Saturday, December 20, 2008

Cerberus is Tired of Being Tired,
Offers its Entire Stake To Chrysler's Creditors

The big wet THWAP! you hear is the sound of Cerberus throwing in the towel on Chrysler. Even after nominally receiving a federal commitment for $4 billion in bailout funds, Cerberus has offered its "unions debtholders and other stakeholders" its entire 80% stake in Chrysler LLC. This amounts to a tacit admission by Cerberus that Chrysler is effectively bankrupt, and its equity interest is worthless. Daimler came to the same conclusion earlier this year when it wrote down its interest in Chrysler to zero.

The timing of Cerberus's offer, right after the bailout deal might suggest that Cerberus would rather not disclose information on its other operations if it is not going to ever get any money from Chrysler anyway. As with everything else relating to this bailout, things would have been a lot easier if it just would have taken this step a month or two ago.

Friday, December 19, 2008

Breaking New: White House OK's $17 Billion in Loans to GM & Chrysler

This morning the White House announced that it was directing the Treasury Department to release up to $13.4 billion in loans to GM and Chrysler in December in January, with the remainder of a $17 billion total presumably being available between January and March 31, 2009. By March 31, the automakers are expected to have long-term plans in place to be competitive with other automakers including the transplant factories in the US.

The restrictions on the loans are said to be similar to those roughed out in the House of Representatives bill last week. The government will be getting nonvoting stock warrants, and there will be restrictions on management salaries and bonuses. The automakers are expected to get concessions from labor, suppliers and bondholders.

This announcement follows the news yesterday that Chrysler was shutting all its plants for a month, and GM said it was putting on hold its crucial engine plant for the Volt electric car and Chevrolet Cruze compact. Yesterday, the White House made what I believe was an unnecessary and irresponsible announcement that one option they were considering was for an "orderly bankruptcy." The image that that announcement conveyed was that, after more than a month in crisis mode, President Bush didn't even know what type of plan he was going to implement, much less actually having the plan ready to go. It's like when your kid has a month to work on the project, and the night before it's due, he says, "It's going great, I've almost picked a topic." (Yes, it's happened to me too.)

Finally, just because the loans have been approved, I need to remind you that loan programs imagined by the Bush administration haven't lived up to their expectations. Take, for example the Hope for Homeowners mortgage loan project: billions of loans were authorized, but hardly anybody can qualify for them, and the terms are so lousy that hardly anyone even bothers to apply.

Wednesday, December 17, 2008

Is GM's Law Firm Constructing a "Futuristic" Bankruptcy Solution?

According to the ABA Journal, that informational repository for big-building lawyers, one of the lawyers that GM recently contracted, Martin Bienenstock of Dewey & LeBoeuf, is constructing a bankruptcy plan to "remake the automaker into a 21st century success".

The plan would whack down legacy costs and prune redundant brands and dealers. The goal would be for the plan to be completed in 30-90 days. In other words, this plan is exactly what lower-paid and unpaid pundits have been recommending for months.

How much doe such planning artistry cost? In another case, Dewey bankruptcy counsel asked for fees in the range of $100,000 per day, or $950/hr. for partners, $605/hr. for associates and $285/hr. for summer associates. That's right friends and neighbors, they bill $285 for law students. I guess some law students have an easier time paying their student loans than others.

Now to a marginally relevant joke culled from this site.

Comforting Call

One day the phone rang in the law office of Dewey, Cheatham and Howe.

"Dewey, Cheatham & Howe, may I help you?" The caller asked, "I want to speak with Mr. Dewey." "We regret to inform you sir that Mr. Dewey died just yesterday." "Oh, is that right? Good-bye."

Every day for the next two weeks the same man called back, and the same exchange occurred. Finally, the receptionist said, "Sir, I told you that Mr. Dewey died. Why do you keep calling?" The man replied, "I just like to hear it."
Auto Bailout - No News is the News

Nothing new today regarding the auto bailout. The Bush Administration is still working on it. Not much else to say.

Monday, December 15, 2008

Clear Your Mind

Bad news weighing you down? I can clear your mind. Just play the embedded video three times, and no longer will you think about your endangered job or your ex-401k. "Hey Little Goldfish" will be all you think about for three days or so.

Last time I checked, Hello Down There wasn't available on DVD. Happy to say, now you can take home all its goodness for $13.49 from Yes, that's Richard Dreyfus of Jaws fame as the band's lead singer.

Friday, December 12, 2008

Bailout Dies in Senate
It's in Bush's hands now

Last night marked the two-minute warning for GM & Chrysler. The good news is that they still have the ball, but the bad news is that it's 4th and long, ball on their own 4 yardline, Garo Yepremian is their quarterback, and anyone who could block has already taken a bailout.

There was never strong support for the bailout in the Senate, and last night, the bailout died there. Tennessee Senator Bob Corker tried to do weeks worth of work negotiating a cramdown in one night, but it didn't happen. The UAW balked at having its contract immediately crammed down to wages akin to the transpant automakers.

Here's where it stands this morning. General Motors finally announced that it had hired bankruptcy counsel. Now, it's all up to Nero, I mean President Bush, if there is any chance in avoiding an imminent bankruptcy. The President has the authority to release TARP funds, just as he always has. If he ends up releasing the funds, this means that he has let the country go through a month and a half of added financial turmiol to get to where we should have been all along. I wonder how many billions will be lost in the stock market today?

Wednesday, December 10, 2008

Nerd Break!

Time for a nerdy Youtube video link. This one is to a Robot Chicken clip where stormtrooper Gary takes his daughter to work on Take Your Daughter to Work Day. (Thank to Eric H. for the link.)

Monday, December 08, 2008

The Good Old Days . . .

1978, Ford owned Hertz, the #1 car rental company, and O.J. Simpson was the spokesperson.

Saturday, December 06, 2008

Rick Wagoner gets very, very personal, Details at 11:00.
Heads Up for Employees of Self-Insured Companies
Your Loss of Health Insurance Coverage Could be Immediate and Retroactive

When it comes to health insurance, the UAW Legal Services Plans are self insured. We have Great West as an administrator, but with the possible exception of stop-loss and catastrophic claims, the money comes from the firm's general fund. An article in today's Wall Street Journal, available online from here, illustrates clearly the hazards faced by workers when their self-insured company promptly goes bankrupt. Claims payments stop immediately. If you have received treatment and submitted a claim, and that claim has not been paid, tough luck.

Given the troubles in the auto industry, my advice to all of my UAWLSP colleagues is to avoid discretionary medical procedures and claims until you can be sure of at least a couple months of continued funding, especially if the plan that pays your paycheck is sponsored by one of the most-distressed automakers. While today's news states that there is an interim deal with Congress to supply some money, that money is not yet in the bank. Moreover, Even if the automaker is funded, it is likely that each of the automakers will renegotiate its contract with the United Auto Workers. We don't know what that contract will and won't include, but we know there will be significant cutbacks.

Also note, if your insurance is cut off because your employer goes bankrupt, there is no right to COBRA continuation of benefits. If your insurance is cut off abruptly because your employer discontinues it, and if your spouse is covered by a plan at work; try to find a plan administrator who can sign a Certificate of Group Health Plan Coverage. This should allow you to enroll in your spouse's plan without waiting for the next open enrollment period.

If you are laid off by an employer continuing operations, you will likely be entitled to COBRA coverage. The problem with COBRA coverage is that it is expensive, and many times, it's outside of the budget of a person who doesn't have a job. One thing to remember is that each covered member of your family has an independent right to COBRA continuation coverage. This means that even if you can't afford coverage for the whole family, you may be able to afford coverage for one family member who has a medical condition that makes that person uninsurable otherwise.
Headline from 20 Hours ago: Chrysler Hires Bankruptcy Counsel
Headline from Now: Interim Deal to Supply $15 Billion in Bailout Money

Yesterday afternoon it was reported (leaked) that Chrysler hired the lawfirm of Jones Day to give it bankruptcy advice. It may be debatable whether this step was primarily intended as a ploy or a serious bankrutpcy planning. I think it is (and should be) a lot of both. It makes no sense for Chrysler or General Motors to hide bankruptcy plans when they have both admitted to the public that they can't last much past the end of the year without borrowing new money. If anything it will help them negotiate cramdowns with their creditors that would be necessary to avoid bankruptcy.

This morning - the big news is that there is a tentative deal between Congress and the White House to supply $15 Billion in interim aid to the auto industry. The Republicans apparently won the battle regarding the source of the money. The money will come from the $25 billion previously authorized for encouraging energy efficiency. There is some sort of vague promise to replace the money within a matter of weeks. The amount of the loans is likely to be just enough for Chrysler and GM to limp into March, by which time the Obama administration will (hopefully) have its feet on the deck firmly enough to take the wheel and set a planned course.

Thursday, December 04, 2008

Mellow out and Listen to Some Floyd, Man

You can here Uncle Floyd's music at the Record Robot blog. Far out.
Dating Video or Plea for Billions?
You Be the Judge

Here's GM's Chief Financial officer, Ray Young, in an official corporate video explaining why GM deserves a dozen or two billion bucks. Looks like something you'd watch at Great Expectations, and you'd probably go on to the next one after a few seconds. I dare you to watch the whole thing. (I didn't make it.)

Wednesday, December 03, 2008

General Motors: "There is No Plan B"
$18 Billion request Calls for Drastic Cuts - No bankruptcy

It's 1:00 AM on Wednesday, and I'm finally getting to the Detroit News summary of the GM plan. GM wants $18 billion in government funds. It plans to cut 30,000 jobs, close 9 plants, eliminate 1,750 dealerships (about a fourth of the total). Pontiac will be cut back to specialty cars. Saturn will be "reviewed". All of this cutting will allow the government to be paid back by 2012 according to the plan. Oh yeah, they're selling the jets, and Wagoner will take a dollar a year salary.

Naturally, the devil is in the details. GM's plan would require deep concessions from the unions including -who knows what- will happen to the VEBA. Also, the dealers will need to be paid off if the restructuring is taken outside of bankruptcy court.

Quite frankly, I don't see how the math adds up. It takes time (and money) to do a restructuring. To get people to give up benefits without making a fuss, you have to offer them something. What about legacy costs, pensions? Retiree health care? In 18 months, GM will owe just the VEBA $12 billion. It took them 3 years to shut down Oldsmobile. GM is losing up to $3 billion per month right now. Burning through $3 billion per month, $18 billion only buys GM 6 months. Right now, it doesn't look like the auto market is going to be a whole lot better 6 months from now than it is today.

With a Chapter 11 and $40 billion in new money, GM has an excellent chance at emerging as a new strong company. All $18 billion does is buy some folks a paycheck for half a year or so.
Song of the Day
Long December - Counting Crows (1996)

GM & Chrysler Need $ Billions to Make it to the New Year
Total Request for 3 Automakers is $32 Billion
UAW Contract Likely to be Reopened

The first reports of the Begfest on Capital Hill are in. Chrysler says that it needs $7 Billion in cash to make it to the end of this month. GM says it "only" needs $4 billion to make it to December 31st. Overall, the Detroit 3 are asking for $32 billion in emergency aid. None has proposed bankruptcy, but Chrysler and GM are using the veiled threat in an attempt to get immediate cash. As expected, Ford displays the least immediate need for cash and correspondingly demonstrates that it both deserves the cash more, and can put it to better use.

There's more going on than I can even summarize in this blog format. To keep up, go to,, and for a less reverent outlook,

It seems like the conventional wisdom is shaking out as follows: Chrysler is doomed. It's beyond saving and needs to be parted out. GM can be saved but probably only through Chapter 11. Ford might be able to avoid Chapter 11 with some cheap government money and (hopefully) a rebounding auto market in a year or so. The current UAW contract for all three will need to be renegotiated, and everything (including the legal services benefit) is on the table.

Tuesday, December 02, 2008

GM's Top 10 Strategies for Using Your Taxpayer Bailout Money

I have an advance copy of GM's plans to use the $25 Billion in bailout money to get out of its financial mess. Here they are:

10. Forex Trading
9. Canadian Lottery
8. "Come on Seven!"
7. Vega II
6. You see, there's this oil minister in Nigeria . . .
5. Improve Hummer fuel economy 10%
4. Baseball cards
3. Short sell stock in Chrysler & Ford
2. Convert unused factories to ostrich farms
1. Everybody's last resort, hire coach Larry Brown

(What do you expect for a 5 minute post?)

Monday, December 01, 2008

The Week of the Plan

Tomorrow is the big day - General Motors (and the others but the action is with General Motors) is set to deliver its plan for the government bailout money. Because Congress actually demanded something akin to a business plan to get the billions of dollars, Rick Wagoner's crew will actually have to show up with something on paper that can convince a halfway reasonable person that maybe, GM has a path out of its financial mess. Because Wagoner is dead set against a Chapter 11 bankruptcy, you can expect that GM will come up with something that does not propose a C-11.

News sources have been masters of the obvious, and not necessarily in agreement regarding what the plan will include. I'll go over some highlights. On Wednesday (Nov. 26), Bloomberg News reported that GM was considering killing off Saturn, Saab and Pontiac. This would be in addition to Hummer which it already said it would kill or sell. Personally, I think GM may eventually kill brands, but with the possible exception of Saab, they're not going to announce it tomorrow. For one thing, when GM eliminated Oldsmobile, it took billions of dollars in cash to pay off the Oldsmobile dealers. Although some domestic dealerships are valued at zero now, it would still take billions of dollars to kill brands unless they went through bankruptcy court and broke the franchise agreements there.

On Friday, the Wall Street Journal reported that GM is negotiating with creditors to exchange debt for equity. The article cites JP Morgan for the assertion that GM has $43 billion in debt outstanding for an annual interest expense of $2.9 billion. It's not clear whether that includes the $10 billion or so that GM owes the UAW for the retiree health care VEBA, but it looks to me like it doesn't. It doesn't take a genius to figure that all of this debt isn't going to get paid down by the $10-15 billion that GM would get from a $25 billion federal industry bail out. It would be completely impossible to negotiate this debt except that the current creditors may have not spent anything close to the face amount to acquire the debt. GM bonds are trading for about 10 cents on the dollar. An unknown portion of this debt has traded hands to hedge funds that are speculating on the future of the company, including a buyout, and may just be looking for the right deal in a debt to equity swap. It seems to me that prearranged negotiations on debt are essential to getting anything through Congress, but it's going to be hard to make the numbers work without almost complete cooperation; and the debt may be in too many hands to make that workable even if the creditors aren't outright hostile.

The most persuasive plan that I've seen so far is one by bankruptcy lawyer Richard N. Tilton that was published at on November 25. It's a detailed argument on why GM must go through a Chapter 11 prepackaged bankruptcy. Tilton proposes a prepackaged Chapter 11 bankruptcy with the government providing $40 billion in debtor-in-possession financing. Here is Tilton's pro-forma (projected) balance sheet for GM post-bankruptcy:
GM’s Hypothetical Post-Reorganization Balance sheet

Projected Assets: $90b

Estimated Liabilities
$4.4b: existing secured line of credit
$10b: secured term note to US Treasury
$12b: secured term note to the Department of Energy (GM’s share of the DOE funds for alternative vehicles)
$1b: trust or secured letter of credit established to guarantee payment of consumer warranty claims
$2b: current tax liabilities

Subtotal: $29.4b of secured and priority claims

$9b: accrual for consumer product warranty liability
$10b: for current claims arising in during the Chapter 11 case which will be paid by GM in the ordinary course of business
$5b: new unsecured debt (payment in kind) set aside for miscellaneous claims, with maturities deferred and no cash interest payment
$5b: subordinated debt, issued with laddered maturity dates timed to fund the retiree trust only if it runs out of money in the future
$15b: accrual for pension and retirement obligations for current employees
$5b: leases and other obligations, including liabilities to foreign subsidiaries

Subtotal: $39bof unsecured debt and unsecured liabilities

Total estimated liabilities: $78.4b

Equity distribution

90 percent of newly issued GM common shares distributed to bondholders, the retiree trust, and other unsecured creditors
10 percent of new equity reserved for the US Treasury.

Tuesday, November 25, 2008

November Sales "Less Anemic"

The first report on auto sales for November is (a little) encouraging. It shows sales are just bad, as opposed to being in a death spiral. tracks inquiries to its car buying website, and those web hits correlate strongly with near-term auto sales. Last month, Edmunds was within a couple percent of the final (awful) industry numbers. This month Edmunds predicts a 29% drop industry-wide from last year. General Motors is predicted to do a little better than that with a 28% drop. Honda did the best (relatively) with a 20% drop. High incentives and low gas prices may have been the cause of the slight increase over last month.
GM's Bold Trash Initiative
is reporting that GM is eliminating personal trash cans at its Warren Technical Center in an effort to save money. What's next? Red staplers?

Saturday, November 22, 2008

Welcome Back McCotter

Representative Thaddeus McCotter of Michigan, a Republican from suburban Detroit, had a tough task this week: to represent his constituents in favor of a bailout, while not appearing to be a liberal sell-out. Embedded below is his speech, which I think is quite eloquent. You can disagree with his position, but I think he stated his case very well.

Friday, November 21, 2008

She's Got a Basketball Jones

Five years old, and she dribbles better than I could ever hope to.

Obama Team Examining Prepackaged Bankruptcies

The Obama transition team is looking at prepackaged bankruptcies as bailout vehicles for the Detroit 3. Makes sense to me.

From the "I told him we already got one" file:
Congress Demands Business Plan by Dec. 2 or No Dough

Yesterday there was an early story that described a bipartisan compromise on the Detroit 3 bailout. Later in the afternoon, Nancy Pelosi gave a press conference and said that, based upon the poor showing by the CEOs in the week's hearing, Congress would not supply the funds. She gave the automakers until December 2 to come up with a detailed plan to demonstrate viability post-funding. If the plans are sufficient, Congress will come back in session December 8 to vote on the plan.

Not to be deterred, GM CEO, Rick Wagoner, stated that GM already has a plan. Yeah, okay, we believe it.

Wait, I have exclusive information about the GM plan. GM wanted a slick plan that could be ready in a short period of time. They hired students from Staten Island Technical High School to prepare the plan. I don't have access to the plan, but here's an embedded video of one of their previous projects.

Thursday, November 20, 2008

Hitler Confronts the Bursting Real Estate Bubble

2010 Ford Fusion is Star of LA Auto Show

While attention is focused on Capital Hill, the second most important auto show of the year is going on in Los Angeles. As it stands now, it looks like the 2010 Ford Fusion is going to be the star of the show. Since its introduction, the Fusion has been a competitive midsized car, often winding up second choice to either the Camry or the Accord. The major revisions for 2010 seem to directly address the usual criticisms of the car. The car was criticized for being just a little underpowered, and just a little behind the leaders in terms of fuel efficiency. Both of these concerns were addressed by new 2.5 and 3.0 liter engines that are more powerful and more fuel efficient than the ones they replace. The Fusion will be available with a 6-speed manual transmission (if you can find one), or a new 6-speed automatic. Fuel efficiency for the 4 and 6 cylinder engines will be competitive with the class leaders. Interior and exterior styling was addressed. On the outside, the Fusion is sleeker, and on the inside, better quality materials are evident.

For 2010, the Fusion is available in a Dual Mode Hybrid version. Ford promises 5 MPG better than the Toyota Camry Hybrid. As you will see in the embedded video, the trick digital dashboard is techno cool.

At least at first, it looks like the Fusion will continue to be built in Mexico; however Ford is in the middle of a plan to replace truck production with car production in several US plants, so it is possible that the Fusion will be moved to one of the US facilities.

Bailing Out is Hard to Do

It should have been a simple thing for the Detroit 3 to walk into the halls of Congress this week, do a dog and pony show, and walk out with $25 billion. After all, going into this week, the Republican leadership had a $25 billion plan, and the Democratic leadership had a $25 billion plan. The big difference was where the money was to come from, and they can compromise on that, right? Not so fast.

The Democrat plan called for the $25 billion to come from the $700 billion TARP money. The Republican plan called for the $25 billion to come from the $25 billion already allocated for energy efficiency updates. Significant difference yes, but plenty of room for a deal. After all, Secretary Paulson already said he was going to leave half of the $700 billion for the incoming administration to decide what to do with. Why not let them use a little bit now? To look at it from the other side, the Detroit 3 can't use the $25 billion for developing energy efficient vehicles if they can't keep the lights on long enough to rehire the engineers that they've already laid off. Moreover, when President Obama comes in, he's going to (hopefully) lay out a comprehensive energy plan anyway that's going to require hundreds of billions of bucks. What's $25 billion more or less among friends? Split the baby, take half from each pot, and walk away happy, right? Nope.

Then there was the dog and pony show. The Three Amigo CEOS, Nardelli, Wagoner and Mulally came to testify. What do you call this act? We call them THE ARISTOCRATS!. The Teenage Mutant Ninja Turtles could have done a better job making the case for an auto bailout. It didn't help that they all flew in corporate jets to get to the hearing. First of all, Bob Nardelli didn't even belong there. Chrysler is owned by Cerberus, Cerberus allegedly has tens of billions of dollars sitting around that it could invest in Chrysler, if it made sense. They haven't even opened the books to show the company's true financial position. Secondly, Alan Mulally basically said Ford doesn't need the money right now, which is not exactly the truth because they just sold most of their crown jewel, Mazda, for the equivalent of half a month's negative cash flow. If you really want to kill a deal, bring out the big geeky kid, Rick Wagoner. It was like a frat boy who goes on a bender the night before a big test, writes the answers on his hand before the test, and gives the wrong answer for each question. He wouldn't say how much money GM really needs. He wouldn't say that he would work for a dollar like Lee Iaccoca -- or better yet, resign for the good of the company. He wouldn't convey the image that GM has the foggiest idea how to straighten its course without bankruptcy. He is sure, however that bankruptcy is the wrong answer. The bottom line is that after the hearing fiasco, there had to be a number of congress members from each party who were convinced that giving these folks federal money would be about the same thing as throwing it away.

While the most recent news stories suggest the bailout deal is dead, I'm not so sure. I think they probably will pass some kind of loan program. The problem is, that program will have some kind of prerequisite that to get the money, you will have to show that you have a plan for actually paying that money back. GM and Chrysler (at least) don't have a plan. So, the end result will be that the resulting loans will be as illusory as the HopeNow loans for homeowners.

Photo credit: Associated Press via Detroit News

Saturday, November 08, 2008

The Day after GM's (most recent) Black Friday - An Analysis

As I reported Thursday, Friday was a day of an important announcement for General Motors. GM released its 3rd quarter financial results. It's amazing how many news organizations completely focused on the wrong numbers, especially the $2.5 billion quarterly loss. Far more critical was the disclosure of a $6.9 billion in negative cash flow, with total cash reserves including (aparently those held for VEBA disbursements) down to $16.2 billion. Even General Motors doesn't know the minimum amount of cash it takes to keep the lights on and running as a going concern. Various estimates have ranged from $10 to 14 billion. This leads us to the key statement in the whole presentation.

Even if GM implements the planned operating actions that are substantially within its control, GM’s estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business. Looking into the first two quarters of 2009, even with its planned actions, the company’s estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions significantly improve, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programs, or some combination of the foregoing. The success of GM’s plans necessarily depends on other factors, including global economic conditions and the level of automotive sales, particularly in the United States and Western Europe.

What this means, in plain English is that even if GM does everything right and saves all the money it can between now and the end of 2008 -- not 2009, mind you, 2008, as in 6 weeks from now -- GM will not be able to continue operating. It will cease to be. It will be an EX-carmaker If, however, someone (Uncle Sam, Santa Claus) comes to the rescue with new money, GM could hold out longer. It could hold out, for example, until sometime in 2010, when the Chevrolet Volt is ready for sale. Of course, GM plans on losing $10,000 or so for each Volt sold, so that won't really be much of a boost.

What about bankruptcy, GM could keep operating in Chapter 11 bankruptcy, right? Well, Rick Wagoner continues to say that bankruptcy is not an option, and GM is not planning for bankruptcy. Hey Rick, your company has $59 billion more in liabilities than assets and is losing $2 billion a month, do you have any better options? If he does, he's keeping pretty quiet.

Congress just released $25 billion in loans for tooling up for energy efficient cars. The Department of Energy just released draft regulations for applying for these loans. Wouldn't you know it, the DoE had the audacity to require that a company applying for billions of dollars in taxpayer money must be able to show that it is solvent, or at least has a plan to become solvent. Curses, foiled again.

As it stands now, Rick Wagoner's complete failure to be honest and plan for hard times shows every sign of killing the American institution from where he has drawn at least $100 million in paychecks. Wagoner points to a company-funded study that says most consumers won't buy a car from a company in Chapter 11. What makes him think customers will be more likely to buy cars from a company that is being shut down a little at a time because it can't pay its bills? At least in a Chapter 11, you can make plans for continuing warranty coverage. Rick could have planned for bankruptcy early this year, when it still had some cash. GM knew a year ago that money was tight for debtor-in-possession financing, because it couldn't get money for Delphi. Now, if GM needs DIP financing, the only realistic source would would be the federal government.

The government, in rare bipartisan cooperation appears to be ready, willing and able to bail out General Motors, but it also appears that the government will require a level of fiscal responsibility and accountability that GM has been so far unwilling to provide. It's really not a difficult concept, Rick, when you apply for a business loan, you submit a business plan. We're not being unreasonable here.

Perhaps Congress will pass a Band-aid(tm) for GM in the next few weeks. Amything done before January 20 will likely be in the form of life support so they can figure out whether they want to operate or pull the plug after the Obama administration takes over.

It seems to me that GM is heading for some form of involuntary receivership. Either a creditor or the government will have to take over the rudderless-ship called General Motors. One creditor with an interest in keeping the company going is the trust set up to run the company's retiremee healthcare VEBA. A huge VEBA payment is due soon. Right now, it doesn't look like GM will have the cash to pay it.

Assuming GM does not file bankruptcy, one thing to look for as a sign that GM has run out of cash is that it will simply start defaulting on its bills. One bill that it should refuse to pay is any salary or severence benefit for Rick Wagoner. Good luck on collecting that one, Rickster.

Friday, November 07, 2008

Toyota Profits down 74%

Even the Japanese car companies are struggling these days. Toyota is driving us crazy with Saved by Zero, and its profits were down 74% for the quarter.

Then one day, a stong rain came, and washed all the crops away . . .

Wednesday, November 05, 2008

Good Rex, Bad Rex, Amazing Rex

In this Youtube clip from Madden-08, Rex Grossman isn't "Good Rex" or "Bad Rex". He's "Amazing Rex. Don't try this at home.

How to Save the Detroit Three

Pelosi on Thursday - "Important Changes" on Friday

Something is up. According to an Associated Press wire story, GM and Ford are planning on releasing their 3rd quarter financial statements on Friday. Executives from the Detroit Three and the UAW are scheduled to meet with Speaker of the House, Nancy Pelosi tomorrow. GM told its employees to be ready for an announcement of "important changes" to be disclosed over GM's internal television network at 11:00 AM, Friday. General Motors routinely announces bad news on Fridays, but generally after US stock trading hours.

The Detroit-3 want the $25 billion that Congress authorized for retooling for high-efficiency vehicles, and they want it now, and with no strings attached. Apparently, they also want at least another $25 billion on top of that.

I'm reminded of my favorite quote from The Drew Carey Show. "It's like the doctor said the day you were born: it's gonna get ugly."

Obama Wins Handily - Dems Increase Control of House & Senate

Tuesday, November 04, 2008

October Car Sales - GM off 45%, Industry down 32%

Read all about it at

Friday, October 31, 2008

The Return of "Spanish Mike"

Earlier this year, I embedded a youtube video "The One Semester of Spanish Love Song", since then, Spanish Mike has graduated to the second semester and completed his 2nd Semester of Spanish, Spanish Love Song Starring Erik Estrada. "Keep your pantalonies on Erik Estrada."

Bush Administration says No $ for Chrysler/GM Merger

Yesterday, the big news was that GM and Chrysler had the merger terms all wrapped up except for the money. A $10 billion triviality. Today, the Treasury Department said no funding will be available for the merger, and the prospects for merger now seem to be all but dead.

What happened to the merger? I'm guessing what happened to the merger is that in their mad panic, the GM/Chrysler crew put together a deal filled with holes, then mis-sold it to the Treasury Department. It looked like Cerberus was trying to dump its crap on the US government and walk away clean. To get a deal done, they probably would have had to put something together where one of the two companies, probably GM was sent through a prepackaged Chapter 11 and immediately rescued by the other company with government help. To sell the deal, Cerberus would have to bring some new money to the table, and Cerberus's bankers would have had to be in for some new money as well. Oh yes, they would have had to give "Hey Rick" Wagoner the boot as well. Since they couldn't/wouldn't do any of those things, the merger was destined to go nowhere.

Apparently somebody in the government got wise to the catch 22 about the GM/Chrysler merger. To be popular, the merger would have to save jobs. To work, a lot of jobs, maybe 40,000 or 2/3 of Chrysler's workforce, would have to be cut. Using government money to pay people $100,000-140,000 each to leave their jobs doesn't sit well with Joe Six-pack (or Joanna Lawyer) who can expect to receive a big fat nothing sandwich when he or she gets laid off due to the bad economy.

Although both Obama and McCain have pledged support to the domestic auto industry. It remains to be seen whether Chrysler or GM can hold out until February. GM in particular has shown signs of being in a severe cash crunch. The General has recently announced cash saving measures from the mundane, shutting down escalators and, to the drastic, suspending most product development including must-have models such as the compact Chevrolet Cruze.

The importance of the product development delays can't be overemphasized. The Cruze is the replacement for the Chevrolet Cobalt, one of General Motors' best selling cars, but the Cobalt is destined to suffer as newer competitors come out. The Cruze is already in production in Korea as the Daewoo Lancetti, and GM either was set to receive, or has already received, millions of dollars in incentives from state and local governments to tool up the Lordstown, Ohio facility to build it. In other words, this isn't a low-volume, fringe product that needs billions of dollars in R&D to turn into a product, this is a current product set for production in a current factory where there are already incentives in place to start production, and it's a product that could perhaps outsell every other model in the Chevrolet line-up. Still, General Motors can't come up with the cash to get this thing into production by 2010.

If General Motors is already in such a cash crunch that it can't fund essential projects like the Cruze, one wonders whether it's even too late for a Chapter 11 bankruptcy. As we have seen with Delphi, getting sufficient debtor-in-possession financing to continue business is not easy in this climate. Robert Farago postulates that Chrysler is headed for an imminent Chapter 7 liquidation. Ironically, if it doesn't kill the supplier network, the liquidtion of Chrysler might be GM's last best hope, because it might cement the political will to keep GM alive. (Can you say "Lehman Brothers"?) Without government funding, General Motors' chances of survival look bloody awful. With government funding, GM actually looks to have some pretty good long term potential. GM has supported a $30 billion market cap in the past, if the government put $30 billion into the company, assuming the development delay doesn't slow the new model pipeline unduly, the company could easily be worth that much again. GM has some good models and some world class technology. It just needs to pare down deadweight brands and trim dealers. It's going to take $30 billion though, $10 billion will just delay failure.

Tuesday, October 28, 2008

Barack Obama Stiffs Blogger

According to, Barack Obama's chance of victory is now up to an astounding 96.7%. I guess that's why his campaign has decided that I don't need a yard sign even though I paid for it weeks ago. You'd think that they'd make sure I received my sign because I live in the middle of the only white (totally up for grabs) state of the union, Indiana. Apparently his people have seen my yard.

Friday, October 24, 2008

From the "Dave's not here, man" file:
Oot & Aboot

I'm going to be without a computer through Sunday, it appears. There's a lot of news about Chrysler & GM. Chrysler is laying off 25% of its white collar workforce. There's a boatload of anecdotes about emergency cost-cutting measures at GM. Check in at ( for the latest news and rumors.

Monday, October 20, 2008

test two

test two

Friday, October 17, 2008

Chrysler take over General Motors?

I've been working out a potential hypothetical scenario whereby Chrysler would technically take over General Motors. It would be messy, but it could be done. In my mind, it makes more sense than for GM to acquire Chrysler. More details as I sort them out, or abandon the idea entirely.

Thursday, October 16, 2008


The picture with the last post was not Bob Nardelli, it was the late actor John Vernon. This is Dean Bob.

Maybe it's Dean Bob they want?

Maybe GM's board wants Dean Bob Nardelli to to replace Rick Wagoner as CEO. There's no question that Nardelli has cut expenses with more ruthlessness at Chrysler than Wagoner has at GM. Precedent? Steve Jobs was head of faltering Next Computer when Apple acquired Next. Apple got the Nextstep operating system which became OS-X, and Steve Jobs became a capitalist icon, the only person alive with a reality distortion field. If there's one thing the domestic auto industry could use right now, it's a reality distortion field.
GM - Chrysler Merger

You will be Assimilated

Those not in the know have been scratching their heads trying to figure out any sensible reason for Chrysler and General Motors to merge. It doesn't make sense for GM to take over Chrysler just to get Chrysler's cash, because there's not enough of it. Even if there is $11 billion (and I think it's more like 4 billion), it's not enough to cover Chrysler's unavoidable liabilities, the cost of the merger and the cost of restructuring Chrysler's good bits into GM, at least not in the long term.

The Detroit News has an article today speculating that GM's goal is to dismantle Chrysler, keeping Jeep, much like the way Chrysler took over American Motors 20 odd years ago. This would mean the death of the Dodge and Chrysler brands, the shuttering of most Chrysler plants and the dismantling of the entire dealer base. Such a plan would raise a lot of questions relating to state franchise laws, and there would likely be a lot of litigation. Prior to the dismantling of Chrysler, the combined entity would have even more political power to demand government assistance in various forms. The Detroit News speculates that such a combined entity would be "too big to ignore." If GM got rid of Chrysler cars and trucks, it would eliminate 1.6 million units of capacity, an amount close to the amount of overcapacity in the marketplace.

Not stated in the Detroit News article is another possibility. GM may want to acquire Chrysler to get Chrysler Financial. If GMAC is terminally ill, GM may feel the need to get a captive finance company on an emergency basis.

Wednesday, October 15, 2008

Investment Advice for Today's Markets

Thanks to Wilma T. for the link.

Sunday, October 12, 2008

Wild West in the Pre-Implosion Mortgage Market

There's an excellent Businessweek article titled, They Warned us about the Mortgage Crisis, that describes how the attorneys general tried to warn the Comptroller of the Currency about increasingly risky and prededatory lending pervading the mortgage market. The Comptroller responded by preempting new state anti-predatory lending statutes. Here's a quote:

More than five years ago, in April 2003, the attorneys general of two small states traveled to Washington with a stern warning for the nation's top bank regulator. Sitting in the spacious Office of the Comptroller of the Currency, with its panoramic view of the capital, the AGs from North Carolina and Iowa said lenders were pushing increasingly risky mortgages. Their host, John D. Hawke Jr., expressed skepticism.

Roy Cooper of North Carolina and Tom Miller of Iowa headed a committee of state officials concerned about new forms of "predatory" lending. They urged Hawke to give states more latitude to limit exorbitant interest rates and fine-print fees. "People out there are struggling with oppressive loans," Cooper recalls saying.

Hawke, a veteran banking industry lawyer appointed to head the OCC by President Bill Clinton in 1998, wouldn't budge. He said he would reinforce federal policies that hindered states from reining in lenders. The AGs left the tense hour-long meeting realizing that Washington had become a foe in the nascent fight against reckless real estate finance. The OCC "took 50 sheriffs off the job during the time the mortgage lending industry was becoming the Wild West," Cooper says.

Saturday, October 11, 2008

From "The worst they can say is no" file:
News reports of Secret Merger talks, GM/Ford and GM/Chrysler

For my fellow 3357 members heading to Cleveland next week, there certainly has been enough automotive industry news to give us something to talk about.

It seems weird that about the same time GM's stock dropped to within a hair's breadth of worthless that news reports come floating in that GM and Chrysler have had and may still be having merger talks. The kicker is that before the talks with Chrysler, GM also asked Ford to hook up. Apparently Ford only liked GM as a friend.

Thursday rumors started about GM/Chrysler talks. Friday the story was confirmed. Allegedly the talks have been cooled by last week's stock plunge, but the possibility hasn't been ruled out. I struggle to come up with any good reason for GM to acquire Chrysler. GM already has too many brands to service with its current product portfolio, and many of the Chrysler vehicles duplicate what GM already has. (Pickups, SUVs . . .) One possibility is that Chrysler is not quite as bad off cash-wise as GM. If you believe Cerberus, and I don't, Chrysler has lost (on a cash basis) only about $400,000,000 in the past year; about a third of the cash GM has been burning through each month as of late. If true, Chrysler would be sitting on a cash horde of a few, let's say four, billion dollars. Also, if you believe the news reports Cerberus doesn't want cash for Chrysler, just GM's 49% of GMAC. Let's face it, GMAC isn't going to make any money any time soon. GM couldn't be proposing a merger with moribund Chrysler just to get its hands on a paltry 4 billion dollars, could it?

Here's where my personal experience kicks in. Once upon a time, I was hired by a company, but I couldn't start work until it completed its merger with another company. I finally started work, and I was immediately laid off. Apparently each company was looking to the other for much needed cash. Both companies were defunct within 3 months.

If GM does acquire Chrysler, GM will have to, in short order, cancel several vehicle lines, shut down several redundant plants, probably kill at least one line of vehicles (and deal with dealer terminations agreements), renegotiate with the UAW and perhaps more unions, and figure out how to change the acquisition from cash negative to cash positive before GM's cash runs out sometime in 2009.

I can think of only one scenario where acquiring Chrysler makes sense, and that is if GM has a secret deal with Exxon-Mobile or another sugar daddy acquiring company, and if that sugar daddy wants GM to have more market share (and/or more political weight) than GM already has. A company like ExxonMobil can afford not just to buy GM and Chrysler but also to roll-up Delphi and start a new financing subsidiary for good measure. Under ordinary conditions, a company like General Motors would be ripe for the pickings. GM still posts annual revenue of about $160 billion, so its current market cap of $2.77 billion is really chicken feed compared to theoretical future profits. To get to those profits, though, a company buying GM would have to plan to put a few tens of billions to cover short term losses and additional restructuring expenses. Still, GM has made progress on its turn around, it's just running out of money and time. With the worst stock market week in history this week, these aren't normal times.

If there's no sugar daddy in the picture, then the news of the merger talks plus the news of other desperate cash raising measures, such as trying to sell its headquarters by begging, putting its suppliers on 60 day payments and mysterious withholdings from employees' pay may signal that the current credit crunch is squeezing the last lifeblood out of an American institution.

One marginally relevant video coming up.

Thursday, October 09, 2008

From the "Always the Negative Waves, Moriarity" file:
Dow plunges below 9,000, GM off 20% on the day, etc.

The stock market continued its plunge as Hank Paulson continued to do his best "We need more power, Cap'n!" Scotty impression. "I've tried buying all the mortgage securities. I've tried taking an equity position in the banks. I've tried shoving a wiener in the warp drive, but it didn't do a bit of good." The Dow is down below 9,000, off 33% for the year. Retire? pshaw.

General Motors stock is down 30% for the day, to $4.86 per share. What's driving the sale of GM stock? It could be that the SEC lifted the short sale ban on GM stock and this is just pent up negative demand. It could be that Standard & Poors put GM on "Credit Watch" status. It could be that word got out that GM is unilaterally putting non-production creditors on 60 day payment terms rather than previous 35 day term. For some creditors, waiting an extra month for Uncle Jimmy to pay his bill will be more than they can take, especially since the commercial paper market has dried up.

Could things get worse for GM's share price? Absolutely. If GM is dropped from the Dow Jones Industrial Index, and some other indexes, the mutual funds that must carry indexed stocks will be under pressure to dump their holdings.

I think Hank Paulson is the wrong person for the job of Treasury Secretary, we need Oddball from Kelly's Heroes. "No more negative waves -- have a little faith, baby."

Two Blows to Chrysler

I want to mention two items to watch that might have a significant impact on the ability of Chrysler LLC to rebuild itself.

The first is rapid decline of Dollar Thrifty Automotive Group, Inc. In the past year Dollar-Thrifty (DTG) stock has fallen from the mid 30s to about a dollar per share. The Dollar-Thrifty rental car company used to be owned by Chrysler. In its separation from Chrysler, there was an agreement that for a certain period of time, Dollar Thrifty would continue to buy the majority of its cars from Chrysler. Things are tough overall in the rental car industry, but things are even tougher for Dollar-Thrifty. Would you rather be Hertz, who can buy a Toyota Camrys wholesale, rent it for a year, and sell it for 80% of what it paid, or Dollar, which buys a Dodge Avenger wholesale, rents it for a year and sells it for 40% of the purchase price? In the meantime, the Camry is going to have a higher "take" rate. Why? People like Camrys.

In the past few months Chrysler has been posting sales volumes 35-40% below the levels of a year ago. Many of Chrysler's models are completely dependent upon fleet sales. If Dollar-Thrifty goes Chapter 11, Chrysler's subsequent sales losses will be immediately noticeable.

The second significant development is the revelation that the new dual clutch transmission plant that is being built as a joint venture between Getrag and Chrysler is stalled due to a squabble between the partners. Apparently somebody was supposed to bring $300 million to the table to complete the project, and nobody has come up with the dough. It already looks like the original target date for production, 2009, is out of the question. Chrysler desperately needs these transmissions. A dual-clutch transmission gives you the drivability of a conventional automatic with the fuel economy and performance of a manual. For example, a vehicle like the 4-cylinder Dodge Journey which goes 0-60 in almost 12 seconds with its conventional 4-speed automatic, would typically improve to 10 seconds with a dual-clutch trans. Fuel economy would go up a couple mpg as well.

The competition is not sitting still. The 2009 Chevrolet Malibu, Saturn Aura, and Pontiac G6 each receive a new 6-speed automatic transmission for 2009. This new transmission transforms the 4-cylinder versions of these cars from laggards to highly competitive. Highway fuel economy in these GM products goes from 30 to 33 MPG, higher than anything in the Chrysler lineup. Ford is supposed to introduce a similar 6-speed automatic in the Ford Fusion and Mercury Milan in the first half of 2009. The Sebring and the Avenger were uncompetitive in the segment even before the new transmissions in the Ford and GM models, failure to bring a new transmission to the Chrysler midsize entries will marginalize them even further.

Hey, time flies, it's time for a marginally relevant video, my favorite scene from Planes, Trains and Automobiles, AND a bonus for people for people who have too much time on their hands FROM people who have way too much time on their hands, the same scene done in Lego. WARNING - LANGUAGE - Not SAFE FOR WORK

Chances of Obama Win: 90%

There is a 90% chance that Senator Obama will win the presidential election according to the website This website combines the data from various polls and compares the data to models of past performance. I believe we still have three weeks of October, so surprises are to be expected.

Wednesday, October 08, 2008

McCain & Neel
Neel before Zod?

Last night's Town Hall debate between Obama & McCain was mostly an uneventful rehash of the two candidates' stump speeches. I'm always amazed at what the audience takes out of these these debates. One man interviewed switched his allegiance to McCain because he liked McCain's plan to solve the financial crisis by buying the problem mortgage loans. Uh, isn't that why we're spending $700 billion?

Speaking of the $700 billion, there was a story on NPR about assistant treasury secretary Neel Kashkari. Kashkari is the person Hank Paulson is tapping to figure out how to spend our $700 billion. He's a 35 year-old ex-rocket scientist, so apparently that makes him good at everything. As it turns out, Kashkari is the person who came up with the idea of the Hope Now program. The Hope Now program involves voluntary restructuring by creditors. As it turns out, nobody has seen a Hope Now loan except Luna Lovegood. Hence, I call the HopeNow loans "Luna loans". See my blog from February for details. Based on the Luna Loan fiasco, it does not appear that Kashkari understands how securitization and credit default swaps have distorted the market and created a tangled web of conflicting interests.

We don't need a rocket scientist to figure this stuff out, we need a couple hundred good bankruptcy judges with the authority to modify loans and the willingness to get their hands dirty. That's what our lawmakers have so far refused to give us.

Tuesday, October 07, 2008

From the "So Crazy it Just Might Work" file:
ExxonMobil to Buy General Motors? has posted what it calls its "Wild ass rumor of the day". The rumor is that ExxonMobil will buy General Motors. Why would ExxonMobil (or anyone) buy GM? For almost any other buyer, it wouldn't make sense. To complete a turnaround, General Motors will need tens of billions in new capital. Capital is in short supply these days.

Nevertheless, ExxonMobil is sitting on $38 billion in cash and has been buying up its own stock at the rate of $8 billion per quarter. With the recent stock market slide, GM's total market capitalization (the total value of its stock), is only $5 billion. For that price, and for taking on the sugar-daddy role for those economically dependent upon General Motors, Exxon might buy enough political support to defeat any proposed windfall profits tax. Through what it saves on windfall profits taxes alone for a year, Exxon would be guaranteed a net positive return on the investment. In one fell swoop, Exxon's credit would lower GM's cost of borrowing and breath new life into its financing arm.

Yeah, this deal seems ridiculous upon first look, but on second look, it has some real possibilities as a win-win venture.

Friday, October 03, 2008

From the "Here Comes the Boom" File:
Toyota Debuts 0% Financing.

Ever since soft spring auto sales slipped down into the summer doldrums, Toyota has been willing to drift with the auto industry as a whole, with sales dipping, but market share increasing or remaining stable. In September though, Toyota actually lost market share as increasing incentives lured customers to other makes.

Look out - Toyota finally decided to get serious about incentives and is offering 0% financing on most of its vehicles. (Yaris and Prius aren't included.) This could really hurt the Detroit 3. Prior to the Toyota announcement, the members of the Detroit 3 were all looking at base sales levels a third below last year. The financial arms of the Big 3 are facing a shortage of capital, and any money they can borrow is at a double digit interest rate.

This leads me to the Wikipedia Entry of the Day

Coup de grĂ¢ce

Thursday, October 02, 2008

From the "Lowered Expectations" File
Biden and Palin Fight to A Draw

Sarah Palin and Joe Biden each could declare victory in tonight's VP debate. Governor Palin insisted that the McCain-Palin administration would be significantly different than the Bush administration, even though she used the "n-word" (nuculer) repeatedly.

This of course leads me to a marginally relevant video.

Wednesday, October 01, 2008

September Auto Sales (or lack thereof)

The initial figures for United States auto sales for September 2009 are our. Nobody came off well. General Motors came out better than most with sales down only 16%. Ford's total sales were down almost 35%, with SUV sales down 57%. Chrysler's sales were down 37%. Even the Asian brands were not immune from plunging sales. Toyota's sales were down 32%.

Why did GM's sales fall only half as much as Toyota's? Credit GM's employee prices for everyone campaign, for pulling GM's chestnuts out of the fire just like after the 9/11/2001 attacks.

With tight credit and news reports of an impending recession, it is unlikely that industry sales will improve until well into 2009 at the earliest.


Tuesday, September 30, 2008

The Solution to the Mortgage Problem:
Don't Buy Stuff You Cannot Afford

Bill Heard Bites the Dust

In January 2006, I reported on Bill Heard Chevrolet as perhaps being the worst auto dealer anywhere. Bill Heard also happened to be the largest Chevrolet dealer in the country, 14 locations moving about $2 billion in sales. That's history now. This past week, Bill Heard Enterprises, Inc. filed for Chapter 11 bankruptcy. There are some signs that they were shut down by GMAC, the company that floorplanned the dealer's inventory. has an good article
with interesting pictures about the current status of the dealership in Sugarland, Texas. That's where this picture comes from. The employees didn't even get the chance to javascript:void(0)take their family photos home.

Don't worry too much about old Billy boy, he and his wife bought a $18 million, 28,000 square foot house in Columbus, Georgia. Ain't homestead exemptions great?

Monday, September 29, 2008

This Stock Market Crash Brought to You by Reliable Investments

Aren't they managing our 401(k) funds?

The Enhanced John McCain

Friday, September 26, 2008

What ELSE can we do with $700 Billion?

The Vanity Fair website
has a list of things that could be done with the mortgage bailout money. According to Vanity Fair, we could prevent 200 million foreclosures, provide healthcare to all Americans, triple the income of the billion people who earn less than a dollar a day, or buy 10,000 lbs. of LSD.

From something I saw in Popular Science, there's something else cool that we could do with the money. We could build 100 elevators to space, at about $7 billion each.
Doh! Moment of the day:
Stand Up Chuck Graham

Joe Biden introduces Missouri senator Chuck Graham and asks him to stand. The trouble is that Chuck Graham is paralyzed. Maybe Joe thought he was a faith healer for just a minute. You've got to admit, that if it would have worked, it would have really been impressive.

Maybe Jim Lehrer, the moderator of tonight's presidential debate at the University of Mississippi can ask Obama and McCain, "Everyone who wants to be president, raise your hand."
John Stewart and Bush and Bush

John Stewart was in rare form criticizing President Bush last night, comparing his economic meltdown speech to the one that got us into war in Iraq.

Man flies Jetwing Across English Channel
Flying? or "Falling with Style"

Daredevil Yves Rossy a/k/a "Fusionman" flew his human wing across the English Channel. How do you get your wife to agree to let you do this kind of thing?

Wells Fargo Wagon Rolls ove Subprime Borrower
Attorney Hits Back with $1.25 million Judgment.

Last month, I ran across this item, 28 year-old attorney Brian Maul won a $1.25 million jury verdict against Wells Fargo for falsifying his client's mortgage documents. Punitive damages of $1 million made up the majority of the verdict amount. According to the article, the Wells Fargo loan officer inflated Kimberly Thomas's savings by a factor of ten and almost doubled her stated income so she would qualify for mortgage. When Ms. Thomas got to the closing table, she was surprised to say the loan would cost her $4,700 per month rather than the $3,000 per month she anticipated. Now the house is worth $90,000 less than what Thomas paid for it.

I congratulate Ms. Thomas and attorney Maul on the courtroom victory, but most consumers aren't going to find such able representation. They're just going to give up.

This loan is the type of crap that our lawmakers are lining up to pay $700 billion for. No, actually that's not even correct, the most toxic assets are the tranches, or slices of multiple nonperforming loans that have been securitized. In many cases, its not clear who has the right to foreclose on the loans.

That's why it's crucial that bankruptcy relief be in the bail out legislation. As it stands now, if a homeowner wants to stay in the house that is mortgaged over its value, the homeowner has to pay the whole principal and interest of the debt, even if the loan terms are predatory. This is a recipe for foreclosures and vacant properties blighting neighborhoods. Other than home loans, most other loans can be written down in bankruptcy to the value of the collateral. Nevertheless, banking industry lobbiests still seem to have clout, and it is doubtful whether bankruptcy relief will be part of the bill to be passed. Some Democrats, including Barack Obama, are willing to give in on the bankruptcy provision to get the bill passed. That's a mistake. They will never have better bargaining power on this issue than they have right now.

Thursday, September 25, 2008

Even Better Quality
- No Extra Charge

I had a deep, erudite essay to post about the crisis on Wall Street. Then proofread it. Big mistake. No I got nothing. (Proofreading, I've got to learn to stop doing that.) Anyway, I thought I'd dig into my mailbag. (I probably don't get one email a month, probably because I carefully removed my email address from the blog.) One slipped through, so here it is.


There's got to be something that you can do to improve the quality of your blog. I mean, come on, show a little effort here.


Well, Lisa

I gave it a lot of thought, and I decided that I can do better and I will. So I'm making a long distance dedication of this next video to you.

Wednesday, September 24, 2008

The "Other" Palin for President

Tuesday, September 23, 2008

The 419 on the Mortgage Bailout

This e-mail has been going around. If I can find out the original source, I will give appropriate credit.

Dear American Taxpayer:

I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.

I am Ministry of the Treasury of the Republic of America. My country has had a crisis that has caused the need for a large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.

I am working with Mr. Phil Gramm, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s.

Let me assure you that this transaction is 100% safe.

This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of friend so the funds can be transferred.
Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.

Yours Faithfully

Henry "Hank" Paulson

Minister of Treasury
Chrysler Unveils Electric Vehicle(s)
. . . Sort of

According to, at a press conference today, Chrysler will unveil its own electric powered vehicle, with an all-electric operating range of 150-200 miles, up to 5 times the electric range of the Chevrolet Volt. (The volt has a gasoline engine as well.) The catch: it's not a Chrysler-developed vehicle, it's an electrified Lotus Europa sportscar. This vehicle rides on the same platform as the Tesla sportscar.

Perhaps more significantly, Chrysler will unveil prototypes of "range-extended EV" versions of its Chrysler Town & Country minivan and Jeep Wrangler. According to Chrysler "at least one" of these vehicles will be available before the end of 2010. By 2010 the market will be very different that what it is today. There will likely be other hybrid minivan competition.

I have long thought that a "30/30" minivan (30 mpg city/30 highway) minivan hybrid would be hugely successful. Both Honda and Chrysler already have space that can be used for the battery and hybrid components without taking up precious cabin room. Each of those vehicles has underfloor storage that could be dedicated to battery room. In the case of the Toyota Sienna, the space taken by the drivetrain for the all-wheel-drive version could be allocated to hybrid components. Toyota has indicated that all of its major lines would have hybrid options in the future. Honda and Toyota minivans will be due for a redesign by 2010 anyway. The Chrysler van had a major revision in 2008, so it would ordinarily not receive a major redo until at least 2012. As an alternative to hybrids, Honda may achieve 30 mpg highway with a diesel Odyssey.
Henry Paulson - The Biography

Because a trillion dollars is at stake, and Treasury Secretary Henry Paulson Jr. wants unfettered discretion in spending a trillion dollars, I thought it would be good to find out more about Mr. Paulson.

I initially asked our searching superhero, The GOOGLETEER, to search for a biographical video for me, but wouldn't you know it, the G-man was going on vacation. He recommended his sidekick, Boutright Boy. Boutright Boy found this video. I'm not sure this is Henry Paulson, but he assured me it is.

From the Go Fitch file:
General Motors Becomes CCC Rider

Yesterday, the Fitch credit rating agency downgraded GM's credit rating to CCC, down from a previous rating of B-. Both are considered to be "junk" ratings. General Motor's main problem may not be the cost of credit, but the inability to get credit at all. Many of the banks and investment bankers that GM has dealt with are more more dire peril than GM itself. GM recently drew down its last $3.5 billion in its major credit line; most likely as a strategic move to avoid problems in the banking industry making that line unavailable later. Given GM's credit rating and the difficulties in the financial markets, GM may find it extremely difficult to get new capital, at least until next year. Even if Congress approves the release of $25 billion in auto industry loans previously authorized, GM (and the others) will not be able to get to the money until regulations are promulgated regarding the details of the lending program. That would not happen until sometime next year at the earliest.

Wednesday, September 17, 2008

McCain vs. Streisand

Barbra Streisand has been raising millions of dollars on behalf of Barack Obama. Vengeance against John McCain? You be the judge. Thanks to reader Steve A. for the link.

Tuesday, September 16, 2008

Salvation, thy name be Volt?
GM unveils production Chevrolet Volt

Here it is, the production version of the Chevrolet Volt.

I'm not so keen on the Chevrolet corporate grill, and on this car it adds a level of fussiness to a design that is otherwise elegantly functional. Overall, it seems more practical than the concept car from a couple years ago.

The Volt is the extended range electric (none dare call it a hybrid) car that GM says will be able to go 40 miles on electric power alone. GM promises-plans-hopes-aspires-whatever to have it available before the end of 2010. It was originally supposed to cost less than $30,000; however that pricing target will not be met. The actual cost is to be determined. The latest word that I've seen is that according to Bob Lutz, the unsubsidized price of the car would be around $48,000 but if GM gave up profot on the vehicle, they could come in at around $40,000. For a car that's supposed to be GM's knight in shining armor, they aren't planning on making very many of them, only 10,000 the first year and ramping up to 60,000 in year two. To put this production in perspective, the 1964 Ford Mustang is credited with saving Ford. Ford sold over 100,000 of the 1964 model, and over 600,000 of the 1965 model. No passenger car model in 2007 sold as many units as the 1965 Ford Mustang.