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Posts Tagged ‘big three bailout’

The Coming Debt Crisis

SAN FRANCISCO (MarketWatch) — The financial crisis never really went away.

The debt mountain that brought down some of the world’s biggest banks and dragged the international financial system to the brink of disaster has simply shifted to governments. Now, it’s threatening countries around the globe and if left unchecked could rip the very fabric of Europe’s economic system and wreck economic recoveries in the U.S., China and Latin America.

The impact on markets has been severe. The euro has slumped more than 12% against the dollar since the sovereign debt crisis flared in southern Europe. Gold has marched to new highs as investors seek a safe haven and, perhaps most alarming, it is now more expensive to buy insurance against national default than it is to insure against corporate failure.

“The sovereign debt crisis spun out of control in the past week, and we see no easy way to resolve it,” said Madeline Schnapp, director of macroeconomic research at TrimTabs Investment Research.

Some investors and analysts are increasingly concerned that governments may be no more capable of repaying their debts than the banks and insurance companies they saved. And, they warn, if a major country comes close to default, it could trigger a financial meltdown that would eclipse the panic that followed the bankruptcy of Lehman Brothers in 2008.

“The problem of the western world is that we have too much debt,” said Daniel Arbess, who manages the Xerion investment strategy at Perella Weinberg Partners. “Rather than reducing our debt, we’ve been moving it from one balance sheet to another.”

“All we’re doing is shifting chairs on the deck of the Titanic,” he added.

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.

Obama Says We Cannot Let Big Three Fail

WASHINGTON — President Barack Obama scolded the domestic carmakers Tuesday night for “years of bad decision making,” but said “the nation that invented the automobile cannot walk away from it.”

In a speech to a joint session of Congress, the new president offered no details as to how he would help the industry restructure, and no promise to grant the billions of dollars in new aid that General Motors and Chrysler seek.

But it was his strongest commitment yet to preserving the companies that have defined Michigan’s economy and identity for a century.

“We are committed to the goal of a re-tooled, re-imagined auto industry that can compete and win,” he said. “Millions of jobs depend on it.”

Big Three Bailout is Near

DETROIT, Dec 18 (Reuters) – General Motors Corp and Chrysler LLC made significant progress late Thursday on a deal to secure emergency loans as part of a U.S. government aid package, people familiar with the talks said.

The package would demand sweeping restructuring at the troubled automakers in exchange for bridge loans to carry GM and Chrysler for several months, according to the sources.

Emergency federal loans for the two companies could be announced by the government as early as Friday, according to the sources who were not authorized to discuss the negotiations.

Auto Loans Could Come By Friday

WASHINGTON — Treasury Department officials are weighing the condition of the nation’s banks before they loan money to General Motors Corp. and Chrysler LLC, possibly by Friday.

Treasury Secretary Henry Paulson said automakers would soon get emergency loans but the department is still asking detailed questions of automakers before it allocates any money from the $700 billion Troubled Asset Relief Program, or TARP. GM and Chrysler are seeking up to $15 billion in emergency aid to keep them afloat through the beginning of next year.

President Bush has signaled he’ll provide money to the automakers and a decision is going to come soon.