Back when it wasn’t totally clear that GM would suck away every dollar unfortunate enough to even cross the expanding event horizon of fail that surrounded the company, you would have looked at us skeptically and slowly backed away (or jabbed us in the eye with a sharp stick). Still, that’s exactly what happened with the auto giant. But, as it happens, Obama doesn’t listen much to us, so, we were a little taken aback when he finally admitted the inevitable.
President Barack Obama believes a quick, negotiated bankruptcy is the most likely way for General Motors Corp. to restructure and become a competitive automaker, people familiar with the matter said.
GM’s $500 million of 7.7 percent notes due in 2016 tumbled 8.8 cents to 10.4 cents on the dollar as of 9:45 a.m. in New York, a record low, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 79.7 percent, or 77 percentage points more than similar- maturity Treasuries, Trace data show.
Obama Said to Find Bankruptcy Likely for GM, Chrysler [Bloomberg]
With President Barack Obama showing the ailing U.S. auto industry some tough love Monday, POLITICO wondered — what’s …
… in the driveways of White House aides? A lot of foreign cars, as it turns out.
Explore the depths of auto-psychoanalysis, after the jump.
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Wow. That whole “Bankruptcy one option of many” thing lasted about, what, three whole hours?
Updates to come. The situation is fluid.
The situation is fluid.
Obama (In his capacity as the First GM Human Resources Director): Wagoner is moving on to pursue other opportunities.
Obama (In his capacity as the First Managing Director, Investment Banking/Advisory): Chrysler needs a deal with Fiat.
Certain networks just attract conspiracy theorists and the theories that these theorists theoretically theorize with the same level of surreal magnetism that acts between big oil and Maxine Waters. That’s not to say, for instance, that Goldman Sachs isn’t totally responsible for spiking oil prices up to nearly $150 a barrel, unleashing law enforcement on Governor Spitzer at a particularly (in)opportune time, sinking Bear Stearns in retribution for that firm’s failure to pitch in to rescue LTCM, and arranging to demoralize Tim “The Safecracker” Geithner and Ben “The Beard” Bernanke by getting them to wear the same tie while attending recent Congressional hearings,* just that smoke and fire may or may not be totally related.
Goldman, at least, appears mostly to have an appearance of quiet (and loud) competence. It is not all that intellectually pressing to imagine Goldman at the center of a plan to irradiate a bunch of gold (see what we did there?) and thereby reduce available supply to spike the price and boost the value of the long positions it may or may not hold in the metal (“Gold-man Sachs-en-fin-ger” even sounds cool when Karaoked loudly to the theme song). But, it seems to us, that this sort of thing begins to collapse in on itself when AIG becomes the supposed criminal mastermind organization at the center of a plot complex enough to involve more than three laptop computers with disparate versions of Windows. So, when we see posts like the one Zero Hedge penned this weekend (“AIG Was Responsible For The Banks’ January & February Profitability”) you can color us skeptical- at least of the conspiracy laden parts. (Not that we do or do not love Zero Hedge, but still). We have no doubt that AIG poured an Imperial Asston of cash into a series of counter-parties in January and February. What, exactly, is mysterious about this?
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It strikes us that the PPIP plan requires a certain faith by the administration. Specifically, that balance sheets are not actually so underwater that even a 30% subsidy is a hollow gesture. What’s more, how sure is the administration that actual price discovery is something that any of these institutions actually want? Clearly, given the seller-financing leverage shell-game baked into the plan, the hope is that bids will buoy up. The problem, however, was perfectly highlighted on today’s FDIC call.
What, a banker effectively asked, if his participation were to “blow a hole in the capital?” Would capital requirements be waived or adjusted to keep the institution from running afoul? (Probably not). The meaning was somewhat veiled, but the broader implication was that actual price discovery would so impact the balance sheet and impact equity capital so negatively as to reveal this particular institution to be liver sausage.
What about bids or asks that resulted in no actual transaction? Would they, one voice trembled, constitute… (gulp, deep breath)… pricing data sufficient to trigger mark-to-market treatment? (Could be!)
As if on cue, another questioner wondered if the FDIC could force participation. (Probably not). You could almost feel the exhale of held breath.
Would participation exempt an institution from special examination? (Laughter). No exhale on this one.
Could it be that the biggest problem confronting the nation isn’t that Goldman Sachs might make money buying assets in the PPIP because Tim “The Safecracker” Geithner is in league with the devil? What if almost no one participated at all? One side of us thinks that we are reading too much into all this. Another thinks that if you can read between the lines you can almost hear the cracks widening.
Considering he has apparently transformed into a mortgage backed securities bull (in selective cases) it’s interesting to hear that John Paulson doesn’t seem interested in using cheap government leverage and guarantees to participate in the public-private plan to pick up legacy assets, as he told the Times. Why not? We actually have no idea, given Paulson’s soft spoken treatment of the subject, but it is great fun to speculate.
Perhaps the prospect of an ever-changing regulatory morass or retroactive witch-hunts turned off our hero? Or perhaps Paulson would simply prefer to cherry pick his own hit-list of prospective value plays, avoid the gamble of an auction and the spectacle of banks trying to game the system? Lots of buyer’s regret potential here. Leveraged buyer’s regret, actually. It is also not particularly hard to imagine that anything the banks want to sell might be less attractive than a few carefully picked distressed assets from better motivated sellers.
Is Paulson alone? We would like to find out. Dealbreaker is going to keep a running tally of who decides to opt out and in. So far:
Bridgewater: Considering it.
Citadel (according to sources): Considering it.
Let us know as you hear. Share: tips at dealbreaker dot com.
Top Hedge Fund Managers Do Well in a Down Year [The New York Times]
Krugman doesn’t think much of the latest Geithner plan. Surprise, surprise.
Notice that the government equity stake doesn’t matter — the calculation is the same whether private investors put up all or only part of the equity. It’s the loan that provides the subsidy.
And in this example it’s a large subsidy — 30 percent.
We are sort of puzzled, however, that he hasn’t fixated more on the effect the plan, and the inflated marks it could create, will have on related assets that are stuck in mark-to-market mode, and that this may be the Treasury’s real goal. After all, imagine the multiplier the Treasury is getting this way. Consider:
Agency and non-agency mortgage backed securities outstanding were about $7.5 trillion in late 2008. If a mere 10% of these are currently afflicted with the evils of mark-to-market accounting because they have become Level III assets (we can’t help but think of Schedule III narcotics whenever we see that), the Treasury is in a position here to buoy up marks on $750 billion in assets with the use of $50 billion in capital. (Assuming half the $100 billion PPIP program is used on the Securities rather than the Legacy Loan side of the problem and that the figure stays at $100 billion for the entire program). Plug in your own figure for the amount of subsidy you think the Fed’s leverage is putting on the marks and do your own calculation as to the effects.
We think the plan is just re-inflation (and we bet the Administration really wishes Krugman would shut up about this subsidy stuff) but at least it seems it might be effective re-inflation.
Geithner plan arithmetic [The New York Times]
Josh Gerstein over at Politico is not a very happy camper. We’re not huge Politico fans or anything, but Gerstein brings up some very interesting points about how badly Paul Volcker has been used by the present administration. To wit:
Six weeks after President Barack Obama appointed a blue-ribbon panel to help him dig America out of its economic crisis, the board has yet to hold an official public meeting.
The White House initially said that the 16-member Presidential Economic Recovery Advisory Board, headed by former Federal Reserve Chairman Paul Volcker, would meet “every few weeks.” Last month, a spokesperson told POLITICO the group would meet monthly. More recently, the White House said the high-powered board, set up to address what Obama has called the worst economic emergency since the Great Depression, would gather only about four times a year, with the next session due in “late spring.”
Gerstein goes on to wonder if some private meetings by segments of the Advisory Board aren’t gaming the Federal Advisory Committee Act, which requires public disclosure when such bodies meet.
It does seem a bit like Volcker was paraded about to inspire confidence, and then mushroomed once his appearance hit flat panel screens around the country enough times to have the desired effect.
Econ board has yet to meet publicly [Politico]
The Obama administration will call for increased oversight of executive pay at all banks, Wall Street firms and possibly other companies as part of a sweeping plan to overhaul financial regulation, government officials said.
The outlines of the plan are expected to be unveiled this week in preparation for President Obama’s first foreign summit meeting in early April.
Officials said the proposal would seek a broad new role for the Federal Reserve to oversee large companies, including major hedge funds, whose problems could pose risks to the entire financial system.
Administration Seeks Increase in Oversight of Executive Pay [The New York Times]
Related: After The Jump
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