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>Get It Right On GM Warranties, Obama, Will Ya’

>Men Make Such Bad Decisions When Under Duress

Now that the Barak Obama Administration owns General Motors and Chrysler — or at least with their naming of the board and a president it looks like they’re in control — or should I say totally out of control — what about ongoing losses and expenses?

GM and Chrysler are losing entities. Here are some of the continuing expenses Obama lifted from these two auto makers by inserting us taxpayers in their place.

1. Warranties — who will pay for all the warranty work that will need to be done to satisfy current new car owners, and owners of cars still under warranty that aren’t new?

2. What about other loans and outflow of funds that these giants have accumulated?
 I mean suppliers. They probably owe suppliers millions of dollars. Anyone bother to do an audit to determine the possible maximum outflow to be swollowed by the American taxpayer? NO!

3. How about pensions? That includes union and non-union workers and 401k programs. Most of them are written so that if the insurance carriers default, the company is on it for the full value of the pension. What about retirement money promised to officers and board members? They are valid contracts, even the gold and silver parachutes. 

These American auto makers likely still owe millions to people and companies all over the globe. Who will stand behind these guarantees? Who will pay these moneys? GM and Chrysler were not allowed to go into bankruptcy, remember, so they can’t stiff their creditors. Or can they? Maybe Congress will pass a law — unconstitutional, at least — that will allow Obama to bypass these creditors. He already bypassed Congress when he decided to start running these car companies.

When you do one illegal thing, it begats more illegalities, Barak. It was illegal for Hank Paulsen to lock GM and Chrysler in a room and tell them he wouldn’t let them out until they signed over their companies to the government and promised not to take their firms into regular bankruptcy. That was illegality number one.

Isn’t it interesting that Paulsen, Larry Summers (Obama’s chief financial advisor), and Timmothy Gaithner, treasury secretary, all were working together at CityBank before they were called into government service. Yet CityBank, no matter what crummy condition they were in, was one of the banks that was “too large to fail.” That’s because all three have their own personal 401k plans with City Bank. If it were allowed to fail it would result in a loss of millions of dollars of retirement funds for these three chosen ones. This evil man Hank Paulsen did this same trick to AIG and Bank of America. AIG was told it couldn’t take out bankruptcy, it had to take the money. They didn’t elaborate, however, on how the government would be running AIG henceforth.

As for Bank of America, I wrote a story in Angst Blogger yesterday that AIG would like to repay the $48 billion they got from the government, sometime soon. But the Obama people won’t let them pay it back. They’ve gotten used to the power and they don’t want to give it up, not just yet. Remember that Bank of America took over Countrywide Mortgage and CityBank as part of the deal to give them this money.  What a tangled mess we have. We the taxpayers also paid $180 billion to AIG and are running that company, too.  All of it was a mistake. All of them should have been allowed to take out bankruptcy. Some day someone will untangle all of this and find that the unholy troika of bad people, Gaithner, Pattersen, and Summers, should go to jail. Have your fun fellas, but sooner or later the bubble will burst and you’ll get caught. As I said, one bad mistake begats another, and another, and another.

It’s like running the stop sign where the cop is hiding. You see flashing red and blue lights in your rear view mirror and you decide to outrun the cop. A long, high-speed chase ensues with both cars going over 100 mph and other cop cars are called in. A barracade is set up, but the stop sign-runner blasts his way through that and goes down the road.

Two cop cars finally catch up and come alongside, banging their cars into his. One of the cop cars overturns and the driver is killed. The other pulls out a gun and tries to shoot the tires of the speeding perp car. But the perp’s passenger shoots back and kills the pursuing cop.

 Now the perp is wanted for murder in four states and is going out of his mind. See what I mean, when one thing goes bad it all goes bad? That’s number eight hundred seventy four on Murphey’s list of bad things to expect to happen when one thing goes wrong.This same driver now is going 120 mph to avert capture and suddenly his car goes off a cliff, killing him and his passenger. We make such terrible decisions under duress.

3. What about the other car manufacturers GM and Chrysler own? Who will manage them? I mean Volvo and Saturn for GM and how many others for Chrysler I’m not aware. By the way, whatever happened to that “forced marriage” of Chrysler and Fiat? Chrysler was given an ultimatum by the government, “take their
money or bankruptcy!”  That’s the only good piece of advice anyone has given.

My take: I believe we have gangsters running the government. The biggest three of late were Hank Paulsen, former treasury secretary; Ben Bernanke of the Fed, and the biggest of all, Timothy Geithner, current treasury secretary. How can they get away with strong arming these banks and car companies? Some of the leaders of GM and Chrysler — if they had an ounce of guts and money to pursue the government at this point — ought to band together and sue the government. If that doesn’t happen, there will be mahem on the streets because sooner or later the word will get out and people like me and you, the American taxpayer who is getting stuck for all of this baloney, just won’t stand it any longer.

>Good news: Bank of America says they may be able to pay back their Federal bailout of $45 billion early. That means they could come up with the money this year or early next.

Why did the Feds force onto them any money at all?

One could also argue that Bank of America, having acquired Countrywide and then Merrill Lynch, might have its hands full and might not have minded too too much the additional capital.


>Lehman Brothers Is Gone

The Financial Fish Weren’t Biting Sunday
September 15, 2008
New York–We said it yesterday–no one should chase bad money with good.
That seemed to be the consensus of the financial markets over the weekend, as all the possible suitors for Lehman Brothers’ $60 billion in tangled and messy real estate holdings dropped by the wayside, leaving the large 158-year-old international investment bank filing for a Chpater 11 bankruptcy.

Two thousand New York employees cleaned out their desks and were gone. How do I interpret it? For America as a whole it’s a good and logical end to only part of a very sad story, but it had to happen. Observers believe there will be 110 banks fail during the next nine months. Will yours be one of them?

The International Monetary Fund predicted earlier this year that total losses from the credit crisis could reach almost $1 trillion. So far, banks have only taken about $350 billion in losses.

Commercial banks are also starting to feel the pinch. Eleven have closed so far this year, including Pasadena, Calif.-based IndyMac Bank, which had $32 billion in assets and $19 billion in deposits. There is talk on the street that Wachovia and Washington Mutual are in deep trouble and now, understandably, they can’t attract new accounts from a very worried public.

The problem with these firms isn’t necessarily the firms themselves, but the loose supervision of banks by the Fed and other regulators. Some of them got into the practice of running what resemble kiting operations and the regulators looked the other way. Kiting is where you take from Peter to pay Paul and that’s illegal.

Reserves are the problem. How much money should a bank have on hand to make a loan? That’s decided by the regulators, so if you want to lay some blame on someone look at the regulators and Congress for failing to insist on tighter regs.

Maybe we, the people, should shake up Congress. Fire all the old ones and insist on new blood in Washington.That’s basically what I’m going to do this fall–vote out the incumbents who have been there way too long. Look at Joe Biden with his 36 years, Ted Kennedy and Orin Hatch with a like number of years. Even John McCain has been there 24 years and now he wants to be president.

From my vantage point, there is only one candidate who fits the “new” description and her name is Sarah Palin who is the vice presidential candidate on the John McCain ticket. She is currently attracting a lot of American attention and as a result has supercharged McCain’s chances.

Back to the banks: Because they could, banks got into the habit of using money from current accounts, especially new ones, to fund questionable loans. Using this method of banking, someday when these banks couldn’t get new business the domino effect took place. That “someday” is now.

The only advice I could offer the average American is to make sure your bank is Federally insured, and that you have no more than $100,000 in each account–the amount the FDIC promises to repay if the bank goes under.

Christopher Whalen, managing director of Institutional Risk Analytics, a research firm, predicts that approximately 110 banks with $850 billion in assets could close by next July. That’s out of 8,400 federally insured institutions, he said, which together hold $13 trillion in assets.

Bank of America Corp. is buying Merrill Lynch & Co. Inc. in an $50 billion all-stock transaction.

The world’s biggest insurer, American International Group, is also in trouble. It is restructuring, meaning it basically can’t operate as it has in the past and must lay down greater reserves for a rainy day. AIG hit hard by deterioration in the credit markets, said Sunday it is reviewing its operations and discussing possible options with outside parties to improve its business after a week when its stock dropped 45 percent amid concerns about the company’s financial underpinnings. It was working with New York Insurance Superintendent Eric Dinallo and a representative of the governor’s office through the weekend to craft a solution that protects policyholders, according to Dinallo’s spokesman David Neustadt.

Ten banks — Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS — each agreed to provide $7 billion “to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets.” This consortium has put together $70 billion to lend to troubled banks and to help prop up the system.

The Federal Reserve also chipped in with more “largesse” in its emergency lending program for investment banks. The central bank announced late Sunday that it was broadening the types of collateral that financial institutions can use to obtain loans from the Fed. Somehow, folks, this action by the Fed doesn’t resemble tightening at all. It’s more of the same, a give-away program right out of the taxpayers’ pockets.

Perhaps they feel we need to smooze and massage these banks so they don’t fail, but to me this is merely extending their day of reckoning and has nothing to do with solving anything. Congress’ oversight committee should immediately call for an investigation and get highly involved. Ben Bernanke is no Alan Greenspan and neither of them knows what they are doing.

Federal Reserve Chairman Bernanke said the discussions had been aimed at identifying “potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official sector and private sector responses.” This is his way of saying he doesn’t have the answers.

The stunning weekend developments took place as voters, who rank the economy as their top concern, prepare to elect a new president in seven weeks. It likely will spur a much greater focus by presidential candidates — Republican John McCain and Democrat Barack Obama — and members of Congress on the need for stricter financial regulation.

Samuel Hayes, finance professor emeritus at Harvard Business School, said the Bush administration may get a lot of blame for the situation, which could benefit Obama. But this liberal Democrat forgets that it’s Congress that oversees financial institutions as well, not just the president. Democrats should get a lot of negative press over this one as well.

“Just the psychological impact of this kind of failure is going to be significant,” he said. “It will color people’s feelings about their well-being and the integrity of the financial system.” He’s right and the Democrat-controlled Congress that likes to declare vacations mid-term had better start locking the doors and burning the midnight oil on this one.

Hurrah for the U.S. Treasury!Lehman Brothers’ announcement that it is filing for bankruptcy came after all potential buyers walked away. Potential suitors were spooked by the U.S. Treasury’s refusal to provide any takeover aid, as it had done six months ago when Bear Stearns faltered and earlier this month when it seized Fannie Mae and Freddie Mac.

A news report said employees emerging from Lehman’s headquarters near the heart of Times Square Sunday night carried boxes, tote bags and duffel bags, rolling suitcases, framed artwork and spare umbrellas. Many were emblazoned with the Lehman Brothers name.

TV trucks lined Seventh Avenue opposite the building, while barricades at the building’s main entrance attempted to keep workers and onlookers from gumming up the steady flow of pedestrians flowing in and out of Times Square.

Some workers had moist eyes while a few others wept and shared hugs. Most who left the building quietly declined interviews.

People snapped pictures with cameras and their phones. Observers pressed up against a police barricade drew the ire of one man who emerged from the building and shouted: “Are you enjoying watching this? You think this is funny?”

Merrill Lynch, another investment bank laid low by the crisis that was triggered by rising mortgage defaults and plunging home values in the U.S., agreed to be acquired by Bank of America for 0.8595 shares of Bank of America common stock for each Merrill Lynch common share.

That values Merrill at $29 a share, a 70 percent premium over the brokerage’s Friday closing price of $17.05, but well below what Merrill was worth at its peak in early 2007, when its shares traded above $98.

Charlotte, N.C.,-based Bank of America has the most deposits of any U.S. bank, while Merrill Lynch is the world’s largest brokerage. A combination of the two would create a global financial giant to rival Citigroup Inc., the biggest U.S. bank in terms of assets.

Though even Bank of America isn’t well, strategically, most industry analysts say it’s a good fit. If the deal goes according to plan, Bank of America will be able to offer Merrill’s retail brokerage services to its huge customer base. There is not a great deal of overlap between the two companies — Bank of America does have an investment bank already, but it has never been terribly strong.

The deal would not come without risks, however. Merrill Lynch, like many of its Wall Street peers, has been struggling with tight credit markets and billions of dollars in assets tied to mortgages that have plunged in value. Merrill has reported four straight quarterly losses.

Bank of America’s own finances are far from robust. As consumer credit deteriorates, the bank has seen its profits decline, and the company is still in the midst of absorbing the embattled mortgage lender Countrywide Financial, which it acquired in January.

The meetings that began Friday night were a who’s who of financial heavyweights: Treasury Secretary Hank Paulson, Timothy Geithner, president of the New York Fed, Securities and Exchange Commission Chairman Christopher Cox, and a host of CEOs, including Vikram Pandit of Citigroup Inc., Jamie Dimon of JPMorgan Chase & Co., John Mack of Morgan Stanley, Lloyd Blankfein of Goldman Sachs Group Inc., and Merrill Lynch & Co.‘s John Thain.

The common denominator of the financial crisis, analysts said, is the bursting of the housing bubble. Home prices have dropped on average 25 percent so far and could could drop another 15 percent.

The crisis has begun to slow the broader economy as banks make fewer loans and consumers have begun cutting spending. Many economists are now forecasting that the economy could slip into recession by the end of this year and early next year.

That, in turn, could cause additional losses for commercial banks on credit cards, auto loans and student loans.

The Fed is widely expected to keep interest rates steady at 2 percent, below inflation, when it meets Tuesday. It was possible, however, that the central bank might decide in coming weeks to cut rates if such a move is seen as needed to calm turbulent financial markets.

>Let Lehman Brothers Fail

>New York–The American taxpayer should be intent on making the government keep its promise not to do further bailouts of large financial companies.

The question for the so-called experts is the fallout from the failure of Lehman Brothers, a giant worldwide investment bank. It could cause other repercussions, but I say “If it must be, let it be so.”

This is a market-driven country, not some third-world rogue nation afraid of every oscillation in the market.

If the investment bankers all fail then maybe we can start over and put some reality into the equation. Don’t turn to taxpayer bailouts every time there’s a fluctuation in markets. Of course, this is not a mere fluctuation–it’s a last gasp for survival of a giant.

The Feds and Wall Street are trying to save Lehman, but both are adamant. The government is adamant that it will not pump more money into a company for bailouts. If we bail out Lehman then why not bail out Joe’s Barbershop down the street when a new, bigger, and more luxuriant one is built on the corner? Get my drift?

Jeannine Aversa and Joe Bel Bruno are Associated Press writers who weighed in on this topic Sunday morning, September 14th, 2008. If you believe their report, the field of possible buyers for Lehman Brothers is narrowing.

Their report is that an unnamed investment banking official said Bank of America Corp. and Britain’s Barclays Plc have emerged as front runners for Lehman Brothers after a possible cash injection from its rival Wall Street banks and brokerages.

Top officials from the Federal Reserve and the Treasury Department and executives from several Wall Street banks met at the New York Fed’s downtown Manhattan headquarters Saturday for the second day in a row trying to hash out a deal to rescue Lehman Brothers.

The financial world was watching. They should be watching. They are the parties of interest. I don’t know about you, but I don’t own stock in Lehman Brothers. Let it fail,” is my mantra.

Those Wall Street firms and others wouldn’t be so adamant that this should not fail if it wasn’t for the fact they are so intimately tied in with this investment bank. By that, I mean they and their “friends” have a lot to lose if Lehman goes down. Again, I say let it fail. What have I and 300 million other Americans got to lose if Lehman becomes a passing byword never to be uttered again.

Money is the chief motivator in their interest in Lehman. Money out of their clients’ pockets. Never before have I felt so strongly and keenly about a financial subject as this. Lehmans is not Freddie and Fannie. It isn’t the FDIC, it isn’t the FED, it isn’t even the corner bank. And for my money, we have too many banks. Let Wachovia and Washington Mutual fail, too. Investments of the little guy like you and I are insured by the FDIC up to $100,000, right? Then tell me why it is bad for a bank to fail? Because it creates a bad omen or sets a bad precedent in the financial markets? I say it will set a good precedent. Banks will be more careful in the future about to whom and how they lend their money.

The Associated Press writers said failure could prompt skittish investors to unload shares of financial companies, a contagion that might affect stock markets at home and abroad when they reopen Monday. They don’t know that for sure. All they’re doing is repeating one of the Bank of America official’s opinions.

But I say, “Good, let’s get a little volatility in the market. If that private source of theirs is right, when I buy low it will be a real low, won’t it”?

The investment banking official who said the following asked not to be named. I wonder why? They said because talks were ongoing, but what is there about the following statement that will hurt or help anyone? All he is really doing is lobbying us taxpayers through the power of the press. They’re real good at that, and the AP is their dupe.

He said: “Investment houses were balking at paying to polish up Lehman’s balance sheet so Bank of America or Barclays could buy a financially clean firm.” That sounds pretty innocuous, doesn’t it?

He said “The investment banks were angling for the government to provide some money, as it did when it helped JPMorgan Chase & Co. buy Bear Stearns in March, because they would get little to nothing in return for their help.” I’m ashamed of the AP. I once wrote for them and never, ever in my life have I seen such a stupid, meaningless bunch of words. The reason he didn’t want his name mentioned is because he’s the one who’s talking to he Feds about throwing in some green–your money and mine. I say identify the SOB. He doesn’t want the fallout of his advice to hurt his company? What a bunch of BS! What a coward!

The story said “The government has drawn a line in the sand over using taxpayer money to help rescue Lehman Brothers, however.” Thank God for that! The story also reported that “The official said the talks were tense and neither side appeared willing to back down.” Good, let it fail.

But I say, hasn’t the AP ever been in a real negotiation? Both sides do a lot of posturing. Both sides look “tense.” That’s all posturing by big-time lawyers and CPAs who huddle in the corner planning strategy. Everyone in the room reads the “tenseness” as nothing more than lawyer lies and sign language. The only ones they want to be tense is we, the taxpayers. We’re supposed to buy their crappy negotiation and throw in some bucks. I say, “NO! Not now, NOT ever again. Let Lehman Brothers fail.”