U.S. stock futures slump as GM may go bankrupt

Market Watch ^ | 03/30/2009 | Steve Goldstein

[ding_dong_daddy_from_dumas]

I never thought I would see Freepers criticizing an American President for refusing to dump 22 billion dollars into an auto company.

What is Obama's record on keeping his promises? At the end of 60 days, after BO's new CEO buddy makes GM more "green," BO might deem GM to be suddenly financially healthy.

[Cronos]

I don't know if Hummer is profitable

Hummer isn't profitable at all.

[LS]

Ok. Well, it soon will be as a collector item.

[Cronos]

Ford didn’t take any money and they’re making some good cars now. Support Ford!

[Cronos]

AIG was an insurer of financial products that it HAD to pay back. If AIG didn’t pay the stuff back, most of the banks in the US and globally would have failed, shut down. When the banks shut down, the economy shuts down. When an automaker shuts down, there is pain in many sectors but not across ALL sectors.

[Cronos]

There are merits and demerits of your case. I'll start with the demerits: because Americans bought and sold guys every 3-4 years (trading in), the car companies had to constantly evolve. In some cases this was good - better safety, fuel efficiency etc., in many cases this was bad (since one guy driving in NYC bought an SUV, everyone else had to).

The good point is precisely what I said -- by evolution, like in PCs we got a lot of good stuff.

[kcvl]

[Leisler]

Dodge Omini Horizons were getting near 50mpg at very low costs.

The price of cars has gone up do to the fight between the low weight fuel economy nazis, the add weight and loss fuel economy safety nazis, and the turn the engine into a water producing emissions low mileage air pollution nazis.

So, we get heavy, expensive, uber clean Honda Civics with poor mileage and now we got to fund electric cars because previous gooberment solutions to previous government problems.

Rinse, lather, repeat.

As in most things now, we are in a decaying death spiral of solutions to the results commanded by government for the problems it has caused.

As bad a modern MBA’s, Wagoneer, GM is/was, does anyone think it is going to be better? No. But at least the old GM didn’t forcefully rob money out of taxpayers. My dollars to donut bet is that GM goes worse, then bankrupt and taxpayers pay out after time 1-200 billion, maybe trillions more with post GM/Chrysler ‘assistance’ to ‘local and state’ governments( ie, town/city/state union workers and hack contractor friends).

By the way, can you imagine if say someone in Mexico, just over the border, starts a say Honda Accord rebuild like new plant, where you drop off your tired $3,000 dollar daily driver and for say 7k they rebuild it for another 150k miles, and because that is all they do, you pick it up in a week and it looks like new. Seats reupholstered, carpet, engine, trans and stuff removed rebuilt.

Houses, boat, aircraft have solid remodel business with good customer acceptance. I don’t see car owners wouldn’t accept it.

Check this guys operation out.

www.grandwagoneer.com/

[LibLieSlayer]

They are on my short list.

LLS

[Spktyr]

Edsels never made collectable status. Neither will Hummers other than the H1.

[trumandogz]

Unfortunately, the government's critique of GM and Chrysler makes it clear that the government is second guessing the management of both companies in, among other things, their product mix, and insisting they produce more small, unsaleable cars, rather than the light trucks and SUVs that actually sell and make money.

By small "unsaleable" cars are you speaking of cars like the Honda Civic, Honda Accord, Toyota Prius and Toyota Camry, Toyota Corolla?

BTW-these small "unsaleable" cars built by Japanese companies have outsold every similar car made by the U.S. auto companies.

If the American auto executives could match Honda and Toyota in quality they would not be in this mess. But instead Honda sells you an Accord while GM tries to sell you the Pontiac Aztec.

[rbg81]

AIG was an insurer of financial products that it HAD to pay back. If AIG didn’t pay the stuff back, most of the banks in the US and globally would have failed, shut down.

---

Do you know how much AIG is on the hook for? How many trillions? Is the US Gov now stuck with that? Sorry, bud, but I don’t support bankrolling an irsurer who got stupid. If these banks fail as a result, tough luck—its still a net savings for the taxpayer. They should shut them down too—others will eventually take their place.

[Cronos]

I don't like it either, all I'm saying is that the financial system as a whole would collapse. AIG falling would trigger a domino effect among the bad banks and then the good banks and even the main street small banks would fail. No others would take their place for maybe years to come. Industries would shut down as there would be no short term credit. Ditto for all other companies including farmers. Utter destruction financially is what we're talking about.

I'm sure you'll say that this is all hyperbole -- however, by financial theory, that is exactly what would happen. Logically, that is also what would happen

[rbg81]

.....then the good banks and even the main street small banks would fail.

---

Perhaps you can explain why the good banks would necessarily fail? Only reason I can think of is massive unemployment, and people stopping their loan payments in mass. Even during the Depression, some big banks failed, but most did not.

Again, how many trillions $$ is AIG on the hook for? And now, by extension, the taxpayer. Either way, the taxpayer takes it in the shorts. Right now, I think we the financial equivalent of a chicken with its head cut off. We thrash around like we’re alive, but we’re already dead.

[Cronos]

Perhaps you can explain why the good banks would necessarily fail

Ok, here goes -- retail banks are in the business of loans and savings and term deposits. Commercial banks help business with this and their payroll process. Investment banks help with raising money for large companies and also diffusing their risk

When companies made loans, those were usually on their books, until the idea of CDOs came about when loans were clubbed together and sold by the lending bank to Investment banks so removing the liability off the lending bank

AIG came up with the brilliant idea of creating insurance policies based on those CDOs and on futures and options of exotic products.

If AIG defaulted, then the banks it owed money to would find that they would have a loss -- and that number would include good banks too.

Secondly, the bad banks who had taken too much of the prime-lending fiasco and didn't have enough cash would collapse without the money from AIG.

The good banks would also lose out that money, but let's assume these good banks still had good money-lending practises and had enough to repay THEIR loans (savings interest and NPA loans).

However, all banks need liquid cash for their day to day transactions and they raise cash from other banks (at the Libor rate or the inter-bank charges rate -- i.e. the % banks lend to other banks). If there was no money in the system, then even the good banks would be cash-strapped. And, when the banks are cash-strapped, they don't loan out money. Many companies also rely on credit to keep operations rolling, so they too would have to shut shop. With their customers shutting shop, banks wouldn't be able to make money off loans. And they would still have to pay out interest on savings (the savings rate would go up as people get more scared) -- so, where could they make that money to pay it out???

ergo, they too would collapse

I repeat - I don't like this, but I think it's the least bad option. AIG is on the hook for billions, not trillions --the trillions are on it's standard insurance portfolio which is still pretty dependable