Skip to main content

The Detroit quagmire & Treasury's absolute power

Latest news on the Detroit automakers and the proposed "resolution authority" for the Treasury. Let's get right to it...

Starting with the whole automaker bailout/bankruptcy quagmire theme - Deal Journal says, "Mr. Obama, don't let Detroit be your Vietnam":

"Congratulations. It took a couple of months in office, but you finally got something right. GM and Chrysler are bankrupt, after all.

Not that it took any particular genius to see it. But it did take some gumption for you to come out and say it. Now prepare yourself for your next feat, the reinvention of Detroit.

And here are some words of advice: Do not let Detroit destroy your Presidency. It will, if you let it."

Meanwhile, Bloomberg reports President Obama has concluded that bankruptcy is the best option for GM and Chrysler. Here's an intro from that piece:

"President Barack Obama has determined that a prepackaged bankruptcy is the best way for General Motors Corp. to restructure and become a competitive automaker, people familiar with the matter said.

Obama also is prepared to let Chrysler LLC go bankrupt and be sold off piecemeal if the third-largest U.S. automaker can’t form an alliance with Fiat SpA, said members of Congress who have been briefed on the subject and two other people familiar with the administration’s deliberations..."

Does anyone know why (aside from obvious political considerations) the US auto makers are still hanging around in this limbo state?

The government has taken billions of dollars in taxpayer funds and allocated it to the dying US automakers, preventing earlier bankruptcy filings or restructurings, even as the companies race to cut costs and stay afloat for the next few months.

Which brings me to our next subject: Deal Journal's evening reading centers on the question of absolute power at the Treasury.

The proposed legislation for "resolution authority" may give Geithner and the Treasury a "nuclear option" to seize any financial company whose failure might pose a systemic risk.

More on this from Real Time Economics:

"The Obama administration last week proposed draft legislation for a “resolution authority” that would effectively permit the government to liquidate or restructure large systemic financial institutions. If passed by Congress, these powers would allow the governments to treat nonbank financial institutions more like regulated deposit-taking banks.

This authority offers a clear path to recapitalize institutions without using taxpayer money and therefore avoiding some dimensions of moral hazard but, if implemented poorly, the existence of this “nuclear option” can cause panic in financial markets and substantially delay recovery..."

The US government is now heavily involved in the domestic auto industry and the non-bank financial industry. Is this a positive or a negative? Your insights and comments are appreciated.

Popular posts from this blog

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4.

Moneyball: How the Red Sox Win Championships

Welcome, readers . T o get the first look at brand new posts (like the following piece) and to receive our exclusive email list updates, please subscribe to the Finance Trends Newsletter .   The Boston Red Sox won their fourth World Series title of t he 21st century this we ek. Having won their first Se ries in 86 years back in 200 4, the last decade-plus has marked a very strong return to form for one of baseball's oldest big league clubs. So how did they do it? Quick background: in late 2002, team own er and hedge fund manager, John W. Henry (with his partners ) bought the Boston Red Sox and its historic Fenway Park for a reported sum of $ 695 million. Henry and Co. quickly set out to find their ideal General Manager (GM) to help turn around their newly acquired, ailing ship. This brings us to one of my fav orite scenes from the 2011 film , Moneyball , in which John W. Henry (played by Ar liss Howard) attempts to woo Oakland A's GM Billy Beane (Brad Pi

William O'Neil Interview: How to Buy Winning Stocks

Investor's B usiness Daily founder and veteran stock trader, William O'Neil share d his trading methods and insights on buying winning stocks in an in-depth IBD radio interview. Here are some highlights from William O'Neil's interview with IBD: William O'Neil's interest in the stock market began when he started working as a young adult.  "I say many times that I didn't get that much out of college. I didn't have much interest in the stock market until I graduated from college. When I got married, I had to look out into the future and get more serious. The investment world had some appeal and that's when I started studying it. I became a stock broker after I got out of the Air Force."    He moved to Los Angeles and started work in a stock broker's office with twenty other guys. When their phone leads from ads didn't pan out, O'Neil would take the leads and drive down to visit the prospective customers in person.