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Archive for March, 2009

Hard Line Against GM and Chrysler Puts Bailout Firms on Notice

The administration’s display of authority sent U.S. stocks tumbling and raised questions about whether the government would take similar steps against top executives at U.S. banks that are also receiving government bailout funds.

The administration told GM and Chrysler they had failed to come up with restructuring plans that justify the billions of dollars in additional taxpayer funds they are requesting. GM was ordered to devise a new plan, while Chrysler was instructed to reach a deal with Fiat in which the Italian carmaker would take a stake in Chrysler.

The government is currently stress-testing the nation’s 20 largest banks and “maybe three fail the test,” said an executive at a large bank receiving government funds. Obama “could remove the heads of those banks,” the executive said.

“He had to do something dramatic; he had plenty of cause on this one,” the executive said, adding that the outlook for GM was extremely grim.

Bankruptcy Leads Possible Plan for Struggling GM and Chrysler

WASHINGTON — The Obama’s administration’s leading plan to fix General Motors Corp. and Chrysler LLC would use bankruptcy filings to purge the ailing companies of their biggest problems, including bondholder debt and retiree health-care costs, according to people familiar with the matter.

The move would in essence split both companies into their “good” and “bad” components. The government would like to see the “good” GM to be a standalone company, according to an administration official. The “good” Chrysler would be sold to Fiat SpA, assuming that deal is completed, this person said.

GM and Chrysler have had bankruptcy attorneys devising plans for such a move in recent months.

GM looks increasingly like it will be forced into filing for bankruptcy protection, sometime in mid-to-late May, in a plan where the automaker breaks into two companies, the surviving entity a “new GM” that maintains key brands such as Chevy and Cadillac and some international units, say several people familiar with the situation.

A key ingredient is getting the UAW to agree to an entirely new labor contract, including major reductions in health-care benefits, according to several people involved in the matter. “That’s the No.1 wildcard here,” one of these people said Monday.

At Chrysler, bankruptcy would be used to force new labor contracts and rework debt deals with secured creditors. People working on Chrysler’s behalf say the deal is risky, because the company is still not convinced that it could survive even a short-term bankruptcy.

Obama Says Auto Industry Needs to do More

WASHINGTON (AP) — President Barack Obama says General Motors Corp., Chrysler LLC and all those with a stake in their survival need to take more hard steps to help the struggling automakers restructure for the future.

Obama, in an interview with CBS’ “Face the Nation” broadcast Sunday, said the companies must do more to receive additional financial aid from the government.

“They’re not there yet,” Obama said.

Details of the plan remained tightly held Sunday, but General Motors CEO Rick Wagoner was stepping down immediately as chairman and chief executive of the Detroit automaker, said a person with knowledge of the plans. The person declined to be identified because Wagoner’s plans had not been formally announced.

Wagoner’s resignation came as the president was set to announce a plan Monday for the government to provide more money in exchange for tough concessions from union workers, bondholders and others. Lawmakers were expected to get briefed on the plan Sunday evening.

“We think we can have a successful U.S. auto industry. But it’s got to be one that’s realistically designed to weather this storm and to emerge — at the other end — much more lean, mean, and competitive than it currently is,” Obama said.

MI Jobless Rate Climbs to 12%

Michigan posted its third straight month of painful, double-digit unemployment in February, with a nation-leading 12 percent of the state’s work force out of a job.

“This would be the highest rate the state’s had since January 1984, when the rate was 12.1 percent,” said Bruce Weaver, an economic analyst with the state.

Dana Johnson, chief economist for Comerica Bank, called the jobless figure released Wednesday “grim, quite simply.”

“We have the highest unemployment rate now in Michigan in 25 years, roughly 4 percentage points above the national average,” he said.

“It just documents what everybody knows: The local economy is going through a terribly challenging time. It’s just as tough as can be.”

The U.S. is to Blame for Much of the Mexican Border Drug War Violence

MEXICO CITY, March 25 (Reuters) – An “insatiable” appetite in the United States for illegal drugs is to blame for much of the violence ripping through Mexico, U.S. Secretary of State Hillary Clinton said on Wednesday.

Clinton acknowledged the U.S. role in Mexico’s vicious drug war as she arrived in Mexico for a two-day visit where she discussed U.S. plans to ramp up security on the border with President Felipe Calderon.

A surge in drug gang killings to 6,300 last year and fears the violence could seep over the border has put Mexico’s drug war high on President Barack Obama’s agenda, after years of Mexico feeling that Washington was neglecting a joint problem.

When the prohibition of a drug or “illegal plant”,  causes more harm to mankind than the drug or plant itself,  does prohibition make sense?

It didn’t seem to work very well for alcohol.

Superconducting Power Lines Are Coming to New York City Soon

OAK RIDGE, Tenn. – A high-tech power cable designed to prevent rolling blackouts caused by everything from a wayward squirrel to terrorists is being readied for New York City’s financial district.

Now undergoing final tests at the Oak Ridge National Laboratory, the superconductor cable to be installed in Manhattan next year could prove key to the smart, secure, super grid of the future.

10 times more power than copper
Chilled by liquid nitrogen to minus-321 degrees Fahrenheit, this cable becomes super-efficient when cool, carrying up to 10 times more electricity than a copper cable of the same diameter. It also has a unique, built-in surge suppressing capability.

Likened to fiber optic revolution
“The superconductors offer the promise that they can take much more electricity through a much smaller cable,” he said. “If it works, it truly is what fiber optics did for telecommunications.”

American Superconductor CEO Greg Yurek said there have been 15-20 superconductor cable projects of various kinds built around the world since 1997. Project Hydra will be the first with “fault limiter” capability to suppress surges — a kind of firewall for the grid.

“Our sense is we are kind of at the tipping point now, once we are in Manhattan,” Yurek said. “The eyes of the utility world are actually viewing this with great interest.”

Why Not Just Let AIG Go Under?

Last week’s outrage over big bonuses paid to executives at AIG has more than a few readers wondering: Why can’t we just let these big companies go out of business?

Roughly half of the $180 billion the government has given AIG has already flowed, indirectly, to the “counterparties” that bought what amounts to financial insurance policies. The list includes big banks, other financial institutions and governments.

The state of California, for example, collected $1 billion it invested in what’s called a Guaranteed Investment Agreement. That’s a kind of interest-bearing savings account where states and cities stash money they’ve raised from a bond offering until they need the money. More than $12 billion in federal bailout funds paid to AIG went to more than 20 states that invested money with the company.

Some $80 billion in AIG bailout money also went straight to banks and investment firms around the world that did business with AIG. It’s possible some of those banks might be able to absorb those losses. But given the current fragile state of the global banking system, it’s entirely possible that AIG’s failure could bring down one or more big banks.

Why not let those banks fail, too? The problem is that the world’s banks are interconnected in a kind of global river of money that we all rely on to keep the economy moving. If too many banks fail, that river starts to dry up. With the economy in a steep decline, we need money flowing through the system faster — not slower.

AIG’s Financial Products division wasn’t regulated. After Congress passed a law in 2000 deregulating the kind of paper bets AIG was making, the company was free to write as much of this “insurance” as it wanted without demonstrating it could cover any and all bets that went bad. By some estimates, the company made about $500 billion in paper bets with little or nothing to back them up.

Taking back bonuses paid to the people who made the mess does little to fix the underlying problem. Some of the members of Congress now expressing the loudest outrage were among those who approved the rules that let AIG get into the casino business in the first place.

Then again, maybe the failure of Congress to act sooner isn’t all that surprising. AIG was one of the biggest contributors to key members of Congress in charge of making the rules. The company, like the rest of the financial services industry, got some of the best laws money can buy.