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Archive for March, 2009

Could This Be True

Apparently there might be real reason for optimism on the auto front.  Look at these “leaked” stories:

Fox News:

President Obama is convinced that a negotiated bankruptcy is the best way for General Motors to restructure and become a competitive automaker, members of Congress and unnamed sources told Bloomberg late Tuesday.

Reuters:

A possible bankruptcy plan being discussed for General Motors (GM.N) includes quickly forming a new company of the automaker’s most profitable parts, while a group of other units would remain under bankruptcy protection for a longer period, a source familiar with the plans told Reuters on Tuesday.

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More to Come

Case-Shiller reported January real estate today.  Here, via Calculated Risk, the SF price history:

[SanFranciscoTierPricing.jpg]

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Astonishing – seriously, astonishing – email from a guy at AIGFP to ZeroHedge claiming that a significant chunk of bank profitability in 1Q is simply AIG dumping money on its counterparties.  They have gone beyond holding themselves hostage; they are actively trying to rob their majority shareholder (also known as the taxpayer) for the benefit of their future employers at other banks:

During Jan/Feb AIG would call up and just ask for complete unwind prices from the credit desk in the relevant jurisdiction. These were not single deal unwinds as are typically more price transparent – these were whole portfolio unwinds. The size of these unwinds were enormous, the quotes I have heard were “we have never done as big or as profitable trades – ever.

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Rare Optimism

I guess the Administration just has a blind spot in the financial sector; elsewhere in the world they are able to recognize reality and make the best of a bad situation.  With the auto companies, for example, they are able to admit that the current business models and plans simply do not work, and they are even able to utter the word “bankruptcy” without stating categorical opposition.

To get a sense of how bad the situation needs to be to scare the administration into action, think of the challenges facing GM:

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So we’re getting down to the wire for the North Korean missile launch.  Sorry, satellite launch…as if North Korea has a serious need of a communications network.

North Korea has a few things to gain from this:

  • They enjoy tweaking the US, Japan, and South Korea about our impotence.  The Western nations jump up and down and threaten sanctions and resolutions, and North Korea has shown over decades that nothing the West can say is going to hurt it.  So long as China sticks with them, they are safe.
  • A military confrontation with the West puts China in a difficult bind.  North Korea remains useful to it, so in a bind China needs to give North Korea some support.
  • It’s a great way to test Obama when he clearly has other fish to fry.
  • It allows Kim Jong Il to show other members of the ruling clique that he is in control.

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Sham Wow

Seems the Sham Wow guy should have have just seen what was on the Setai’s TV at 4:00am.  Unfortunately – in keeping with Bill Cosby’s comment that nothing good has ever happened between midnight and dawn – Vince Shlomi decided to to get a hooker.  There are any number of reasons that could be a bad idea, but in this case, the hooker decided after kissing him that she would bite his tongue and not let go.  Which led to Shlomi punching her, which led him to this glamour shot from the Miami cops:

Here is a booking photo of Sasha Harris, the hooker in question.  Better than Divine Brown, I suppose, but still hardly worth rabies…

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Cool

Always liked ‘Bron:

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The lack of decisive intervention by the government sends a message: we’re bluffing.  Throughout the economy large businesses know that they can defer any serious changes by simply raising the threat of collapse, and we will come running with immediate cash and a vague insistence that things be fixed some time later.

The AIG folks, inept though they may have been at managing a derivatives book, have proven quick learners in the art of self preservation.  Check out this attempt to scare off French regulators:

Representatives of the Federal Reserve, AIG’s lead U.S. overseer, are talking with French regulators and AIG officials to deal with the consequences of a complicated legal scenario in which the departures of the managers in Banque AIG, a subsidiary of AIG’s Financial Products unit, could trigger defaults in $234 billion of derivative transactions, according to people familiar with the situation and a document AIG provided to the U.S. Treasury.

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Good Reading

One of the bright sides of the current financial crisis is the wealth of good articles on the topic.  Guys whose work would have been buried in academic journals are now writing for a general audience.  Simon Johnson of Baseline in the Atlantic:

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

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Hotel News

This holds up, we are going to see hotel bankruptcies left and right – my sense is that most hotels cannot cover their operating costs (let alone their capital costs) below 55% occupancy:

The U.S. hotel industry posted declines in all three key performance measurements during the week of 15-21 March, according to data from STR.

In year-over-year measurements, the industry’s occupancy fell 4.7 percent to end the week at 58.5 percent. Average daily rate dropped 8.0 percent to finish the week at US$99.92. Revenue per available room for the week decreased 12.3 percent to finish at US$58.45.

Not surprisingly, NY led the pack, with a 36.3% drop in revenue per available room.

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