Quote of the Day
The hardest job kids face today is learning good manners without seeing any.
Fred Astaire
UAW Makes Out Like a Bandit...
Shareholders in General Motors at the time of the bankruptcy got nothing (including any participation in Government Motor's recent IPO at $33/share). The federal government has spent about $50B, bondholders held about $27B, and UAW about $20B in GM debt. The original settlement terms gave the UAW trust about a 17.5% in common stock, $6.5B in preferred stock, and a $2B note; the bondholders got 10% in stock. The UAW sold a third of its shares for $3.4B, and by some estimates UAW breaks even on the deal in the share price rises to $36. In contrast, under the most conservative estimates, share prices would need to increase by roughly 50% for the US taxpayer to break even.
It would be nearly impossible to find a more egregious example of special interest influence than this corrupt arrangement which pays labor unions, whose unsustainable compensation packages hastened the day of reckoning, ahead of investors whom risked their own money and the federal taxpayer whose money was spent by the Obama Administration without their knowledge or consent.
Saturday Night Live TSA Spoof
The European Debt Crisis Continues
Irish banks had one of the same problems experienced by many American banks during the real estate bubble and subsequent correction: they loaned money at the top of the market and found themselves underwater on the loans. Economy-crushing interest rates are driven up by dwindling capital. The government assured bondholders that if the banks failed they would make the bondholders whole. But already interest rates on troubled nations' (Greece, Ireland, Italy, Spain, Portugal) bonds are nearly triple that of Germany.
In the aftermath of the earlier Greek bailout, the EU/IMF set up a $1T bailout fund; in order to get access to that fund, EU countries need to get their financial house in order, e.g., deficit at less than 3% GDP, austerity programs which are resulting in angry protests. There is increasing pressure to force bondholders to write down some of the loans in question. There is also some evidence pressure is being applied to the next countries in line, most probably Portugal and Spain, to accept aid to contain the crisis.
The big fear is that $1T won't be enough to contain the crisis, and they will come back to the stronger EU countries, principally Germany, France, and the Netherlands (all with some austerity plans of their own), to double the size of the funds. Credit default swaps (against default on a bond) are way up in these countries as well.
Sheila Bair, chair of the FDIC, wrote an op-ed entitled "Will the Next Financial Crisis Start in Washington" (thumbs UP!), arguing federal spending is unsustainable and pointing out that two-thirds of Treasury bonds are expiring within 5 years and may require a significant risk premium for new lending. It is the time to start doing politically unpopular things, like benefit cuts, tax increases, etc. to get our house in order before the market forces austerity.
Political Humor
On Glenn Beck's radio show yesterday, Sarah Palin accidentally said, "We have to stand with our North Korean allies." Then Palin was like, "Wait. North Korea's the one in the south, right?" - Jimmy Fallon
[And Sarah thought her husband Todd was bad with directions...No word on whether Sarah has approved Kim Jong-Un's friend request on Facebook...]
President Obama said yesterday that GM's comeback would be the success story of this recession. GM said it wanted to thank those who made its recovery possible: Toyota's brakes, Toyota's steering, Toyota's accelerator... - Jimmy Fallon
[Nothing speaks success in the free enterprise system quite like a President firing the CEO of Government Motors, socializing company expenses and debt, ripping off bondholders to pay off political chits to crony union interests, frittering away millions of dollars the US Treasury just doesn't have on pushing-on-a-string Cash for Clunkers programs, and using taxpayer money to promote its offerings against Ford, which didn't need and refused a government bailout. Remember how GM hyped paying off its government loans--with what was TARP money? Just like all the jobs the Obama Administration misleadingly claims to have "created" or "saved" while squandering over a third of annual federal revenues on an ineffectual "stimulus" bill...]
Musical Interlude: Holiday Tunes
Augie Rios, "¿Dónde Está Santa Claus?". This song was in a beloved (and all but worn out) Christmas hit compilation my folks bought; it brings back some nice family moments.
