Detroit and Bankruptcy: Like Peanut Butter and Jelly?

Jeeves? I'm going for a spin.

As GM, Ford and Chrysler continued their vaudevillian act in two parts up on Capital Hill today, the likelihood that the largest of the three automakers (GM) will be forced to restructure through bankruptcy continues to grow.  Both GM and Ford (F) touched 52 week lows today ($2.52 and $1.46, respectively), with their market capitalizations hitting $1.6 billion and $3.5 billion.  Wow. GM’s market cap is $1.6 billion.

At this stage, holding equity in GM is a risky proposition, but then again, I think the company needs to reorganize and management’s consistency in failing to find fault with themselves points to bankruptcy as being the most likely path to change.

This is the quote from the NYT.com piece on day 1 of the Big Three leaders’ testimony before the Senate that says so little but yet so much (emphasis added):

The cause of their misfortunes was not management mistakes, they said, but the weak economy and the inability of consumers to obtain credit to buy cars.

Really?  It’s the weak economy and lack of consumer credit that has brought the American auto industry’s leadership to my fair city, hats in hands, Armani-clad knees tastefully genuflected before Senate banking committee?  Poor strategic management decisions have played no part in creating the mess that is now the American auto industry?  Really?  Yeah, uhmm.  No, I don’t think so.  Furthermore, by their logic, it would make more sense to bail out the car buyer instead of the car maker if the only problem is a lack of consumer credit.

Sorry gentlemen three of Detroit, but you have failed to make a compelling case to the American taxpayer (many of us struggling with fear, doubt, uncertainty and our own goddamn problems).  Why should we collectively put ourselves $50 billion deeper in the hole just so you can prolong this tragedy?

Next!

Mortgages to Be Restructured Thanks to Hambric’s Curve (?)

Hardwick Hall, More Glass than Wall

I don’t want to brag too much, but I think someone important at JPMorgan Chase may have read one or two of my recent posts and decided the shame was too great to bear. Posted on this week-end’s WSJ.com was a report that JPMorgan Chase launched a plan that would modify the terms of some $70 billion in mortgages. What they’re proposing to do involves reworking the mortgages with lower interest rates and lower principal amounts “or other more-affordable terms.”  They are basically going to throw out the current mortgages and replace them with ones more favorable to borrowers in terms of interest rates, outstanding principal or “other more-affordable terms.”  What’s the word I’m looking for?  Begins with an ‘h’?  Huge!

This is huge! (That’s the word!)  All that ranting I did about the consumer’s need for an equity infusion, how the bailout was not for Americans and how what we really need was something closer to ‘trickle-up’ economics, not more b.s. trickle-down, corporate welfare economics. The power of the Curve! Yeah!  Feel it!

Now, some would say that the bank was probably putting this together before I joined finger tips to keyboard and unleashed the Curve’s power to bring the shame, but they’re just haters. So forget them.

This sets the precedent, raises the bar, if you will, for the other banks that are feeding at the Treasury’s gilded trough.

Now is the Time to Put Venture Capital and Private Equity Funds to Work

AltAssets reports on the musings of Bruno Raschle, CEO of the private equity firm Adveq. Bruno makes a few points that bear repeating (because I agree with him!) with respect to the current economic environment and the private equity/venture capital industry going forward.

The up shot of our shared view is that what has happened, and continues to happen, will impact company valuations through what I expect to be an even deeper contraction (or correction, according to Bruno) of EBITDA valuation multiples, a reduction in corporate earnings due to lower GDP growth, and an increase in liquidity constraints, especially for those dependent on credit.  What does that environment scream to you if you’re an investor?  buy! Buy! BUY!  Under these conditions there is likely to be a wider selection of potential portfolio companies to choose from, greater power on in-going valuation for the buyer, and greater availability of skilled human capital writ large.  Now is the time to start making deals.

GMAC Wants Some Government Cheese!

Donnez-moi du brie, Sammy. Oh la la!

The Wall Street Journal reports that GMAC, the lender co-owned by General Motors and private equity group Cerberus Capital Management, has been pushing the Federal Reserve to allow the finance company to become a bank holding company. Now you’re probably thinking: “Why the fuck am I even reading this? And what’s up with the picture of brie? Hambric’s Curve has gone round the bend.” First of all, screw you. My mental state is ‘Phasers Set to Stun, Dano’, and, um. Uh. Oh yea. The reason they want to transmogrify into a bank holding company is so that can have access to chunk of Uncle Sam’s $700 billion cheese. That’s right, they want some bailout welfare.  At this time, it is not known if they also requested a dozen cases of Cristal champagne to wash it all down.

There are several ways this can be interpreted, but I’m just going to go ahead and look at it as equivalent to the mythical welfare queen popping out babies to get more government handouts. GMAC wants to become the latest form of welfare queen! Only this isn’t a myth and the cheese ain’t cheap. To wit, GMAC would join such venerable institutions as Goldman Sachs and Morgan Stanley who have taken the step of changing stripes and subjecting themselves to deeper regulatory probing in exchange for money (in the form of a goodish size slice of $700 billion).

On the one hand, the higher regulatory oversight would add a degree of consumer confidence with respect to the institution, down the road any way, and provide additional financial support to the needy in these lean times. On the other hand, they probably have a lot of subprime debt (what the ‘pros’ would term “financial STDs”) that they want to pass on to our Uncle Sam in exchange for some $$$ and end up making him all itchy down there.

The Consumer Needs an Equity Infusion. Stat!

Despite all the talk comparing our current economic situation to the Great Depression, the FT.com’s Krishna Guha hits a bit closer to home when he writes that the US is likely to plunge “…into what many experts believe will be its worst recession since 1982.”  Today, this comparison carries more weight psychologically because more people can relate to 1982 than they can to 1932.

The impact of the current credit market collapse on the banking and finance industries has been unexpectedly wide-spread and deep-rooted, no doubt, presenting our leaders with the opportunity to transfer more than $700 billion from the public coffers to the private sector.  I say “more than” because there has yet to be a government program with an estimated cost in the “B” billions that has not just come in over budget, but in some cases astronomically so.  But that’s a different discussion.  The one point that has not been totally absent but nonetheless rather down-played from the high-minded talks about how best to spend US Treasury funds is the supreme importance of the consumer in all of this.  You and me (and Joe the Plumber, if he ever gets his shit together and buys that damn business.  In today’s economy, he defs has the upper hand in negotiations with respect to an in-going valuation.)

The US economy is driven by consumer consumption.  How much of that $700 billion+ is being ear-marked for the consumer’s pocket?  Not enough, apparently, in light of falling consumer confidence coupled with rising unemployment that has reduced the consumer’s propensity to spend.  As reported in Guha’s article, the unemployment rate is expected by some to jump from its 6.1% level to somewhere north of 8%.  “Oh shi!#.”  In other words, people are thinking more about how to pay their bills and make sure there is enough cash set aside in the much ignored Emergency Fund.  So despite the credible stories of tighter consumer credit lending standards (have the banks done too little too late?), I’m also curious about the metrics out there on the rate of consumer demand for such products.  My logic tells me that the tighter lending standards were accompanied (if not preceded) by reduced demand for consumer loans in the face of rising uncertainty.

So if the credit markets do “thaw” and the lending spigots reopen, it is the institutional side of the market that will be back in play, but the consumer side is likely to take longer to come back to life.  More important than the the consumer’s access to credit is the state of the consumer’s balance sheet, which is in pretty bad shape following the substantial decline in its equity account.  In other words, the level of liabilities relative to equity has shot up because of the decline in value of real estate values (the major piece of equity on the balance sheet).  That’s not good, to be technical about it.

For example, before the economy swan-dived into the shitter, let’s say I owed $400,000 on my mortgage (my liabilities), but the market value of the my house (my equity) was $650,000 and my stock portfolio was valued at another $250,000 so I was feeling rather flush.  I might have even considered taking out $100K in equity to buy stuff (Hello MacBook Pro!).  But now, I still owe $400 large, but the market value of the property has declined to $450,000 and my equity portfolio is now worth a $1.49, so now I’m feeling like I just lost a shitload of money and not really in the mood to spend (It’s a Dell, Doooode).  In order to boost my confidence and get me back to spending, I’m gonna need my liabilities to decline, my equity to increase or some combination of the two.  And in all honesty, at this point, I’d prefer that increase to be more liquid (like stocks) than not (property value).  [This last point is for another post on the volitility of the equity markets - any gain in stocks' value will be quickly followed by people looking to cash out, (sell) which will then push down equity values.  What a fucking see saw.]

Hobo Soup, monsieur?

Neocon’s Explanation for the Great Hobotization of America: Jimmy Carter and the Blacks, of course!

Made in China

In what is sure to turn into one of America’s greatest “D’Oh!” moments, the neocon men and women now claim to have the answer to America’s latest economic problem. And really, what are the chances that this explanation will be anywhere near as fucked up, or even more so, than the ones used to justify the adoption of the more onerous bits of the Patriot Act and the launching of a war against Iraq in response to Al Quaeda’s attack against America. I mean, yeah, it could be, but then, maybe not. Let’s see.

Well, the latest explanation for this mess is the CRA – the Community Reinvestment Act of 1977, which
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“Wait. What? 19fucking77!?”
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which was “intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations,” as stated on Huffington Post.

So what happened is that all these libruls and ‘teh Blacks’ decided to wait for America’s mortgage industry to advance its financial engineering capabilities to facilitate the development of a wide-ranging derivatives market serving the origination and tranching of sub-prime debt, with the help of those librul institutions Fannie Mae and Freddie Mac. F’ing devious bastards. I mean, it would be one thing if naked greed run amok had anything, anything at all to do with this mess, but come on! It just doesn’t! And the sooner you libruls admit it, the sooner you’ll be on the road to bending over, grabbing your ankles recovery.

Really! You people and your “facts!”
Just as the neocon bastards were getting up to speed on their journey to economic transcendence, HuffPo reports that some librul by the name of Yellen, who also happens to be President and CEO of the Federal Reserve Bank of San Francisco, (San Francisco, people!) pointed out some info foreign to the neocon policy of creating one’s own reality: Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households.

What really burns, chucks salt in the wound, if you will, is this Michael Barr “Law Professor” guy at the University of Michigan (read: elitist), who also happens to be a specialist in banking and finance law. Before going any further, I already know this “Professor” is so steeped in the real reality that he is not even capable of creating the type of alternate reality required to be a neocon in good standing, but let’s just play their game anyway.

Professor Barr thinks it would be “‘odd’ if a 30-year old law suddenly caused an explosion in bad sub prime loans from 2002-2007… Sub prime mortgages made mostly by brokers and lenders and securitized by investments banks — institutions not covered by CRA.” Whatever, egghead!

The New New Hambric’s Curve

Hambric’s Curve has found a new home more in line with America’s new Hobo lifestyle, as visually characterized in the accompanying photo of blueness and clouds. Get it? Blue? Clouds? Teh sadz?

Long story short, I’ve converted from the self-hosted version of WordPress to the free, WordPress-hosted version of the site. The obvious benefits of this move are (1) I don’t have to keep hitting the Gym of the Internet to bulk up my geek muscles to take care of the behind-the-curtain necessities of running a site; and (2), this shit’s free. FREE!!! WHOOOOOO!!!

So now all I have to do is convince Hank Paulson to Buy My Shitpile and I’ll be swimming in it like Tony Bennett!

Apparently, those were not balls in his pants…

‘Merica’s favorite Ol Philthy Bastard (TM) has decided to take his ball(s) and go home ’cause the Democrats are being mean or something. So he’s jumping off of the SS McCain. Leavin’ his dawg all high ‘n dry. He’s bouncin. In a parting shot, this guy I know swears he heard Ol Philthy (TM) shout “screw you, you bunch of whiny bitters!” as he was getting into his car with those ladies from the Robert Palmer video “Addicted to Love.” True story. ‘

Yea, yea, whatever. The question now is who can McCain find to advise him on this whole ‘e-kon-o-me’ thing on such short notice? I mean, I’ve got an idea of what it takes and if the pay is right, I’m in. If not, might I suggest he have his people put in a call to someone formerly at Freddie or Fannie? Just a thought.

Update: I know this is a repost (from that PAID version of H.’s Curve, but given the recent degree of ass-hattery on display in and around the U.S. Capital, I just thought you ought to know just how remarkably ordinary is their behavior. I mean, really, Pelosi talks shit about them and their leader and all of a sudden, they can’t find the stones to rise above and do what they thought right for the country just moments before. The fuck?!