Automotive Bailout

magerette said:

I hear there are some big scandals on The Street, today bn. this one about a Wall Street big name, Bernard Madoff:
Top Trader Accused of defrauding Clients
I can understand a little skimming, but $50 billion? That's government level corruption.
There's also something about some hedge-fund guy defrauding clients for $300 million or something.

You don't have to tell me you personally deplore it, I know you do, I'm just wondering if this is the tip of the iceberg, or just a few very ugly exceptions to the hard-working model you're talking about above.

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I saw the headline but haven't had a chance to read it. I don't think you'll see to much of this, mainly because despite the lack of regulation in terms of CDS and such, everyone got their hands slapped pretty good after the dot.com bust (the porous Chinese walls and such) so I think there was a lot more attention paid fraud by the big firms.

It certainly disconcerting that a ponzi scheme could grow this large, but it's pretty hard to pull off. About once a year you see a story about some fund that was essentially a ponzi scheme going belly-up, though obviously they are generally much smaller ($100-500MM usually).

The most typical fraud you see in funds is that they pay bonuses or dividends out on gains that don't include certain unrealized losses. Then when they finally have to realize the losses, they end up insolvent. It sucks, but the secretive, unregulated nature of hedge funds allows this to happen much easier than in other investment vehicles.

You have to realize Wall Street is getting a very bad rep with America right now. This sucks for honest traders and those who haven't exploited every possible loophole for personal profit--but I'm wondering if they (among which I include you) are the exceptions?

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Our rep is MUD. On a good day right now!

Any industry that is centered on the root of all evil is going to attract more than the normal amount of hucksters. When I was a financial adviser, I was abhorred by some of the practices I saw by other FA's, even among my own firm, and our firm had a good reputation.

I think most in the industry are honest, but it is a ruthless business. The competition in trading is absolutely insane. I've seen trades put on simply to back another firm into a corner so you exploit them on the settle. If you win, you win big. If you lose, you lose big. More than any other industry I have ever seen, it is a competitive game, and the competitive attitude makes cheating a little look better and better each day, especially if you are on a losing slide. The smart guys don't do it, as once you go down that road, you probably aren't coming back, and if you get busted, you are DONE.

Sure you hear about guys like Michael Milken that get sweet book deals or teaching jobs, but they are the vast minority. Most guys that get caught are looking for a new industry to work in. I've literally seen guys go from being a high rolling trader to working on a fishing boat.

Personally, I think the industry needs more certification for it's employees at every level. I'm a CFA charterholder and with as much work as it took to get that damn thing, there is no way I am risking it to increase my take by a percent or two. Even if I didn't get sent to jail or fired, for the slightest misstep, they'll yank my charter, sometime for a year, sometime permanent.

While the CFA isn't for everyone, the series 7 (and other licensing) is a joke and so is FINRA's enforcement of it. I worked with guys as an FA that had literally 5 pages or more of complaints (one to two lines each) on their U-4 (your FINRA registration document), yet none of them ever lost their license.

You don't even have to be licensed for certain types of trading. It's insane really. We need a higher barrier to entry. I'm not a huge fan of lawyers, but at least with the bar association, they aren't afraid to kick someone out if they get too far out of line, and they don't wait for the legal charges to do it.

Thanks for the feedback. And I appreciate anything that can give Blagojevitch some competition in the headlines. It's a pleasant change, so to speak, to see some corruption in the private sector while waiting for Governor Kickback to make his way to the crowbar hotel.

Thursday's Senate deal fell apart over proposed wage concessions by the UAW, including the date at which the Detroit autoworkers' would accept pay parity with workers at foreign-owned U.S. auto plants.

While the autoworkers blamed Republicans for setting "an arbitrary deadline" for parity, some analysts said the UAW had revealed it was not ready for the wrenching changes any auto bailout and restructuring program would require.

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The unreasonable labour unions, I think they are one of the substantial reasons why U.S. auto industry faces imminent bankruptcy, one of the reasons why any bailout, no matter how high, will not help eventually and only postpone inevitable death which will become much dearer then... money flushed down the toilet.

http://www.reuters.com/article/politicsNews/idUSTRE4B50CL20081212

Despite all this, if UAW becomes reasonable, the US auto industry can survive eventually, but not as private owned companies.... I wouldn't want to be in a skin of Big 3 Auto managers. They have two choices actually: either file for bankruptcy, or face nationalization.

magerette said:

Thanks for the feedback. And I appreciate anything that can give Blagojevitch some competition in the headlines. It's a pleasant change, so to speak, to see some corruption in the private sector while waiting for Governor Kickback to make his way to the crowbar hotel.

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Ask not what your country can do for you!

shadow_hk said:

The unreasonable labour unions, I think they are one of the substantial reasons why U.S. auto industry faces imminent bankruptcy, one of the reasons why any bailout, no matter how high, will not help eventually and only postpone inevitable death which will become much dearer then... money flushed down the toilet.

http://www.reuters.com/article/politicsNews/idUSTRE4B50CL20081212

Despite all this, if UAW becomes reasonable, the US auto industry can survive eventually, but not as private owned companies.... I wouldn't want to be in a skin of Big 3 Auto managers. They have two choices actually: either file for bankruptcy, or face nationalization.

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The biggest problem with the unions, shockingly enough, isn't new workers. New workers are hired generally will wages and benefits that are reasonably consistent with foreign owned plants in non-union states. And to give them credit, that is a massive concession compared to the crap other unions have pulled in recent years (like the Transit Workers Union going on strike in 2005 in NYC because they felt that since they'd never had to pay for their own health insurance before, a request to pay 1% of their salary towards it was completely unreasonable. Their leaders specifically said that it was not acceptable that any future worker get even one cent less of wages and benefits than current workers under any circumstance. Completely unreasonable).

The problem is that the UAW has been so against modifying compensation and benefits structures of existing and retired workers. When you plan a pension based on a guy living 5-10 years after retirement and he ends up living 30, you're screwed. Add in that they promised health benefits and they have the lovely combination of longer time horizon combined with sky rocketing healthcare costs and there is simply nothing the Big3 can do to keep up with those expenses.

I think they can survive as privately owned companies if they are allowed to shed enough of their obligations.

blatantninja said:

The problem is that the UAW has been so against modifying compensation and benefits structures of existing and retired workers. When you plan a pension based on a guy living 5-10 years after retirement and he ends up living 30, you're screwed. Add in that they promised health benefits and they have the lovely combination of longer time horizon combined with sky rocketing healthcare costs and there is simply nothing the Big3 can do to keep up with those expenses.

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I understand and it shows how different health-care, pension and social system you have when compared to the system here in Europe (or even in my country) while both systems have its advantages and disadvantages.

Maybe it would be interesting to start a new thread dealing comparatively with this issue.

For example we have a system of obligatory health-care insurance in Czech Rep. for every Czech citizen and an employer pays a part of this obligatory insurance. A burden of health-care, pension and other social issues is generally on state (and taxpayers whose money is then "redistributed"). It is not common (or even existent) that the companies here had its own pension funds for example (none the less the employment costs are usually still the largest expense for employers) but a man as a citizen (I don't know if foreigners or for example EU citizens are allowed to participate too) has a right to give his own money to supplementary pension funds (which are owned by banks) too but their are very limited in their investments by legislation (so their gains are now less than inflation..).

Those supplementary pension funds I was talking about are with

shadow_hk wrote:

Maybe it would be interesting to start a new thread dealing comparatively with this issue.

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Please feel free, but we have discussed it here in this thread pretty exhaustively if you're interested in the views of many forum members. Nonetheless, no reason not to discuss it some more--hopefully we'll have some actual progress to report on reforming health care over here in the next four years.

http://www.freep.com/article/20081213/COL01/81213055/

Mitch Albom is an excellent writer. While he's overlooking the basic flaw in the original bailout ($15B just delays the inevitable if labor costs don't get fixed), he raises some very good points. The bankers definitely got a much sweeter deal.

I liked that one, dte--quite a rabble-rouser, especially:

When was the last time a U.S. senator resigned over a failed policy?

Yet you want to fire Rick Wagoner?

Who are you people?

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This is the point that really chaps me; this handful of politicians has tremendous power with almost no accountability. Even Paulsen and Bernanke will face a day of reckoning when the administration changes, but the southern repubs he lists (who are pretty plainly against the bailout for the Big 3 mostly to increase their own facetime on the tube and promote jolly relations with their state's vested interests in the foreign auto biz) can get away with standing on a soapbox and acting all noble, while to the average guy, the blame falls on the whole Congress.

Not that Congress is blameless, but a lot of them really tried to put something together that would patch things through and force the auto makers to do at least some restructuring and compromising at the same time-whereas, as we've seen with the rest of the TARP fiasco, that program's sackful of dollars gets doled out with absolutely no strings--if Bush even gets it together to actually do any doling, what with his busy schedule lighting Christmas trees, pardoning turkeys, having shoe-confetti party 'victory' laps in Iraq and polishing up his legacy and all.

Will you guys please just do something?--Besides throw spitballs at each other, that is.

Because matter seems so complicated majority of people still don't realise that the whole subprime fiasco was just one huge con game and that those involved should be send to prison and not bailed out.
Take a shitfull of lead (subprime mortgages), make it into bars (Securitization), paint them gold ( name them Mortgage Backed Security or Collateralized Debt Obligation), get autenticity cetificate (credit enchancement to AAA level) and sell them as pure gold bars. Bernie Madoff - eat your heart out!

http://www.nytimes.com/2008/12/17/opinion/17friedman.html?em

Rumor in the industry is that Chrysler will be filing Chapter 7 (not 11!) on Monday. This week, they went so far as to cancel their electronic payments and accounts payable isn't talking to anyone (phone, email, smoke signals, nuttin). Supposedly, a significant portion of their Mahogany Row has turned in their 2 weeks, too. Looks like the political game of chicken is getting serious.

Pity, they have some of the best cars.

That was Daimler-Chrysler.

http://news.yahoo.com/s/ap/20081218/ap_on_bi_ge/meltdown_autos_137

The stakes get higher...

I have to say I'm losing patience with the car manufacturers & unions. In the circumstances I'd have thought they'd be swallowing pretty much every condition suggested for any bailout, can't find the article but one mentioned that a stumbling block was the refusal to bring their workers wages in line with those of other workers in america working at japanese car manufacturer factories.

In the circumstances I don't think they're in a position to demand higher pay than their peers.

Never underestimate the stupidity of the mob mentality. These UAW people are the same types as the ones that picketed outside Eastern Airlines in the 80's and cheered when the company had to file for bankruptcy. They chanted "We broke the company!", completely oblivious to the fact that were now permanently unemployed.

The only good news that will come from a Chrysler filing (which if it happens, will be Chap 7 simply because they have no option for Chap 11 without bankruptcy financing that no one will extend) is that it MIGHT, and it's a big MIGHT, force the UAW to make large concessions to Ford and GM.

blatantninja said:

Never underestimate the stupidity of the mob mentality. These UAW people are the same types as the ones that picketed outside Eastern Airlines in the 80's and cheered when the company had to file for bankruptcy. They chanted "We broke the company!", completely oblivious to the fact that were now permanently unemployed.

The only good news that will come from a Chrysler filing (which if it happens, will be Chap 7 simply because they have no option for Chap 11 without bankruptcy financing that no one will extend) is that it MIGHT, and it's a big MIGHT, force the UAW to make large concessions to Ford and GM.

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At this rate if it doesn't then I think bankruptcy's the only thing for it - put all three into receivership and get some new management and financing in to only recruit non-union workers.

EDIT - It's amazing that largely unskilled non-service orientated workers haven't yet realised that they no longer have any real power. The threat of withholding their labour just isn't effective now that there's a billion chinese who'll work twice as hard for half the money and be grateful for it, and that's only if they can't all be replaced by machines anyway.

Benedict said:

I have to say I'm losing patience with the car manufacturers & unions. In the circumstances I'd have thought they'd be swallowing pretty much every condition suggested for any bailout, can't find the article but one mentioned that a stumbling block was the refusal to bring their workers wages in line with those of other workers in america working at japanese car manufacturer factories.

In the circumstances I don't think they're in a position to demand higher pay than their peers.

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The UAW was trying to run a bit of a scam, IMO. Congressional republicans demanded that the UAW take the cuts in the next 6 months, and then scuttled the bailout when the UAW balked. The union wanted to delay the paycut until the current labor contract ran out (3 years from now). My guess is that they were banking on the economy being back on track by then, meaning the demanded cuts would probably not be as deep (if not completely forgotten by union-friendly democrats), and also giving some teeth to a strike threat if the cuts were offered as currently planned.

dteowner said:

The UAW was trying to run a bit of a scam, IMO. Congressional republicans demanded that the UAW take the cuts in the next 6 months, and then scuttled the bailout when the UAW balked. The union wanted to delay the paycut until the current labor contract ran out (3 years from now). My guess is that they were banking on the economy being back on track by then, meaning the demanded cuts would probably not be as deep (if not completely forgotten by union-friendly democrats), and also giving some teeth to a strike threat if the cuts were offered as currently planned.

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Foolish move. I'm all for some form of government intervention to throw a lifeline to suitably chastened industries and workforces to avoid excessive economic fallout, but they've got to suck up the terms offered even if they're harsh, they're still a heck of a lot better than unemployment in a market like this (especially with the local dominance of auto jobs).