Comments on: Where’s My Bailout? The Feeding Trough May Not Be Bottomless, After All

By: Jim

Jim — Sat, 20 Dec 2008 21:34:00 +0000

I support a bailout with strings attached. Sell all but one of their corporate jets. 90% cut in wages for the top 5% of their employees- no severance packages for CEOs or board members whom are responsible for this mess. 10 % cut in every other employee to show that they are contributing to helping the company stay afloat. Keep it this way for 5-10 years depending upon sales.

They must actually start using the money Governments have offered them on research and development. They must also commit to building all the new eco-friendly and fuel efficient vehicles in Canada, U.S.A. or whomever is giving them the most bailout money.
We must also establish a minimum amount of jobs they will ensure for a set time period for "X" amount of government "welfare". I wrote an opinion piece in the spring in the Peterborough(Ontario) Examiner warning of this disaster. I put the blame where it belonged- C.E.O.s of the big 3 & wasteful lowering of corporate tax levels without getting something back!

By: HMDMSR

HMDMSR — Tue, 11 Nov 2008 23:44:00 +0000

There is no scarcity of resources. As with all crises of capitism, this is one was born from the chaos inherent in the market system. Organize. Seek an alternative.

By: Anonymous

Anonymous — Tue, 11 Nov 2008 21:52:00 +0000

The unmitigated gall of the US financial ruling class is stupefying, i.e., the incompetent financial bunglers are made whole to the tune of $2.25 trillion taxpayer dollars while the politicians only grouse about mere details. The sense of entitlement by the bankers with full support by Bernanke and Paulson makes bank robbers look wholesome. The Federal Reserve should be renamed for what it truly is: The Bankers Fund.

By: Yves Smith

Yves Smith — Tue, 11 Nov 2008 20:48:00 +0000

Anon of 3:23 PM,

Upfront payment on CDS is a sign that the CDS market thinks default is likely. I have seen no indication anywhere that Amex CDS are trading on an upfront basis. CDS are usually faster to register worries about distress than cash bonds and are seen as the more reliable proxy, which are far less liquid.

By: Anonymous

Anonymous — Tue, 11 Nov 2008 20:31:00 +0000

Yves, AmEx "...are not at risk of going under"

What you said about AmEX is not correct, AmEX is and was in very big trouble the spread was 825/775 on Oct 29. Spreads over 700 are likely default.

http://acrossthecurve.com/?p=1992

AmEx's business model is broken.

Whether they are systemically important, is debatable.

If AmEx went chapter 11, the market would not react well.

The ties the hold the system together aren't readily apparent. Who has exposure to whom is up for grabs. If AmEx paper fails the money markets, hedge funds, banks, pension funds, would take large hits. AmEx has 75 billion in long term paper, so if you add in a few more billion in CDS exposures, the bill could be quite large.

An AmEx Failure would be felt.

By: vlade

vlade — Tue, 11 Nov 2008 19:57:00 +0000

Yves, I haven’t seen the VW getting their snout in the ECB trough mentioned here yet, and I think it falls into this category. In essence, VW is applying for funding (2.8B EUR) to ECB with the securitised car loans being the collateral.
https://www.hemscott.com/news/static/tfn/item.do?newsId=70415989060129

By: Simon

Simon — Tue, 11 Nov 2008 19:25:00 +0000

eh's comment is spot on about the powers of the printing press. In order to see how this will play out, you have to consider that the members of the Fed are bureaucrats whose major fear is of doing something unconventional. Better to fail conventionally than succeed unconventionally, as Keynes put it. The conventional wisdom is that the government must take vigorous action to avoid deflation. Money from helicopters. That is, the Fed is more than willing to monetize any amount of fiscal deficit so as to keep interest rates down--this is powerful stuff. Will the Congress be willing to run a big deficit? Is the pope catholic? Does the sun rise in the east? All politicians love to spend money and cut taxes at the same time. You betcha Congress will do just that. The Republicans will make noises about irresponsible Democrats imposing an intolerate burden on future generations, etc, etc. But I doubt those Republicans are going to filibuster universal health care. More than likely, they'll just insert enough provisions to protect insurance companies that the final result is far more expensive than it should be. So we'll get a bigger deficit. The massive fiscal stimulus, together with Fed accomodation in monetizing it all, should ensure that there will be no lost decade like in Japan.

Once the economy rights itself, there will be massive inflationary pressure. Here again, we need to consider the conventional wisdom, which is that low inflation and inflation fighting credibility is important. Bernanke is very outspoken about this. So either the Fed will have to raise rates sky high, or the Congress will have to close the fiscal deficit by either raising taxes or cutting spending. Which is more likely? My bet is on sky-high interest rates, as in 5% real. This will crush stocks, real-estate, commodities, long bonds and all other assets other than cash. Prices on stocks, for example, will have to fall about another 50% from where they are now (S&P500 about 880) for the risk-adjusted return to match a risk-free 5% real rate on t-bills.

Bottom line for investors. Cash is going to be king for many more years.

By: whistlingpastthegraveyard

whistlingpastthegraveyard — Tue, 11 Nov 2008 17:58:00 +0000

I have been amused by many of the analyses of Obama’s policy ideas, which sanctimoniously warn that he must find the money to pay for these $5 billion and $10 billion programs–while nobody bats an eye about paying for all these enormous bailout efforts.

eh: If I were a foreign creditor, I would not want to rely on the US government’s ability or willingness to coerce taxes. Taxes are politically toxic. Another going-away present from the conservative movement.

By: 1111

1111 — Tue, 11 Nov 2008 17:56:00 +0000

Uncle Sam's Credit Line Running Out?

http://online.barrons.com/article/SB122633310980913759.html?mod=yahoobarrons&ru=yahoo

By: S

Tue, 11 Nov 2008 17:43:00 +0000

rahuldeodhar said...

Kenyesianism = borrowing. See River/Jojo comment.

Liquidate it all. Mellon was right. we are going to have the pain anyway, only now the rotting corpses get to stick around. Looks a lot like the Obama administration and the Bush adminsitration and the entire DC complex. Failure begets promotion. Made in the USA