Given time, America’s track record is to generally do the right thing.

If history is any guide that statement is indeed true…

…after it has tried all other options.

first leaving unnecessarily mountains of burned soil,
endless cemeteries (on own side as well)
devastated markets and
many former friendships in ash behind

I would be more then happy if your very moderate and positive words come true.
Obama may indeed be a chance.
I hoped with crossed fingers that he will make it -and was relieved when the results came in.

But he is basically only a lonely men with a idea against a huge, politically well inter-winded, established military industrial complex. Even so – the second coming of David versus Goliath could work another time.
We shall surely find out.

On one point your definitely wrong.

The financial products hitting the globe now with devastating bombshells are exclusively US products – 100% – result of a criminal deregulated US market, a ceiling coming crashing down on a global tightly interconnected market.

Like one family with open pestilence dancing tight left-waltz with everybody at the United Nations New-Years ball.

The rest of the world is very hard hit by (given by own greed but essentially through)
collateral damage of the faltering US card-house -the source of the trouble is evident.

Sorry for the off topic – but its not so off topic, but right on the (car) spot at a second glance

700 is an above average score. A majority of Americans have a FICO score below 700, which means a majority of Americans won’t even qualify to be in the car market.

A FICO of 700 is supposed to be 60% of the working US population.

You can debate whether they should or shouldn’t have access to credit, that’s a matter of opinion.

I can’t see how anyone could expect a return to the auto-sub-prime that existed before.

But it is a matter of fact that they don’t have credit, and since most car purchases are financed, this is going to reduce sales substantially.

Of course, but it is an industry wide problem.

Otherwise, I think we got a bit off topic. I was trying to illustrate that the Bigish3 are being impacted right now by bankruptcy talk, and that the situation could be improved even with the further “problem” of Chapter 11, contrary to claims from the Bigish3 CEOs.

Superpowerism is elastic and tiring. The very nature of it makes us inconsistent. We heard all the same fatigue regarding the US, and the lecturing, and the America-is-finished warnings/gloating during the Vietnam War, after the Soviet invasion of Afghanistan, when we first transited from creditor nation to debtor nation and when we were in steep recession circa 1982/3. None of it mattered and our power projection remained more potent than even we believed for a time, then expanded considerably once again. It’s not possible to be a superpower, let alone one that others constantly lobby to solve their problems, and not spend some moral and political capital now and then. On the other hand, it’s stunning how fast we can regain it when our system shows its metamorphic power. When the world saw us effectively depose an unlawful president peacefully in 1974 with smooth succession, the effect wasn’t unlike the election of a minority candidate as President in 2008. America’s institutional stability and capacity for change makes these low points in international credibility temporary.

Bush, et al, spent, in more ways then one. Some of the US’ moral capital that he spent was wasted. But some was worthwhile though it will take the rest of the world a while to see and admit it. Again, the nature of a superpower is to look past the opinions of others today, if you believe the longer view validates what you chose to do.

We have, as a change of administrations will show, many friends left. Bush himself may have few friends internationally. America has more. Moreover, most of the world knows instinctively that alternatives to America as superpower present their own threats and problems.

Given time, America’s track record is to generally do the right thing. Our conversation with the world will be more open and participative after January 20, even for no more reason than the difference in personalities between Bush and Obama. As for the rest of the world suffering economically when the US falls ill, this is an old story. For a brief few years, the EU and the BRICs talked themselves into believing that after 60 years of the globe’s economy being lashed to the US, that linkage had finally been broken. Well, it’s not.

Further, the financial meltdown wasn’t so much an American problem spilling elsewhere as it represents the global financial sector’s buy-in to extremely risky practices they didn’t sufficiently understand. And governments all over stood back during the party. In a way it was the bankers against the rest of the world, with financial houses in the EU and elsewhere equally complicit as America’s.

We will fix it. The US grows out of its problems, and you see the US inclined to spend whatever it takes to keep not only Americans but also the rest of the globe out of depression. We may not be all the way out of this in four or five years, but the United States will again have more friends.

Phil

My criticism of the Republican role in Thursday’s Bailout stall in the Senate should not be inferred as a defense of the Democrats. The Democrats’ sins were of a different kind of irresponsibility. But it was the Republicans that appeared to promote ideology over common sense. They first attempted a strategic rollback of a UAW position when time was short and the funding in question was a mere tactical and temporary response to a problem this Congress isn’t going to fully solve anyway. Plus if they wanted to back the UAW into a corner, there were better, more aisle-crossing ways to do it.

The pro bailout crowd is full of chicken littles crying about depression and no more domestic car industry and defense issues. I would welcome them to try THEIR ideological approach so we could get on with the bankruptcy. They know their ideology is not persuasive, so they hide it with demagoguery.

Well, I’m not defending demagoguery. There’s plenty of nonsense spewed by both advocates and detractors of the automotive bailout.

If you listen to the Democrats, we never got out of the last recession. And even if we did, only the rich can afford even the basics in our society anymore. While we are at it, how about the treasonous lack of support for the war which the Dem’s mostly voted for? If you are going to have to stand on principle later, don’t vote pragmaticly or to save your butt in the first place. No, I gotta call BS on this one as well. It would be great if the folks in DC were both a lot less partisan, but calling either side on it needs to be tempered with some admission that both sides are playing with that particular fire.

Again, my opinion on *this* issue is not meant as a defense of the Democrats’ positions on others. I’m pretty much not happy with the conduct of either party in the serious business of legislation, but we do have to push forward. We have been suffering through a particularly lengthy interval of America’s recurring bouts of pea-brained Congressional composition, compounded by a President that lacks the legislative acumen that made a predecessor like Lyndon Johnson so effective at driving progress, nor has Ronald Reagan’s formidable ability to appeal directly to the American people when Congress stood in his way. On top of that, the executive team in the Bush administration persistently lacks the heart or will to capitalize on their wins. The leadership vacuum inside the beltway has us embroiled in mutual ideological obstruction yielding a stumbling practical response to every crisis.

The ideology injected into this issue is a good thing. We are having this crisis because the Republicans didn’t fight enough for their ideology in the first place. I blame them like I blame the parents of children who act badly. Leftist ideology brought us overly burdensome labor laws, CAFE, and even the idea that a bail out was a realistic possibility.

This particular $14B falls in the category of “emergency legislation.” There’s time to play out the ideological arguments in the more deliberate consideration of a plan upcoming. Corker & Co. paid no attention to perception of their maneuvering. Everybody knows the composition of Congress changes in late January, along with a change in the White House. Instead of being responsible, Republican behavior on this spcific matter looks like monkeywrenching for the sake of it, as a last defiant F-U before Democrats flood in. It looked to only make a point, not to advance the interests of the country.

Corker *could* have been more persuasive ideologically and been more statesmanlike (which is, after all, what we hope for from Senators as opposed to the House), *could* have worked behind the scenes earlier, through Pelosi, Frank, et al, not to mention his own party colleagues to influence the House bill, and built a bi-partisan coalition that among other things presented a new reality to the UAW. But no. Instead the Republicans obstructed, tried to force a strategic retreat on the UAW for a tactical bailout, and did so in as bright a spotlight as possible.

Where are Republicans now that banks are sitting on (vastly greater amounts of) TARP money rather than lending? Can you imagine James Baker as Secretary of Treasury, having won $700B + a mandate from Congress, being reticent to strong-arm banks and bring the full wrath of the executive branch down on them for not following through on use of TARP funds?

This particular phase of a bailout was a time-buying measure. Everyone knows it’s not the final number. Certainly from a legal standpoint, Ch. 11 remains an option. Ignore the academics, the BK lawyers, the free market purists. The reality is that virtually everyone actually making a living in the automotive manufacturing ecosystem agrees Ch. 11 for GM will start dominos tipping in myriad directions. No one knows whether that can be contained nor how deep the resulting crater from detonating BK will be. All parties, including you and me, need more time to understand how widely the web is woven and what response is appropriate and apt to be successful. In any case, none of this should be inferred as a defense of the Left’s use of their political influence.

Phil

We already know what’s going on. The bankers are using the money to increase their loss reserves, which they need to increase because of all of the loan defaults, instead of lending all of it out, as was envisioned.

The original TARP plan was supposed to remove these troubled assets that increased those requirements from their books, which should in turn have reduced their reserve needs accordingly, freeing up cash to lend out.

But since the banks didn’t want to sell those loans at the bargain prices envisioned under TARP and Uncle apparently didn’t want to strong arm them into doing it, they are instead taking our equity to fatten themselves up and hold on to those troubled assets.

The end result is that the cost to us just went up several times over. Just so long as they continue to hold onto those troubled assets, holding out for higher prices that are well above market, we will need to give them enough cash to fatten their reserves, plus another chunk to increase their lending.

So what should have cost $700 billion is going to cost maybe a few trillion, instead, give or take. Instead of them taking those losses on their income statements, they are creating a cushion for themselves at our expense.

Our only hope is that the next Treasury secretary is a hardass who goes back to the original TARP plan. He should bully the banks into taking the deal, by whatever means necessary.

I mention all this in part because these are the same institutions who are GM’s creditors. These guys aren’t dumb, and are using the government’s desperation to their advantage. If we think that a Chapter 11 prepack is going to come cheap, we had better think again.

They don’t need treasury money if they aren’t lending it out. The banks fixed the game so that those businesses that did not play the finance game well were eaten by their competitors who did. Now they are squeezing everyone who they got addicted to their crack. If they are not going to fulfill their function, then we should simply stop lending THEM money, and spend our time investigating and prosecuting them instead.

I respect your opinion, and read all your posts. However, I think you have gone off the reservation on this one. It’s fine to be for the bailout, but your post is a lot more extreme than I think you believe it is.

First, the point about them surviving bankruptcy being ideological is ridiculous. Think about that again. The pro bailout crowd is full of chicken littles crying about depression and no more domestic car industry and defense issues. I would welcome them to try THEIR ideological approach so we could get on with the bankruptcy. They know their ideology is not persuasive, so they hide it with demagoguery. Besides that, a structured bankruptcy is a pragmatic solution. Even if you don’t believe it is possible, it’s not an ideological plank. OTOH, my position that current Chapter 11 IS a bailout that is unfair to equity holders and creditors is an ideological one. It may be true that people can fail to see when their ideology is just unrealistic, but I would recommend applying that idea more appropriately.

I really find your shaming the Republicans for not talking up the economy pretty rich. Okay, extremely rich. Are you kidding me? If you listen to the Democrats, we never got out of the last recession. And even if we did, only the rich can afford even the basics in our society anymore. While we are at it, how about the treasonous lack of support for the war which the Dem’s mostly voted for? If you are going to have to stand on principle later, don’t vote pragmaticly or to save your butt in the first place. No, I gotta call BS on this one as well. It would be great if the folks in DC were both a lot less partisan, but calling either side on it needs to be tempered with some admission that both sides are playing with that particular fire.

Also, how divisive and obstructionist were the Republicans really? They didn’t use filibuster or other tricks to keep it from a vote like their opposition did to so many things over the Bush years. Do you really think the Republicans are lying about the offer to give a package if the UAW would have given a date for concessions?

How about Corker? I love this guy. He actually got educated about the business and talked about it. Of course, it was more of him talking and less asking real questions, but if our legislators took the time to prepare like he did for every bill, we would be a much better off people. Do you think HE was being divisive and obstructionist? I think he was doing what he was sent to DC to do. I think he did both what his constituents wanted, AND did it in a way that was positive. That’s what a Republic is about. OTOH, we have Maxine Waters.

The ideology injected into this issue is a good thing. We are having this crisis because the Republicans didn’t fight enough for their ideology in the first place. I blame them like I blame the parents of children who act badly. Leftist ideology brought us overly burdensome labor laws, CAFE, and even the idea that a bail out was a realistic possibility.

700 is an above average score. A majority of Americans have a FICO score below 700, which means a majority of Americans won’t even qualify to be in the car market.

Also add to this that at this time, FICO scores are falling. So fewer people have FICO’s above 700 than they used to.

You can debate whether they should or shouldn’t have access to credit, that’s a matter of opinion. But it is a matter of fact that they don’t have credit, and since most car purchases are financed, this is going to reduce sales substantially.

both sides of the aisles plus the Fed/Treasury have confirmed that they would provide the DIP loan directly, or instruct an institution to provide it with a further guarantee to that institution.

The Reuters article above was provided as an example of how a changing credit industry is forcing commercial borrowers to get creative and deal with it.

The issue for this situation is that the existing creditors could very well reject these Chapter 11 plans, on the theory that they’d rather get paid something now than get paid even less later.

This is a unique situation. You have large, powerful creditors who are owed considerable amounts of money holding the cards here. They know that Uncle is highly motivated to fix things. That may raise the price considerably.

They can attempt to do a prepack. But we all have to be realistic and accept the very real possibility that the creditors would take advantage of the situation and make a prepack quite costly to us. We have overplayed our hand with this, and I am not optimistic that the terms will be favorable.

57% said that they would buy from a Chapter 11 automaker, IF that automaker had additional government backing or agency support for their warranty.

Nobody is going to be buying anything if there is no credit.

The companies that are going to prosper are those such as Toyota that have captive finance arms that will get them through this. If the choice is between buying a Malibu with a 7% interest rate or a Camry at 2%, they’re going to take the Camry. If the choice is between leasing the Tundra at $300/mo or leasing the Silverado for $600/mo because the residual projection on the GM product is in the toilet, then they’re going to lease the Toyota.

GM is not going to sell its way out of this. You only need to read this website and others to know that many Americans are not interested in having a Detroit product in their driveways, for whatever reason. GM is going to have to get much smaller, no matter what happens.

When I wrote “Credit is still available”, I meant it in the context of car buyers. The Bigish3 CEOs confirmed FICO’s of 700 were being approved without problems. They wanted access to “less prime” just like before. No way.

With regards Debtor In Possession (for a GM or Chrysler), both sides of the aisles plus the Fed/Treasury have confirmed that they would provide the DIP loan directly, or instruct an institution to provide it with a further guarantee to that institution. This came from Dodd/Shelby at hearings and Paulson same day.

My comments started as a result of research my employer has completed which show these results;

1. New car buyers are already suggesting that the mere possibility of bankruptcy is influencing their purchase choice. As much as 60% suggested they would not buy a car from a POTENTIALLY bankrupt automaker.

2. ~80% new car buyers suggest that a they would not buy from a Chapter 11 automaker.

but,

3. ~57% said that they would buy from a Chapter 11 automaker, IF that automaker had additional government backing or agency support for their warranty.

So, the result of (3) suggests that, yes, GM/Chrysler could sell cars in Chapter 11, but only with the right additional warranty support where-upon they would actually be AHEAD of where the current sales position they face.

I have no information on the availability of credit to the buyer of said Ch11 car, but should the (3) warranty protection be in place, I fail to see how lenders would be discouraged.

It’s all academic now as any restructure of GM won’t be able to occur quickly enough with sales tanking to just 10m units in 2009 if any of the manufacturer forecasts are likely to be correct.

Without a auto industry can America even claim to be a superpower. Even the French have their own auto industry.

America was a superpower – face it.

In the last eight years the US has fallen from a admired beacon of hope and pop-star to a beggar, troublemaker, spilling out on one side avalanches of (not only) financial venom hitting the whole globe, is on the other side financially depended like a third world country (mostly on Chinas national Bank), lost all moral credentials at honest folks, and has few friends left after eight years Bush.

And friend would be needed now.

A car industry will not change that.

Swiss has no car industry either, but is a reknown financial and moral superpower – even as tiny country in that fields regarded superior and far more trustworthy then the US.

Size does not always matter

- Henri de Toulouse-Lautrec was very small but a giant superpower in art.

Folks, there is a credit crunch out there. Everyone in the finance industry knows it. There’s no point in denying it.

Whether or not you support a bailout, Ch. 11 filing, etc., denying this reality will obscure you from getting to a cogent plan.

Take, for example, this article (non-automotive) that discusses how companies may find themselves filing Chapter 11 pre-emptively in order to deal with the lack of credit: http://www.reuters.com/article/ousiv/idUSTRE4BB70620081212

Because of the lack of credit, odds are decent that Detroit’s creditors would balk at whatever reorganization plans are brought them. The federal government’s obvious motivation to see them survive could potentially raise the price, as creditors take advantage of Uncle’s desperation.

With a bankruptcy filing, the availability of credit that is available for the purchase of the filing company’s cars is questionable. At the very least, you should expect that the terms will make them less attractive (for example, lease payments that are exceedingly high based upon above-average money factors and low residual projections). Since Detroit has needed cheap financing to sell what it has built, this could cut sales volumes considerably.

I would consider the following possibility: That a bailout and Chapter 11 package would both fail, and that pursuing either one of these options in earnest is a distraction from facing reality.

It’s time to stop living off of hope, and talk of bankruptcy is providing false hope, hopes that are just as false as the bailout. In order to deal with the severity of the situation, other alternatives have to be considered. It’s not an either-or situation, with only two choices.

As you wish.

It (the bailout) is an emergency measure

That doesn’t mean it’s not bad policy, nor does it mean there are not other more workable alternatives.

It’s also extremely cruel to provide hope to people at companies as clapped out as GM or Chrysler. Other arrangements must be made for these people.

Impact of Bigish3 on US job market grossly overstated”

“I can manage the despair, but it’s the hope I can’t handle”. Not sure of the source of that one sorry.

Even in a depressed vehicle buying year, the D3 will sell just under half the vehicles sold.

Except that a depressed vehicle buying year is looking likely to be in the 10-10.5m unit range which is some 10-15% under Wagoner’s “Worst Case” restructure plan. Deloitte analysis of that plan, suggested that even with $50b injected into GM, they would still be insolvent by more than $40b at the end of 2009.

Ford F150 will likely once again be the #1 seller.

From a personal point-of-view I think that’s rather sickening, especially for those owners when the price of fuel jacks up again.

banks choking off credit

Credit is still available. A FICO of 700 (60% of the working population) can secure a loan. The Bigish3 CEOs said that themselves. What they want is a return to the only credit that has disappeared in GMAC-and-friends auto-sub-prime which helped cause a 17m unit bubble.

GMAC has been declined it’s banking license and is likely to file for Ch11 itself.

Sales are likely to drop further, GM/Chrysler will likely not be able to restructure fast enough (their own words – their own Dec 2 plans), the taxpayer will be on the hook, all those restructured workers will be laid off during that downsizing anyway and hardly a thought will have been given to provisioning anything else for them.

Why? Because as long as you allow these companies to pretend they can make it, people will believe that’s still their future.

The 100 day pre-pack C11 strikes me as a fantasy. A legal artifice that is easily outlined in the abstract but unobtainable in the daily realm. So I pay no attention to it. No doubt the $14B deal involves some slop through March 31st. No kidding. It’s an emergency measure needed primarily because the can has been kicked down the street by everyone involved for several years now.

Where do you target your Macro effort for the best effect? Plenty have argued that sending it down the Detroit sink hole won’t be a valuable start. No-one is buying cars, especially theirs.

Ten to twelve million people buying new cars this year is hardly “no one.” The sheer size of the D3’s fully-scoped, amplified presence in our economy makes any effort to fund their transition a macro effort. Plenty might have argued that the D3 are a sinkhole, but that doesn’t make them correct. I’m unmoved by the numbers of people piling on that argument. Even in a depressed vehicle buying year, the D3 will sell just under half the vehicles sold, and the Ford F150 will likely once again be the #1 seller. “No one is buying cars” is a market problem in part caused by banks choking off credit despite receipt of massive federal funds, and low consumer confidence in their own ability to pay going forward. There *will* be a rebound of demand. Two or three of the Detroit companies can find a road back, but they have to live through this meltdown of credit and demand to have a chance. The D3 aid package is the macro iniiative of our time, its value outleveraging the banks’ for much less money.

The American consumer has to at some point put their own money in the game to close the circle.

Phil

But wasn’t Mr Gettelfinger just explaining that the UAW are already at $28/hr where-as Toyota etc are at $30/hr? Why would you vote to be unionized? VW would be happy to move back to Mexico I guess, home of the Beetle!

Big Dick, Shelby should enjoy his victory while he can because come Jan. 21, 2009 “right to work” will be a memory in the South.

It’s not just a matter of $14b today, but the commitments required to arrive March 31st “on budget”.

If I understand Corker correctly, he was direct in the hearing before the Committee, even before the “divisive, obstructionist approach” of the vote that night, that if the bailout process starts without the necessary commitments given (UAW, bondholders etc) there’s opportunity for obstruction all the way to March 31st.

This, I thought, was neatly summed up by Richard Tilton a few days ago in how a 100 day Pre-pack Ch11 might work on this site.

Where do you target your Macro effort for the best effect? Plenty have argued that sending it down the Detroit sink hole won’t be a valuable start. No-one is buying cars, especially theirs.

On this, we agree. That’s why there are two D3 US-built products in my garage, in coastal California. A bailout works if Americans put their purchasing dollars in the game.

Meanwhile, $14b could do plenty of good mitigating the pain of a weak economy for all Americans, rather than for only the most shrill. If Detroit goes down, we can survive.

The last sentence completely misses the point, but then those who live by ideology alone usually do. Of course we’d survive a D2/D3 BK. The question is what condition is the patient — the United States — left in? $14B isn’t very much money in macro 2008 terms. It wouldn’t even pay for Boston’s Big Dig, for example. There are very few projects we could undertake for a mere $14B that can drive the economic leverage this bridge can, particularly if it accelerates the usual glacial pace of change in these huge companies, and leads to a sensible second dip that finances sustainability.

The Republicans who led opposition to this deal should be ashamed of themselves, for they could have used their influence to stem further erosion of confidence while driving for more accountability on the part of the recipients. They also could have policed the irrelevant and budget-bloating riders. The Democrats’ instincts to step in are correct for the situation at hand, but their impulse to stipulate products and meaningless business practices like not leasing corporate jets (of course these companies need corporate jets!) is not.

The Republican leadership had a chance to sit with Pelosi and say “we know we need a bill here, but we want a responsible one we can both take to the country as a show of unity to calm markets and demonstrate we’ll be working together next year.”

But no. They had to choose the divisive, obstructionist approach. Of course we’re also missing the pressure of a strong President with legislative chops. (Where’s Lyndon Johnson when we need him?) It would have been so much easier to back the UAW into a corner for 2009 pay cuts if Ron G. had understood that his Democrat friends were in agreement with the Republicans on the requirement. Now, surely Pelosi failed her own leadership test too, in ways that are less obvious or less transparently reported.

The $14B will flow, either from TARP or a revived effort in Congress. The market purists might grind their teeth, but I think the federal government now understands, on both sides of the aisle, that governmental liabilities will be larger (not to mention the social erosion) if the precipitous destruction of the D3, with their amplified effects in the economy, is allowed to proceed. More pragmatism, folks; less ideology.

Phil

The GOP-Senate opposition to the Detroit bailout is about union-busting.

“This is the democrats first opportunity to payoff organized labor after the election. This is a precursor to card check and other items. Republicans should stand firm and take their first shot against organized labor, instead of taking their first blow from it.”

From:

http://thenewshole.msnbc.msn.com/archive/2008/12/12/1713569.aspx

A football game for the bailout bucks. Yeah, how about the University of Michigan vs. University of Georgia, …..

… oh, wait ……..

Maybe we can get Senator Dodd to change his name to Senator Trabant….How fitting.

Crikey! Are you moonlighting for SNL? You should be!

There don’t need to be any “special” laws for the big3, they need to play by the same rules as everyone else who files CH11.
To enact special laws would just increase legal fees, resulting lawsuits and delay any real change while the legalities are worked out in court.

CH11 is designed for this type of case and the rules are well known by all sides especially the financial obligations and rights associated.

The “payday loan” bill didn’t pass because everyone knows it’s just a waste of money. It will NOT save the industry, it just puts a 60 day band-aid on the problem and adds this stupid idea of a Car Czar to the mix.