Archive for the ‘bankruptcy’ Category

Detroit’s Auto Industry, Failure’s a Done Deal

November 18, 2008

“Nothing,” said a General Motors spokesman last week, “has changed relative to the GM board’s support for the GM management team during this historically difficult economic period for the U.S. auto industry.” Nothing? Not even the evaporation of almost all shareholder value?

By George F. Will
The Washington Post
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GM’s statement comes as the mendicant company is threatening to collapse and make a mess unless Washington, which has already voted $25 billion for GM, Ford and Chrysler, provides up to $50 billion more — the last subsidy until the next one. The statement uses the 11 words after “team” to suggest that the company’s parlous condition has been caused by events since mid-September. That is as ludicrous as the mantra that GM is “too big to fail.” It has failed; the question is what to do about that.

The answer? Do nothing that will delay bankrupt companies from filing for bankruptcy protection….

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http://www.washingtonpost.com/w
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/AR2008111703101.html?hpid=opi
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By Martin Feldstein
The Washington Post
Tuesday, November 18, 2008; Page A27

The Big Three U.S. automakers need more than an injection of $25 billion from the federal government. Because of their ongoing losses, they would burn through that money in less than a year and would soon be back for more.

General Motors, Ford and Chrysler can make excellent cars, but they cannot sell them at prices that are competitive with the prices of cars produced in the United States by Toyota and others or with the prices of cars imported from Europe and Asia. The basic reason is the labor costs imposed by union contracts.

The Big Three pay much higher wages than production workers are paid in the nonunion auto firms and in the general economy. And the health-care costs of current workers and retired union members are an enormous additional burden.

The simplest solution is to allow GM and the others to file for bankruptcy. If the companies file under Chapter 11, they would be able to continue producing cars, and the workforce would remain employed while the firms reorganized. The firms would also be able to get short-term credit under bankruptcy protection.

The bankruptcy court could require the unions to rewrite contracts, bringing wages down to levels that would allow the firms to compete and therefore to maintain employment. Scaling back employee and retiree health benefits would further improve price competitiveness and allow better cash wages. The firms’ bondholders and other creditors would have to take losses. Shareholders’ fate would depend on how firms responded to this restructuring.

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Some Say Let GM Fail; Others Want Bailout

November 13, 2008

Momentum is building in Washington for a rescue package for the auto industry to head off a possible bankruptcy filing by General Motors, which is rapidly running low on cash.

By Micheline Maynard
The New york Times

But not everyone agrees that a Chapter 11 filing by G.M. would be the disaster that many fear. Some experts note that while bankruptcy would be painful, it may be preferable to a government bailout that may only delay, at considerable cost, the wrenching but necessary steps G.M. needs to take to become a stronger, leaner company.

GM logo

Although G.M.’s labor contracts would be at risk of termination in a bankruptcy, setting up a potential confrontation with its unions, the company says its pension obligations are largely financed for its 479,000 retirees and their spouses.

Shareholders have already lost much of the equity that would disappear in a bankruptcy case. Shares of G.M. rose 16 cents Wednesday, to $3.08, but they have fallen 90.5 percent over the last 12 months, amid sharply lower auto sales and fears about G.M.’s future.

And as companies in industries like airlines, steel and retailing have shown, bankruptcy can offer a fresh start with a more competitive cost structure to preserve a future for the workers who remain.

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http://www.nytimes.com/2008/11/13/business/economy/
13bankruptcy.html?_r=1&hp=&adxnnl=1&oref=slogin&adxnnlx=122
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Asian stocks tumble on Bear Stearns news

March 17, 2008

NOTE:   Just four days after Bear Stearns Chief Executive Alan Schwartz assured Wall Street that his company was not in trouble, he was forced on Sunday to sell the investment bank to competitor JPMorgan Chase for a bargain-basement price of $2 a share, or $236.2 million. Just a few days ago Bear Stearns was valued at $30.00 a share.

Just one year ago, Bear Stearns was valued at $172.00 per share.

A man leaves a Bear Stearns' office in Hong Kong's Central ...
A man leaves a Bear Stearns’ office in Hong Kong’s Central district March 17, 2008. JPMorgan Chase & Co said on Sunday it would buy stricken rival Bear Stearns for just $2 a share in an all-stock deal that values the U.S. investment bank at the centre of the credit crisis at about $236 million.REUTERS/Victor Fraile (CHINA) 
 
A Financial analyst told Peace and Freedom on Monday that the Bear Stearns building in New York City is worth more than $240 million.

The sale on a Sunday was almost unprecedented.

A few hours later the Federal reserve approved a cut in its lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created another lending facility for big investment banks to secure short-term loans. In an example of the urgency of the situation, the Fed said the new lending facility will be available to big Wall Street firms on Monday.
Federal Reserve Chairman Ben Bernanke testifies before the House ... 
Federal Reserve Chairman Ben Bernanke testifies before the House Financial Services Committee about the latest measures to heal the U.S. economy, on Capitol Hill in Washington in this file photo from Wednesday, Feb. 27, 2008.
(AP Photo/J. Scott Applewhite)

This bold action Sunday evening is meant to provide cash to financially squeezed Wall Street investment houses, a fresh effort to prevent a spreading credit crisis from sinking the U.S. economy.
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By KELLY OLSEN, AP Business Writer

SEOUL, South Korea – Asian stocks plunged and the dollar sank Monday after JPMorgan Chase said it would buy troubled U.S. investment bank Bear Stearns, signaling to investors the depths of the credit crisis.
Bear Stearns headquarters

Bear Stearns headquarters

Oil prices hit a record in Asian trading and U.S. stock index futures were down sharply, suggesting Wall Street would open lower Monday after sinking Friday.

JPMorgan said Sunday it would acquire Bear Stearns for $236.2 million — or $2 a share — in a deal that represents a stunning collapse for one of the world’s largest and most venerable investment banks.

The buyout was aimed at averting a bankruptcy and a spreading crisis of confidence in the global financial system sparked by defaults in the U.S. subprime mortgage market.

But to Asian investors the move suggested that the credit woes are far from over and fanned worries that other big American banks are facing serious troubles.

“There is persistent credit uncertainty. Market players have been repeatedly let down which shows the subprime mortgage problems are so deep-rooted,” said Atsuji Ohara, global strategist of Shinko Securities in Tokyo.

“Just buying an investment bank does not solve the problem,” he said. “Markets are prodding (the U.S. government) to inject public funds.”

News of the acquisition of Bear Stearns stunned investors just before markets opened in Tokyo and Seoul. Both fell sharply before paring some losses in afternoon trading.

Japan‘s benchmark 225 index sank 3.7 percent to close at 11,787.51 points, its lowest in more than 2 1/2 years. In Seoul, the Korea Stock Price Index fell 1.6 percent to 1,574.44 after sagging as much as 3.9 percent.

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http://news.yahoo.com/s/ap/20080317/ap_on_bi_ge/
world_markets;_ylt=AuhKf.RjS0u30g
ZbUPzJYBOs0NUE

By John E. Carey
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This bold action Sunday evening is meant to provide cash to financially squeezed Wall Street investment houses, a fresh effort to prevent a spreading credit crisis from sinking the U.S. economy.

But the news sent the dollar tumbling to a record low against the euro as investors worried that there would be more casualties in the widening U.S. financial crisis.

And Asian stock markets reacted with concern and dismay.

A trader stands on the floor of the Philippine Stock Exchange which closed down 3.88 percent on Monday.
Photo by Darren Whiteside (Reuters).

Asian stocks plunged and the dollar sank Monday in early trading.
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Japan’s benchmark 225 index sank 3.7 percent to close at 11,787.51 points, its lowest in more than 2 1/2 years. In Seoul, the Korea Stock Price Index fell 1.6 percent to 1,574.44 after sagging as much as 3.9 percent.
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And there is a ripple effect across Asia.
US dollar and pound sterling banknotes. The pound has posted ... 

Take Vietnam for example.  The communist state has had the second strongest economy, after China, for the last two years.  But in December alone, inflation in Vietnam was at 50%.

This past week Vietnam announced a drastic draw down in exports.
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A year ago, Vietnam’s exports were rising at a rate of 29.2 percent.  Economic analysts said this year’s rise would exceed 32%.  But because of the weaker U.S. dollar and the slower world-wide economy, Vietnam’s exports in the first quarter would only grow 23.7 percent from a year earlier

In China, manufacturing and exports were way off for the first quarter.  But China said much of that was due to the staggering snowfall and cold this past winter.

“There is persistent credit uncertainty. Market players have been repeatedly let down which shows the subprime mortgage problems are so deep-rooted,” said Atsuji Ohara, global strategist of Shinko Securities in Tokyo.

“Just buying an investment bank does not solve the problem,” he said. “Markets are prodding (the U.S. government) to inject public funds.”
Bear Stearns's headquarters overlooks the flag for neighboring ... 
Bear Stearns’s headquarters overlooks the flag for neighboring JP Morgan Chase headquarters in New York on Friday, March 14, 2008. The Federal Reserve invoked a rarely used Depression-era procedure Friday to bolster troubled Bear Stearns Cos. and said it will provide even more help to combat a serious credit crisis. JPMorgan Chase is providing an undisclosed amount of secured funding to Bear for 28 days, backstopped by the Federal Reserve Bank of New York.
(AP Photo/Mark Lennihan)

There is, of course, good news.  There always is.

If you sell your gold jewelry right now you’ll make a record profit.  Reuters reports that gold prices shot up more than 3 percent Monday to fresh record highs as investors stepped up buying of the yellow metal, whose luster has increased due to the dollar’s weakness and deepening U.S. financial woes.

“This morning’s moves by the Fed clearly tell how serious the situation is in the United States. Gold is drawing a lot of safe-haven demand as you can’t buy stocks or currencies because of this volatility,” said Shuji Sugata, manager at Mitsubishi Corp Futures and Securities Ltd. Mr. Sugata wa quoted by Reuters.

Gold’s attraction as an alternative investment has helped boost the precious metal’s price by more than 20 percent this year alone, as it hit successive record highs along the way.

Gold was up 32% in 2007.
Gold bars are displayed at the headquarters of Mitsubishi Materials ...

Gold bars are displayed at the headquarters of Mitsubishi Materials Corporation in Tokyo, January 9, 2008. Gold prices shot up more than 3 percent on Monday to hit fresh record highs as investors stepped up buying of the yellow metal, whose luster has increased due to the dollar’s weakness and deepening U.S. financial trouble.(Toru Hanai/Reuters)