OT: GM/Chrysler alert

OT but of major importance if you work in the US OEM automotive sector.
Unka' George's analysis:
ResCap [Residential Capital] is a wholly owned subsidiary of GMAC
[General Motors Acceptance Corporation], which up until the credit implosion had been a major source of positive cash flow for GMC.
ResCap has just announced major layoffs of more than 5,000 people because of losses of more than 1 billion $US a quarter ==>for each of the last 7 quarters FOR THAT ONE DIVISION. Another well-known division of GMAC is Diatech Funding.
A major worry is the *HIGHLY* convoluted, arcane and incestuous relationships between/among the former GMC diversions such as Delphi. It is known that GMC remains responsible for very significant amounts of Delphi obligations including pensions, thus the creditors may be in the position of trying to guess under which shell among dozens (if not hundreds) the assets are hiding [assuming there are any]. It appears that at each stage the borrowed assets were *HIGHLY* "leveraged" so a small contraction at the extreme end may well amplify as the financial perturbation propagates back up the tree, as "leverage" works to amplify losses as well as gains. Thus the admitted losses of more than 1 billion per quarter may well be leveraged to 10, 20 or more billion $s per quarter.
Of particular concern is the timing of this announcement as it is only about 60 days to the US presidential election, and General Motors has historically been a Republican corporation [ e.g. SecDef "Engine Charlie" Wilson]. This indicates the situation may be far more critical than indicated.
On April 3rd 2006, GMC sold a half interest to Cerberus Capital Management, which is the hedge fund that owns Chrysler, but remains responsible for much of the debt obligations ["assets"] created before the sale, thus if this is indeed the sound of first domino falling, a GMAC failure may well take down *BOTH* GMC and Chrysler. Much of GMAC's automotive related "assets" appear to consist of the residual value of leases for large SUVs, and those 72 month 0 down, 0 APR loans for SUVs and pick-up trucks [falling "like a rock?].
http://www.cerberuscapital.com/news_press_release_040306.html
As taxpayers we are responsible for the GMAC bank through FDIC.
The effects of the huge amounts of GM related CDSs [credit default swaps] in the case of a default will be enormous, but unpredictable, as the amounts and counter-parties are largely unknown at this point.
===== Reuters article follows ==GMAC to cut 5,000 jobs at ResCap mortgage unit By Jonathan Stempel 2 hours, 19 minutes ago NEW YORK (Reuters) - GMAC LLC, the auto finance and mortgage company, plans to eliminate about 5,000 jobs at its Residential Capital LLC unit and close all 200 GMAC Mortgage retail offices to combat weak housing and credit markets. The job cuts will affect about 57 percent of ResCap's work force, leaving the mortgage unit with 3,800 employees, GMAC spokeswoman Gina Proia said.
Most of the cuts will take place this year.
GMAC said it will stop offering mortgages through its Homecomings Financial broker channel. It also will evaluate strategic options for GMAC Home Services, which helps companies relocate employees, and "non-core" mortgage servicing businesses. GMAC plans to keep offering mortgages directly "where there is a secondary market to sell the loans." {currently there is none -- Unka George} <snip> ===For the complete AP article see http://news.yahoo.com/s/nm/20080903/bs_nm/gmac_rescap_jobs_dc ;_ylt=Aj7WEJTiEaqvbL9D0MzBjdKyBhIF
Also see http://news.yahoo.com/s/ap/20080903/ap_on_bi_ge/gmac_financial_restructuring ;_ylt=AsJteooskBWVh9OR6syVPxuyBhIF
https://www.rescapholdings.com /
http://www.cerberuscapital.com/profiles/gmac.html
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On Sep 3, 8:38 pm, F. George McDuffee <gmcduf...@mcduffee- associates.us> wrote:

f-ing hell, the gm situation was looking bad enough, but the tie-in to the election is something I did not realize before. if obama wins, he'll try to work something out to save those jobs, and the republicans will lift up the rug to let gm sweep it's debts underneath-

ps thanx
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On Thu, 4 Sep 2008 06:29:27 -0700 (PDT), snipped-for-privacy@gmail.com wrote: <snip>

<snip> =======If it were only that simple.
It appears as sure as anything is in this world, short of death and taxes, that the "big three" are going down the tubes. The only question is when and how many other people/organizations (and how much of their money) are they going to take down the tubes with them.
The problem appears to be managerial/cultural/institutional in that the players change but the problems keep getting worse as their policies never seem to change [for the better/more rational]. The cultural part comes in because in that culture, what ever the boss says is right, and the actual numbers/projections/etc. are pencil whipped to "make it so." Thus there is no more possibility that GM, Ford, or Chrysler can be "saved" [or should be] than Enron.
The US taxpayers through an incredibly arcane, tangled and convoluted web are already on the hook for huge amounts of the big three debt obligations, ranging from pensions [through the PBGC], retiree medical care [currently being externalized by the car companies by a shift to medicare] (this is a several billion dollar bail-out *PER YEAR* *PER COMPANY* in itself), and massive amounts of loan guarantees and "insurance," for example on the deposits of the FDIC "insured" GMAC bank. http://remington-work.blogspot.com/2008/04/gmacs-bank-unit-has-problem.html When the cash value of the numerous state and local tax abatements, tax increment financing districts, EDC funds, sweetheart assessment deals/gentlemens' agreements, etc. etc. are included, the total amount of governmental "investment" [of tax payers money] may well already reach into the trillions, with no end in sight, and certainly no ROI for the taxpayer.
As an added twist [of the knife] it appears that the financial players that brought us this latest economic boom [as in explosion] are preparing for the so-called "good bank - bad bank" "solution," where they split their bankrupt organizations into several entities, with all the "good" assets in one entity, and all the debts/bad assets, in another with stock in all the new entities being distributed to the stockholders of the old shares.
The benefit is that when the "bad bank" bites the big one, their stock goes to zero, but stock in the "good bank" (with all the "real" assets)retains its value. Of course the creditors of the original corporation [i.e. in too many cases the taxpayers] take it in the shorts as the debts/obligations owed them are concentrated in the "bad bank" with no assets.
When an individual or small company does this as preparation for bankruptcy it is called "fraudulent conveyance" which is a felony and fraud on the court [jail time in addition to civil penalties]. When fortune 500 corporations do it its called "financial planning." Some organizations apparently warming up for this end-run include GMAC, Lehman Brothers, Freddie and Sally. Their theme song being the old country-western favorite "She got the gold mine, and I got the shaft." http://en.wikipedia.org/wiki/Fraudulent_conveyance http://www.caddenfuller.com/CM/Articles/Articles38.asp http://www.ultratrust.com/fraudulent-conveyance-civil-conspiracy.html
http://www.informationarbitrage.com/2008/08/lehman-followin.html http://blogs.wsj.com/deals/2008/09/02/lehman-brothers-and-a-brief-history-of-bad-banks/?mod=msn_money_ticker http://www.forbes.com/2008/04/01/ubs-fed-banking-biz-wall-cx_lm_0401fence2.html
Note that the international nature of many of these organizations, with numbers of their branches and divisions outside of US jurisdiction, greatly facilitate "fraudulent conveyance" through transfer pricing and other dodges.
Question to PV: can you still get the bulk discounts on KY jelly or Preperation-H?
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F. George McDuffee wrote:

End of January or early February. Maybe sooner but probably not. Senior bonus GM employees get their earned and unearned compensation on January tenth.
--

John R. Carroll
www.machiningsolution.com
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On Thu, 4 Sep 2008 21:18:04 -0400, "Ed Huntress"

=======We have a winner!!!!!
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F. George McDuffee wrote:

Told Ya'. LOL
September 6, 2008 U.S. Rescue Seen at Hand for 2 Mortgage Giants By STEPHEN LABATON and ANDREW ROSS SORKIN WASHINGTON - Senior officials from the Bush administration and the Federal Reserve on Friday called in top executives of Fannie Mae and Freddie Mac, the mortgage finance giants, and told them that the government was preparing to place the two companies under federal control, officials and company executives briefed on the discussions said.
The plan, which would place the companies into a conservatorship, was outlined in separate meetings with the chief executives at the office of the companies' new regulator. The executives were told that, under the plan, they and their boards would be replaced and shareholders would be virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.
It is not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in the nation's history.
The drastic effort follows the bailout this year of Bear Stearns, the investment bank, as government officials continue to grapple with how to stem the credit crisis and housing crisis that have hobbled the economy. With Bear Stearns, the government provided guarantees, and the bulk of its assets were transferred to JPMorgan Chase, leaving shareholders with a nominal amount.
Under a conservatorship, the common and preferred shares of Fannie and Freddie would be reduced to little or nothing, and any losses on mortgages they own or guarantee could be paid by taxpayers. Shareholders have already lost billions of dollars as the stocks have plunged more than 80 percent this year.
A conservatorship would operate much like a pre-packaged bankruptcy, similar to what smaller companies use to clean up their books and then emerge with stronger balance sheets. It would allow for uninterrupted operation of the companies, crucial players in the diminished mortgage market, where they are now responsible for nearly 70 percent of new loans.
The executives were told that the government had been planning to announce the decision as early as Sunday, before the Asian markets reopen, the officials said.
http://www.nytimes.com/2008/09/06/business/06fannie.html?_r=1&hp&oref=slogin
--

John R. Carroll
www.machiningsolution.com
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wrote:

Enron redux, assets certified by epsilon minus.
Total deregulation and no oversight will fix everything.
Best Regards Tom.
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"Marketeer" is an ironic term. I sort of was one, between editing stints. <g>
-- Ed Huntress
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There are free markets (mostly in textbooks) and there are Free Markets. The latter are political figments that actually are code for "my buddies get to screw the consumers any way they want, with a monopoly, if they prefer."
-- Ed Huntress
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Ed Huntress wrote:

So.. not just fuck you money, but fuck EVERYbody money...
--

Richard

(remove the X to email)
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A career in finance is attracting an awful lot of college students. It seems the idea of "fuck everybody" has caught on.
I was sitting at lunch with three of my son's college buddies the day before yesterday (my son is an econ major). Two of the three had taken internships with Wall Street firms over the summer. And these kids are from Virginia.
I cringed.
-- Ed Huntress
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Ed Huntress wrote:

http://www.bloomberg.com/apps/news?pid 601087&sid­XbHi9QRUgE&refer=worldwide

I'll bet you did. How many did they "blow up"?
--

John R. Carroll
www.machiningsolution.com
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http://www.bloomberg.com/apps/news?pid 601087&sid­XbHi9QRUgE&refer=worldwide

I don't think they got a chance. These sounded like the typical underclassman internships -- carry the mail, get the coffee, and we'll get you some columns of figures to add up. Meantime, you can bask in our magnificence for a few months and get something on your resume that may help you get a job sometime...
-- Ed Huntress
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So we can just blame everything on Virginia ever since it came out that Canada (those bastards!) isn't part of the USA.
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The point about Virginia is that these are not kids from the New York area who have family members who work in finance, the kind I knew when I was in high school in a well-off New York area commuter town. These are kids from the heartland -- although many of them are from wealthy families. It's a very selective university full of rich, white, smart southern kids and a few northerners.
The appeal of getting rich quick seems to be more widespread than ever these days.
-- Ed Huntress
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On Fri, 5 Sep 2008 16:21:31 -0400, "Ed Huntress"

===================FWIW -- It is apparent to me that we need to include one more required 1 semester college course called "Disasters -- a critical examination of failed nations, civilizations and cultures," possibly in place of the some of the traditional psych/soch/lit classes.
What you describe is not so much a problem with "the young people of today -- snort -- snort" but rather the institutions and organizations where they are serving their internships and to a degree their educational environment.
Internships offer very little in terms of real hands-on work experience, if only because companies tend to do things differently/ideocencratically at the entry level. Rather it is an opportunity to become known in the industry, and perhaps most importantly to learn the "correct" (that is common/accepted) mental attitudes and perceptions of the practitioners. This includes what to wear, how to speak, kinds of jokes to tell, and of course cultural/social attitudes. This establishes the [successful] intern as "one of us" and suitable for employment in our firm.
What should be of major concern is the companies' culture that is rubbing off on its interns, as these will be the managers and executives of tomorrow.
Investment and commercial banks, brokerages, etc. have served and continue to serve a vital role in the American/Western economy, by aiding in the efficient flow and disposition/allocation of financial capital, but are *NOT* an end in themselves, and perhaps more importantly do not *CREATE* wealth, as in value added, on any large scale.
These organizations unfortunately do have the ability to extract considerable wealth from the economy, at least for a short period, far beyond their real contributions. It is a fine line between a symbiotic relationship where both parties benefit, to a parasitic condition, where one party benefits at the expense of the other, and from there only a short step to the situation where the parasite over consumes the available resources, kills the host, and both die.
IIRC, your son is studying economics. I suggest that if at all possible he take at least one class in Political Econometrics [it may be out of department in PolSci or Mathematics] and start to gather data and make his own conclusions about the statistically likely results of proposed actions and activities. Perhaps the most important conclusion is that any proposition which cannot be stated in the form of a testable hypothesis is theology, albeit in the church of St. Smith, St. Ricardo or even Sts. Friedman & Hayak. As Will Rogers put it "It ain't what you don't know that hurts you, its what you know that just ain't so." Some background and links can be seen at http://mcduffee-associates.us/PE/Econometrics.htm
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On Sep 6, 11:35 am, F. George McDuffee <gmcduf...@mcduffee- associates.us> wrote:

most of those university classes are populated by parrots; repeating slogans and catchphrases for the sake of appearances and good grades is hardly the means to cure the current crisis- it was exactly those ideas that created the mess in the first place
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Just look at how Bush got elected twice with slogans and catchphrases and a resume of one failure after another.
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On Wed, 03 Sep 2008 20:38:34 -0500, F. George McDuffee

========An update (sorta)
As indicated in the original posting things must be far more serious than commonly assumed if GMAC is down-sizing this close to the election.
News items just in indicate that Freddie and Fannie are about to be "rescued" by the Federal government, not by bankruptcy but rather conservatorship, with direct federal control, and the existing management removed.
Again, given the proximity to the US elections, this appears to indicate a very serious and rapidly worsening situation. The debt obligations of both firms [c. 5 trillion dollars and over 1/2 the residential mortgages in the US] appear to be secure and not at any risk of loss, but the equity value of these companies, i.e. stock, both common and preferred, much of which is owned by US banks and other major domestic and international financial institutions, hedge funds, and *PENSION FUNDS* appears to be going to zero.
By itself, such a loss of equity will be problematic [to say the least] but because of the "magic" of leverage, the impact will be many times greater, and the book value must be written down at once, further stressing institutions that must have a minimum level of debt reserves/capital, such as banks.
Interesting how this type of news always comes out at the close of business on Friday. I wonder why they didn't do this one on the Labor Day weekend. Possibly something to do with the Republican National Convention. http://news.yahoo.com/s/ap/mortgage_giants_crisis ;_ylt=AnGI9k0wWTNSDas76UJhCHys0NUE http://online.wsj.com/article/SB122064650145404781.html?mod=hpp_us_whats_news http://www.bloomberg.com/apps/news?pid 601087&sid=ax0ft0S9hVYk&refer=worldwide
Also FDIC closed another bank [its Friday] http://news.yahoo.com/s/ap/20080906/ap_on_bi_ge/bank_closure_silver_state ;_ylt=Ar6h5uIaH4pECFKZnp09OZuyBhIF FWIW -- "Andrew K. McCain, a son of Republican presidential nominee John McCain, sat on the boards of Silver State Bank and of its parent, Silver State Bancorp, since February but resigned in July after five months citing "personal reasons," corporate filings with the Securities and Exchange Commission show. Andrew McCain also was a member of the bank's audit committee, responsible for oversight of the company's accounting.
The younger McCain, who is the chief financial officer of Hensley & Co., the beer distributorship of which Cindy McCain is chairwoman, is the Arizona senator's adopted son from his first marriage."
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Some information about Ford.
As many of you are aware Detroit is putting the arm on the taxpayers for funds [50 billion] to develop inexpensive high milage cars. Remember that companies have already taken tax deductions/depreciation for capitalized R&D.
Ford already has a Diesel powered vehicle that gets 65 MPG. for details click on http://www.businessweek.com/magazine/content/08_37/b4099060491065.htm?chan=rss_topStories_ssi_5
The problem being that while Ford can cast the engine blocks and transmission in Europe they can't do it here. Ford can machine the engines and transmissions in Europe but they can't do it here. Ford can stamp the body panels and assemble these in Europe, but they can't do it here. Ford can't afford to import the vehicles or components, so they must develop a car they can make here.
If I may suggest an alternative, fire the existing Ford Board of Directors and officers, and get some people in [possibly from Europe or Japan] that can build it here.
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