Ch 11 and the auto industry

A really nice piece by Joe Stiglitz on why Ch11 is the way to go for the auto industry.

I particularly liked the final paragraph which basically sums it up...

Even if Congress does now give carmakers $15bn as a “stay of execution,” postponing the hard decisions, before the next multi-billon dollar dose of medicine we need to think more carefully about who we are really bailing out and why. This should not end up as just another rescue package for bondholders and shareholders.

I think its pretty obvious that any loan from the Government is just going to delay the inevitable. Furthermore a Car-Czar will have no real power except to pull the financing. Using a medical analogy, this is like a doctor saying that he'll pull the life support plug if the patient doesn't take all the bad tasting medicine. It ain't gonna happen. 6 months from now the big 3 (or 2) will be back, cap in hand, driving their hybrids and begging for more.

On a related note, the Wall Street Journal reviews the Cadillac Escalade Hybrid. To quote the reviewer...

Not in my lifetime has a car company come up with anything as absurd as the 2009 Cadillac Escalade Hybrid, the latest example of hybrid greenwashing

Which reminds me of this "ad" recently posted by Craig Newmark.




Ok, remind me again why we are wanting to bail out these idiots?

HT: Mankiw's Blog

Cheap money

Because of unprecedented demand for safe assets, T Bills are being sold at negative rates. (See this Bloomberg.com article). In effect, people are paying the US government to store money. This can't be good. On the bright side, the loan to the auto industry isn't going to cost much in the short run!

Great videos on the financial markets

A big thanks to the unknown professor for posting a couple of these on his blog. These youtube videos are buy Paddy Hirsch of Marketplace.com. They are simple explanations of various aspects of the current financial crisis and are very watchable. Rather than post them all, I'll just provide the link to the youtube site here

HT: Financial Rounds (Unknown Professor)

Ford to sell volvo

Probably makes sense that Ford is going to sell Volvo - the company could use the cash. It'll be interesting to see who would bid for the unit. Given the market for higher end cars today, I imagine it could be had for a bargain.

and the prize for the dumbest explanation for the current economic crisis goes to...

...the Wall Street Journal editorial page. Daniel Henninger argues (OK, just says) that the reason why we are in this economic mess is because of a bunch of northern atheists who have no morals.

If were thinking: "wasn't it something to do with subprime loans, too much liquidity and a dysfunctional rating system?" then read on...

He starts off with

A nation whose people can't say "Merry Christmas" is a nation capable of ruining its own economy.

And then offers the following explanation...

What really went missing through the subprime mortgage years were the three Rs: responsibility, restraint and remorse. They are the ballast that stabilizes two better-known Rs from the world of free markets: risk and reward.

Responsibility and restraint are moral sentiments. Remorse is a product of conscience. None of these grow on trees. Each must be learned, taught, passed down. And so we come back to the disappearance of "Merry Christmas."

It has been my view that the steady secularizing and insistent effort at dereligioning America has been dangerous. That danger flashed red in the fall into subprime personal behavior by borrowers and bankers, who after all are just people. Northerners and atheists who vilify Southern evangelicals are throwing out nurturers of useful virtue with the bathwater of obnoxious political opinions.

The point for a healthy society of commerce and politics is not that religion saves, but that it keeps most of the players inside the chalk lines. We are erasing the chalk lines.

Feel free: Banish Merry Christmas. Get ready for Mad Max.

Wow. That has to be the stupidest thing I have ever read in the opinion pages of the Wall Street Journal, and frankly, there has been a lot of competition. Of course, now that the Journal is controlled by Rupert Murdoch, we should hardly be surprised that the opinion pages sound like Fox news.

But the tired old argument that the only reason people behave well is because they are religious has been shown time and time again to be completely wrong. For example, see this article in the Times of London.

WSJ on Finance Jobs...

The Wall Street Journal today talks about MBA students who are moving away from traditional finance jobs (which in their world is investment banking) to alternative jobs (corporate finance). The article is not very interesting, but wins the "Duhhhh" prize for most obvious article to write about Finance MBAs.

Notably though, Risk Management is a hot topic.

Must read...by the author of liar's poker

This is a must read piece. It is a little long, but well worth it. It is penned by Michael Lewis, the guy who wrote "Liar's Poker", and frankly it is really excellent. I won't spoil the punch line, but you pretty much know where his story is going once he gets started. Even so, the whole article is still compelling.

There are some great one liners in the piece: I liked this one...

“The single greatest line I ever wrote as an analyst,” says Eisman, “was after Lomas said they were hedged.” He recited the line from memory: “ ‘The Lomas Financial Corp. is a perfectly hedged financial institution: It loses money in every conceivable interest-rate environment.’ I enjoyed writing that sentence more than any sentence I ever wrote.” A few months after he’d delivered that line in his report, Lomas Financial returned to bankruptcy.

HT: Newmark's Door.