Posts Tagged ‘bankruptcy’

Motor city is shrinking

4 June 2009

Neil Young saw it all coming in 1981, on his re*ac*tor album:

Everyone has an opinion on GM’s Chapter 11 bankruptcy filing this week, as well as the Obama Administration’s bailout/buyout of the carmaker.   Robert Reich gets it right, I think, in a Financial Times column, “General Motors holds a mirror up to America.” Reich asks what the goal of the bailout is, and rejects a few possible answers before concluding that it’s basically a cushion, designed to give GM’s workers and community some time to adjust to still-harder economic and psychological blows ahead.  People are queasy about the idea of bailouts, but they sense that they could be next and so do not protest too much.

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Too big to say no to

4 May 2009

Banking news of note this past week:

  • A bill to allow bankruptcy court judges to modify the terms of troubled mortgages, “cramming down” the amounts owed so as to avoid foreclosures and make these debts and troubled assets more manageable, failed in the Senate, getting just 45 votes.   En route to the bill’s failure, its chief sponsor, Sen. Dick Durbin (D-IL) said the banks “are still the most powerful lobby on Capitol Hill. And they frankly own the place.”  The NYT noted that the White House, despite backing the bill, did not go to bat for it in its final days.
  • The Treasury has delayed the release of its “stress tests” of the 19 largest banks, apparently because their credulous-looking certification that all 19 banks are currently solvent is not rosy enough for some of the banks, notably Citigroup.  Word is that Citi and Bank of America are contesting the results, even though the tests (1) appear to have used the banks’ own questionable data on the values of their toxic assets and (2) minimize the amount of hypothetical “stress” these banks might be subject to, by entertaining only fairly optimistic worst-case scenarios.  Various economists have said the tests were rigged in the banks’ favor, but evidently some banks are pushing to make them even more so.  Yves Smith offers the full bill of indictment here.

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Aieeee, AIG! (Part 2)

18 March 2009

Excellent-sounding suggestion about how to stop those abonimable AIG bonuses, from Bill Black, Tom Ferguson, Rob Johnson, and Walker Todd (The Huffington Post, 16 March 2009).  Even if it doesn’t succeed in stopping the bonuses, their suggestion to break off AIG’s toxic Financial Products Division (like a hedge fund attached to an insurance company, as Ben Bernanke described it) from AIG’s main business, and then treat the Financial Products Division like the bankrupt entity it is, is very appealing.

Dean Baker makes much the same point:  bankrupt companies don’t get to pay bonuses.

The NYT has another sensible editorial about AIG and who it’s been paying off with the $170 billion in bailouts it’s received so far.   Under the bailout, the company has been paying off many credit default swap (CDS) holders in full, which is a great way to burn through hundreds of billions of dollars with lightning speed.   And now we know that a good chunk of those billions went to CDS creditors like Goldman Sachs who, like AIG, are wards of the state.  (To be fair, a substantial but smaller amount of CDS payouts went to state governments.)  The only relief I can think of is Herb Stein’s old line:  the good thing about something that can’t go on indefinitely is that it won’t.

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