Friday, November 21, 2008

Six Myths about the Big Three

Good article covering some of the misconceptions about the Big 3 automakers on Seeking Alpha.

"Memo to CEOs: Ask for a bailout, and your company will be reduced to a caricature.

Recent congressional hearings on the plight of GM (GM), Ford (F), and Chrysler have illuminated a few important issues - like how the Detroit executives travel when on business. Populist politicians and gotcha journalists delighted at the prospect of rich CEOs riding corporate jets to ask for taxpayer money. There was a little talk about jobs and cars and the foundering economy, too. But you might have missed that part, or gotten confused by a welter of misperceptions that emerged from the spectacle of supplicant CEOs trying last-ditch tactics to save their companies."

As the automakers careen toward bankruptcy, here are some of the myths complicating the debate over the future of the Detroit Three:

Go here.


Billy said...
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Billy said...

Geithner - Oh No.

Thats not who I wanted. I do not know much about this guy. I wonder if his experience at The New York Fed is a help or a hurt.


Billy said...

Well - Summers will be working at the White House - at least that is something.


mike norman said...

Geithner still can't figure out how to keep the Fed funds rate at its target.

Oil Shock said...

Mr. Norman,

This is an interesting video of your past that can't be gotten rid off

mike norman said...

Hey, "Oil Shock." Keep drinking Schiff's Kook Aid!

Unknown said...

Hi Mike, came here from Warrens blog. Nice stuff, keep it up.

googleheim said...

It was very heroic for Schiff to stand up at Prom and declare that it was a drunken debacle.

However, he proposed everyone run to commodities like gold, metals and oil and then also fly out to foreign currencies.

It was too late last Spring of 2008 to get into all those things.

THE PRICES WERE TOO HIGH and so when the Schiff hit the fan finally, Schiff was right but his advice for getting out of Dodge USA was plain wrong -

the slow down and bank failures caused a big flight TO THE U$D and NOT AWAY from it - Commodities slowed down and the market cooled off.

He should have seen that if the U$A slows or brakes hit the floor while banks in general are popping like cheese whiz in a microwave - then the # 1 consumer in the world, the U$A, is going to reduce spending and then slow the rest of the world down as they are all coorelated to ....

the collapse of our quantum wave function - very orthodox and does not require any high math.

Schiff was right but then he flopped like a little whimper.

I wish I would have listened to him though as I would have put my 401K all in Tbill money market earlier.

Taxes must increase to make a safety net before going forward, and then is dictated by supply side economics if you look at the Lauffer curve you will see we are on the LEFT side of the optimal point where that to increase revenues we need to increase taxes.

googleheim said...

Case against Schiff post-market-pop :

1. U$D went up not down.
2. All other currencies down.
3. Doubtful Schiff was in the YEN dude.
4. oil down big time
5. what else is there ?

He pointed out the "tsunami" rather heroically, standing firm against all those TV conartists who are more advertisers for the companies they name dropped ---->
but Schiff did not surf the tide
inland - instead Schiff appears to be the one who saw the tsunami but ran out to sea during the low tide in amazement of all the flopping fishes .... i.e. the commodities and the foreign currencies etc ... which if he was buying at the Spring Highs - then the Autumn Falls wiped him clean for sure ...

Can anyone counter that ?

STF said...

Googleheim . . .

Mostly agreed

I've already posted in a few threads re: Schiff, so won't repeat all that here. A few things, though . . .

MANY people saw fall in stocks and housing coming, not just Schiff.

Schiff's explanation for the fall is that foreign investors would pull out . . . just the opposite happened, as they can't hold enough $$ or Tsy's.

Schiff missed the rise in the $ (which would be much greater except for the Fed's $600B in currency swaps).

Schiff missed the rise in Tsy prices (10Y touched under 3% last week).

Both of the latter 2 are inconsistent with his paradigm.

We don't need to raise taxes . . . quite the opposite!! Raising taxes is along the lines of Schiff's solution--a BIG recession.

U. S. is a sovereign currency issuing govt under flexible exchange rates. There is no solvency issue, ever. Interest rates on the debt are a policy variable. That means deficits can/should be used to sustain full employment . . . right now, that means a MUCH bigger deficit.

googleheim said...

Municpal, County, State and Federal coffers are empty and they will be holding bake sales.

Raising taxes from the top down in the trickle down manner that supply siders deserve should be started immediately and start with Warren Buffetts.

All the tax dodgers need to come to roast the roost that they deserve. How can you salut the soldiers while incorporating in Cayman islands ?

Most of the problem occurring now is that the neocon Republican compulsive desire to always lower taxes, reduce government, and deregulate has left things a little precarious if not fundementally unsound.

The "Lauffer" curve shows how to optimize tax rates and tax revenues. Everyone for 20 years still thinks we are on the right hand side of the bell when we are on the left hand side.

Raise taxes not interest rates to get Americans to start saving.

Use taxes on something besides funding the Iraq war which requires a mandate on a weak dollar.

Raising taxes sounds unpopular but it is patriotic.

Why is not the dollar allowed to surge and spike to our national interest ? Because it would cause a global flight TO the dollar
and lay waste to many banks around the world.

STF said...

You've missed the fundamental point, though, which is that the federal government doesn't need tax revenues to increase spending to get out of the current economic situation. It never needs to receive revenue or sell bonds to finance spending. It ALWAYS spends by crediting bank accounts . . . that process is not constrained by revenues or bond sales. Attempting to "increase saving" in the manner you're suggesting will make conditions all the worse as they will reduce agg demand.

Jeff said...

Mike, seems to me we are close to complete shutdown of the economy, as reflected in 20% drop in the XLF last week. I posted this comment on my blog, that you inpired me to creat,

Obama's announcement of a jobs and infrastructure plan is great, but is more of a long-term solution. Something has to be done to alleviate the panic in the financial sector. Paulson's leaving the remaining $350 billion in TARP funds to the incoming administration is a joke. The amount of money needed to fill the confidence gap in the banks, pension funds, and insurance companies would probably require ten times that amount. With the total collapse of funding in long term debt markets, any company with debt maturities in the current environment faces the prospect of bankruptcy. The normal lenders are the very financial institutions listed above and they are hemorraging losses from all types of financial investments - stocks, bonds, alternatives - that have created a drastic mismatch between their obligations and their assets. The federal government should offer a swap program to bridge this funding gap, as they have so generously done with our European allies (foreign currency swaps have ballooned to over half a trillion dollars, reflecting support of European banks that have huge losses from lending to Eastern Europe). If the federal government does not offer to stem the losses in financial institution portfolios, the downward spiral is likely to continue until the debt markets are totally obliterated. Do we really want to see what it's like to live in a debt-free society? If that's the case, Obama should appoint Dave Ramsy as Treasury Sectretary!

Billy said...

There was a question on 401ks on the Friday radio show.

I am sure that what the caller was referring to was a proposal by a supporter of President Barak for the Government to take over 401ks.

I do not believe that the new government had any opionion on this.

I believe this lady works at The New School - wahtever that is


mike norman said...

Fed is the lender of last resort. Doing the work of the private financial sector now. Balance sheet will grow; financial sector's balance sheet will shrink.