Chrysler Today...GM Tomorrow?

----------- As usual a good insight into the actual situation.

One item on the "phantom" bank profits. I did not notice any mention of "Fair Value Accounting" [FVA] as mandated by the FASB. Its one of the better "through the looking glass" provisions. Under FVA, a company is allowed to book as a profit, the fall in value their bonds may have on the premise they could now buy these back on the cheap. For example, if the GotRocks Bank Holding Company has 100 million dollars worth of bonds outstanding, and the market price for this issue falls to 50 cents on the dollar, the GotRocks Bank Holding Company can book as a 50 million dollar profit, the 50 million dollars the bond investors just lost.

These people belong in a rubber room, not the board room.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

I'll grant you that but it's simpler on the one hand because of existing highway infrustructure and America is transitioning from 5.5 million unemployed to 11 or twelve million. We also have nearly a third of our manyfacturing cpacity avaliable.

LOL Just anxious. and only because we need to get started. Striking while the iron is hot counts for a lot. A lot of useful capacity and infrastructure could quickly be brought on line transitionally and converted to permanent installation. That model has the advantage of using the transitional experience to perfect the finished product. We put a man on the moon in less than ten years but it never would have happened at all had someone not stepped up to the plate. The length of the project is less important than facing realities and deciding that now is the time and then funding the effort. Start where the cars are concentrated.

JC

Missing the point here.

Homes don't always appreciate. That was the flaw in people's thinking that the financial system into such a bind. As a result the system became structured in such a way that a decline in values was going to bring the whole thing down (if not for government intervention).

The Untied States is mired in the deepest cyclical contraction since at least World War II, and arguably the depression. Falling home prices led us into this crisis, and home prices are still falling. The financial crisis in

2008 has become the economic crisis in 2009, as more than 2 million jobs were lost in just the first quarter, with another 3 to 5 million likely before year end. With the unemployment rate headed over 10%, and maybe up to 12% next year, the default rate on every type of consumer credit - prime mortgages, Alt-A mortgages, Option Arm mortgages, sub-prime mortgages, home equity lines, credit cards, auto loans, student loans - is headed much higher. Commercial real estate values are plunging, and corporate default rates are set to soar. Although every bank will 'pass' the government's stress test, some banks will fail the real world stress test, and need billions more in capital. Sooner or later, the Treasury Department will likely have to go hat in hand asking for more money from Congress for some of the banks. For the first time since World War II, the global economy will contract in 2009, so there aren't many places to hide. In addition to the daunting cyclical problems challenging the economy, there are a number of significant secular issues that will make it even more difficult for a self sustaining recovery to develop in 2010. Between 1982 and 2007, the amount of Total debt grew from $1.60 to $3.53 for each $1.00 of GDP. This was made possible as the cost of money fell from 15% to 20% in 1982 to the generational lows of the last few years. As interest rates fell, consumers were able to take on more debt without their monthly payments increasing very much.

Household debt has increased from $.44 in 1982 to $.98 for each dollar of GDP in 2007. However, there is no more relief coming from lower rates, so consumers are going to have to pay for their debt from income. From the mid

1990's until 2007, most consumers had the luxury of believing that their homes and 401Ks would provide most of what they would need for their retirement. The saving rate fell from over 8% 15 years ago to near 0% in 2007. The last 18 months has convinced them they need to increase their savings. The saving rate has rebounded to near 4% in the last six months, which is one reason why the economy has been so weak. As debt levels increased over the last 25 years, GDP was boosted as consumer's bought cars, bigger homes, second homes, went on nice vacations, and basically lived the good life. However, since 1966, each dollar of additional debt has given the economy less of a boost. In 1966, $1 dollar of debt boosted GDP by $.93. But by 2007, $1 dollar of debt lifted GDP by less than $.20.

The message from these facts is fairly clear. Debt levels are high, and any increase in interest rates will impose a bigger burden on the economy and quickly stunt growth. Consumer debt is already so high and interest rates are so low that it will be difficult for consumers to add debt. This means economic growth will be far weaker than the debt induced growth of the last

25 years. As consumers increase their savings, GDP will be lowered by .70% for each 1% consumers increase their saving, since consumer spending represents almost 70% of GDP. In addition, the banking system remains crippled. Lending standards are high and are not coming down with the economy remaining weak. The need for additional capital will lower future lending by several trillion dollars, as banks work to repair their balance sheets and lower their leverage ratios from 30 to the low teens. The securitization markets provide more credit than the banking system, but they remain on life support. Credit availability will remain constrained well into 2010, which represents a headwind than will mute some of the lift from fiscal stimulus.

The diminishing boost given to GDP from each additional $1.00 of debt since

1966 strongly suggests that adding more debt will not return the economy to prosperity. I am reminded of a movie from the 1950's, 'The High and the Mighty'. It starred John Wayne and Robert Stack and was about an airline flight from Honolulu to San Francisco. During the flight, one of the engines fails, but they are past the point of no return, so they must try to make it to San Francisco. Over the last 60 years, the United States has used a combination of fiscal stimulus and monetary policy to soften each recession and spur the subsequent recovery, with a fair amount of apparent success. From 1982 until 2007, the U.S. only experienced two shallow recessions that each lasted just 8 months. This stretch of 25 years may be the best 25 years in our economic history. But much of this prosperity was bought with debt, as the ratio of debt to GDP rose from $1.60 to $3.50 for each $1.00 of GDP. Sometime in the last 25 years, we passed the point of no return.

JC

Way back when the mortgage thing first began to be visible I saw an interview of a woman in San Francisco on CNN (I believe). She said. "Well, I found out that what I owed the bank was more then what the house was selling for and that I could rent a place for less then my mortgage payments; so I walked away from it".

At the time I thought it was a lie.

Cheers,

Bruce in Bangkok (bruceinbangkokatgmaildotcom)

Just came across this gem. Every hear of a company with 1000:1 leverage?

---------- Bankruptcy Sleuths Find Cash in Trader Receipts for Lap Dancers By Seth Lubove

May 5 (Bloomberg) -- As Sentinel Management Group Inc. neared collapse in August 2007, piling up $950 million in losses, the Northbrook, Illinois-based investment firm wrote clients, saying it was yet another victim of the credit crunch -- an asset manager that grew too fast as it tried to ratchet up gains for customers.

The Securities and Exchange Commission didn?t buy the explanation of the 28-year-old company, which had about $1.4 billion under management, most of it for futures or commodities traders and hedge funds.

==>He also wondered why Sentinel had leveraged itself to the eyeballs; it had almost $3 billion in debt on a capital base of just $3 million.

You will need to train them as steelworkers, riggers, linemen, electrical engineers, electricians, millrights, etc to design, build, and install the required towers and lines, not to mention the new generating plants (which will need to be "clean and safe". (Nukes are the most effective solution - but not likely to be accepted.) Pushing through the locations, expropriating the land, doing the ecological studies etc. required to allow building either plants or transmission lines ALONE will take 2 decades - before "the shovelgoes in the ground".

Anyone who thinks the american electrical infrastructure can be updated/upgraded within 20 years is DEFINITELY dreaming.

Rural elecrification in the fifties / sixties was NOTHING compared to today's challenge. My dad did a lot of rural electrification work in Ontario.

California? Good luck!!!! The central eastern sea-board (Washington, Virginia/PA etc) will be just as big a challenge. In built-up areas, how do you install enhanced power transmission infastructure? You need to tear down to open a corridor - and in most cases it will not end up that slums that need to be addressed happen to be in the ideal path of a power corridor.

Make that "pssibly even DESPITE government intervention.

How much gas will your current car burn over the next 10 years if you can keep it on the road that long? How much will you spend on repairs?

Conservatively, you will likely burn $1000 of today's dollars worth of gas (at today's price) per year Replacing with a 360cc TGDI engined vehicle would reduce that to less than $500 per year. In 10 years, that is $5000 in gasoline alone - at TODAYS prices. In the next ten years, gasoline is likely to double, in price at the very least.

No reason a good, serviceable car could not be built and sold for $10,000 US if id did not need to be loaded up with all the extras and built to withstand the assault of the masses of "taks" on the road today..

If everybody replaced vehicles returning less than 28MPG (US) with more efficient AMERICAN BUILT cars the American economy would rebound significantly. American built does not HAVE to be American designed, or UAW built - but it would make the rebound quicker, deaper, and more sustained..

If everybody hangs on to what they are currently driving until it falls apart around them, there will be no American built vehicles available to replace them, and the economy will remain in the sewer for years (and possibly a decade or more)

I think the pen will end up being mightier than the sword here and there are plenty of qualified individuals aroung in the catagories you list.

We'll see, and I think we actually will. Interesting stuff here

and here.

Check out Lovin's vehicle - especially the carbon fiber stuff.

JC

A whole lot more than the pile of sticks sitting on it.

Land in populated areas with a thriving, or even healthy economy, will generally appreciate. Farm land in a healthy economy will always appreciate.

Unlike houses, cars, and other man-made items, they've stopped making land. In most populous areas, they've also stopped allowing outward expansion - making "urban" land limitted in supply.

This causes land to appreciate.

A reduced demand due to declining population, poor economic climate, and loss of manufacturing and other industry, will temorarily soften the market, even for land - but not as much as it softens the demand for what is built on the land.

During the meltdown of the early eighties my Motherinlaw was a real-estate broker in Windsor. MANY of the higher-end houses in the "tonier" areas of the city were abandoned to the banks for that exact reason. People who had their mortgages half paid off walked away from houses that would not sell for even half of what was left owing on them at the time! There were houses that had $300,000 mortgages when new, with $150,000 left owing on them that could not be sold for $75.000. When you are a "one horse town" and the horse is sick, things get pretty bad pretty quick.

Elliot Lake is another example. The mines closed down and you could buy a $300,000 mansion for $35,000 and the seller or the bank would say "Thank-tou, Thank-you, Thank-you!!!!.

Dozens of mill towns had the same problem when paper mills or lumber mills closed.

"Get a horse"

I may be premature (hope not) in saying this, but it seems like the critical point has passed and there's not going to be a catostrophic collapse.

Ya, not at this point.

It was a real possibility for awhile. That $700 billion was for a reason.

--------------- Probably correct, as house prices generally won't go to zero (although in some areas it is proving cheaper to demolish new, never occupied houses than comply with community minimum maintenance requirements).

People still must live somewhere, and there are real tangible assets involved such as land, cement, wood, etc.

Intangible assets such as bonds, stocks and derivatives (and unfortunately "paper" money) are another matter. Not only can these go to zero, in many cases the derivatives and other speculative "investments" such as commodity trades and derivatives can [and do] go seriously negative, so the losses are much greater than the investment.

The pension funds are in the news again in that these seem to have been tapped for every hair brained scheme that someone could dream up, as long as there was a little something in it for the trustees. Note that this is a nationwide problem not just NY.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

what?

Rubber checks from the democrats and nobody to cash them.

Well Obama will just have to find a way to tax you more for the cars you are driving, and take those cars from your garage and give them to someone less fortunate. Please post the coordinates for the garage where your extra capitalist cars are being kept comrade.