog Boy
Why? Because both allow people to engage in excess risk that everyone should be able to manage, but doesn't? How about Miller-Coors or InBev?
I'm sorry, but I've about had it with hearing about evil, predatory banks that lent money to those that asked for it, whether it was for a home or the $20k in credit card debt that they racked up buying HD TVs, PS3s and iPhones (note, Comscore has said that the $25-50K crowd has increased their iPhone contracts by 48% since June). And now it's all the banks' fault?
Edited to make sense... |
Nah, credit cards aren't banks.
The intrest rates they charge are exorbonant and reflective of the fact that they give them out to almost everyone. There is also a segment of society that sees a new credit card as free money.
Lets wait for the economy to turn sour before we start going after booze companies. The addiction is almost as bad as cigaretts for sure. |
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| atbell |
| quote: | Originally posted by pkcRAISTLIN
so, can someone ing explain to me who is overseeing how money is used and spent in the biggest example of business welfare ever?
like, . |
Check the treasury department.
It was Kashkari, a 35 year old engineering grad with experience at Goldman. |
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