Tuesday, November 18, 2008

Bush Capitulates, Treasuries and GM

Here is Karl Denninger with some more good stuff and some good ideas for Obama.
Well well well.....

Nov. 17 (Bloomberg) -- The Bush administration will not seek the $350 billion remaining as part of the $700 billion financial-rescue package, leaving it to the next administration to request the funds, a person familiar with the matter said.

With weeks remaining in the Bush term, the Treasury Department will defer to President-elect Barack Obama to request the funds after he takes office on Jan. 20, the person said.

I guess getting caught lying (twice - see the previous Ticker) would raise the risk (quite a bit!) that Congress would say "stuff it!" to any "request" for the rest of that money, eh?

Funny, that.

Or was it the G20? Maybe someone stuck a birdie in Bush's ear and told him that the rest of the world wasn't going to keep buying our Treasuries if they didn't cut that crap out? Inquiring minds want to know what was said behind those closed doors!

Further, there's no reason to use the rest of the money anyway. The first part was a giveaway that should lead to (but probably won't) indictments, and there is simply no argument for spending the rest on this abortion of a bill at all.

I can think of a number of good places to spend that $350 billion, including holding it in reserve for the inevitable need to feed, shelter and clothe millions of Americans who are going to be homeless and hungry during The Depression that Paulson, Bush and Bernanke's actions over the last 18 months have essentially guaranteed!

I go back to what Obama should make the centerpieces of his policy on the economy:

  1. No more lying. No more off-balance-sheet anything. No more Level 3. No more shifting your losses onto the back of working Americans. You screwed up, you eat it. You try to do otherwise, you go to jail.
  2. America needs to adjust down its economic expectations to what we can afford to actually pay for from present earnings, both at a personal and government level. "If you don't have the money, you can't afford it." Period.
  3. Those who committed fraud need to go to jail. No matter who they are. End of discussion.
  4. No bailouts. Period. Unsupportable debt must be defaulted. Do it, get it out in the open, and get it over with. Yes, its going to suck, but its going to suck no matter what we do. We can either have it suck hard and short, or far worse and far longer. The more we screw around with this the worse it is going to be.
  5. We need to have a very serious discussion about health care and how we're going to ration (yes, we must) it when the bill is paid by society. Nobody wants to talk about this but we have to. It is unavoidable. There is not an unlimited amount of money available. Yes, this means that at some point society has to cut off the money, and no, your Medicare tax is not a license to spend unlimited amounts of someone else's money as you age - whether you'd like it to be that way or not.

We cannot afford to have a Treasury Market dislocation, and to avoid it we are going to have to demonstrate by clear example and policy that we will not try to issue trillions of debt in order to try to bail out speculators who made bad bets - both domestic and foreign, nor are we going to promise that which cannot be delivered. We also cannot bail out other nations who made bad bets (and investors in them) and we must make clear that this is not on our agenda now - and won't be in the future.

Oh, and by the way, let's add something else for Mr. Obama:

Do not even consider what is being floated in this article:

"TOKYO - Japanese economists, increasingly concerned that the United States might seek to pay its enormous and growing debt obligations in a weakened US dollar, are looking to the possibility of US Treasuries being issued in yen."

No no no NO NO NO NO NO!

This - sovereign debt denominated in other than your native currency - is how a nation winds up like Weimar Germany - or Argentina! We must not issue bonds denominated in foreign currency - period.

If foreigners do not want to buy our debt then we must cut back our government spending until they are willing to do so. But we must not, under any circumstances, issue Treasuries denominated in the currency of another nation. Down that road lies the ruin of our nation and monetary system - with certainty.

Now let's talk about the auto industry.

There is no fix for these firms in their present form.


We have been operating at a "run rate" for automobile sales of about 17 million units a year. The "no silly credit" number is closer to 11 million units.

Notice how you don't see the number of "older, junky" cars on the road you used to? That's the "chicken in every pot" that was silly-credit created.

The UAW has said they will not make any (more) concessions. Yet they have to make concessions, simply put, because the industry needs to shrink by 40% to be viable.

There is only one way out of this - Chapter 11. We must force these firms to downsize to that which can be sustained.


Yes, this will cost jobs.

It is going to cost jobs no matter what we do, because we have built an entire industry up around a totally unsustainable demand curve and that which cannot be sustained will not be sustained.

If we try to "bail them out" we are simply throwing money down a rathole. GM has a negative $60 billion net value right now. Toss 25 billion in, they still have a negative net value.

GM has been functionally bankrupt for more than a decade; this is not a new problem and both management and labor have refused to solve it for more than 10 years. There is absolutely no reason to believe they will solve it absent force, and the best "force" out there is the transparency that is forced upon a firm via the bankruptcy process.

Chapter 11 allows these firms to submit their labor agreements to the court to have them forcibly renegotiated (without favor to either side) and in addition it forces the pension problem into the PBGC where that is reduced as well.

I know the UAW doesn't like this but that's just too bad. There are only five gallons of water in a five gallon jug, no matter how much you'd like there to be eight. The demand at former levels will not return because it is dependent on a Ponzi Finance scheme where consumers roll over old balances into new loans, putting themselves instantly underwater by $5,000 or more before they even get in the driver's seat, and then they take a second $5,000 hit when they drive off the lot. That scheme has run to conclusion and cannot be pushed any further.

Second, we need to allow the diesels sold in Europe into the US. They can't be sold here due to the Greenie BS. That's stupid; hang the greenies up by their toenails. While we're at it, if the crash standards are good enough for Europe, they're good enough for the US. Now we can have small cars that get 60mpg with those diesel engines; a huge part of why we can't get there from here now is the crash standards in the US that prohibit the sale of vehicles available across the Atlantic. Why can't we build those here? Emissions and crash standards - period. We detune engines and then on top of it mandate hundreds of pounds of extra weight that make impossible the sort of fuel economy that is routinely achieved on European roads.

Its time to cut the crap and throw the Greenies and Weenies in the Love Canal.

Third, there are other automakers in the United States that do not need bailouts - several of them. Toyota, BMW and others have plants in this country that are building cars, and they'd doing ok. Yeah, their profits are down, but they're making money - and cars - with American workers.

If the UAW, GM, Ford and Chrysler can't compete with these other firms on our own soil in a down economy that's just too damn bad - its time for us to drive American-built Toyotas and tell GM management and the UAW to stick it in their ear!

'Nuff said.

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