Infinite Unknown

U.S. President-elect Barack Obama looks on before the start of a meeting with Senator John McCain of Arizona, former Republican presidential candidate, at Obama’s transition office in Chicago, Nov. 17, 2008. Photographer: Frank Polich/Bloomberg News

Nov. 21 (Bloomberg) — President-Elect Barack Obama’s transition team is exploring a swift, prepackaged bankruptcy for automakers as a possible solution to the industry’s financial crisis, according to a person familiar with the matter.

A representative of Obama’s team has already contacted at least one bankruptcy-law firm to say that Daniel Tarullo, a professor at Georgetown University’s law school who heads Obama’s economic policy working group, would call to discuss the workings of a so-called prepack, according to this person.

U.S. lawmakers yesterday delayed until December a vote on whether to give General Motors Corp., Ford Motor Co. and Chrysler LLC a $25 billion bailout. GM today said it would idle production at four plants an extra week and return some corporate jets to conserve cash. Automakers could use a judge-supervised bankruptcy to reduce debt and reject expensive contracts.

“It creates the environment to deal with GM’s problems but limits government financial commitment,” said bankruptcy lawyer Mark Bane of Ropes & Gray in New York.

Bankruptcy is just one option being examined. Obama told CBS News’s “60 Minutes” on Nov. 16 that government aid to automakers might come in the form of a “bridge loan,” advanced if the industry could draw up plan to make itself “sustainable.” The president-elect earlier urged Congress to approve as much as $50 billion to save automakers, using the model of Chrysler’s bailout in 1979.

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Tags: bankruptcy, Barack Obama, Chrysler, Congress, Economy, financial crisis, Ford, General Motors, GM, Government, Politics

Nov. 20 (Bloomberg) — U.S. lawmakers deadlocked on a plan to bail out the Big Three automakers, leaving General Motors Corp. facing the prospect it could run out of cash before a new Congress can come to the rescue next year.

Democratic congressional leaders disagreed with Republicans and President George W. Bush’s administration over how to provide $25 billion in aid to GM, Ford Motor Co. and Chrysler LLC. Only two days remain in a lame-duck session for lawmakers to resurrect a compromise.

Senate Majority Leader Harry Reid, a Nevada Democrat, suggested yesterday the situation was dire and refused to set aside time today to debate a compromise proposed by Senator Kit Bond, a Missouri Republican. Reid said Bond’s plan hasn’t been put in writing and the House of Representatives is about to adjourn.

“We have to face reality,” he said. “The reality is that we tried a number of different approaches.”

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Tags: bailout, Chrysler, Congress, Economy, financial crisis, Ford, General Motors, GM, Politics, U.S.

Nov. 18 (Bloomberg) — Ford Motor Co., reeling from plunging U.S. car sales and a sinking share price, will raise about $540 million selling part of its stake in Japanese affiliate Mazda Motor Corp. to ease cash concerns.

The automaker will sell 20 percent of Mazda tomorrow, reducing its holdings to 13 percent, according to a statement today. Hiroshima-based Mazda said separately that it will buy back up to a 6.9 percent stake for as much as 17.9 billion yen ($186 million). The rest of the shares will be purchased by unidentified “strategic business partners.”

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Tags: Cars, Economy, financial crisis, Ford, Japan, Mazda, Stock Market, U.S., Wall Street

‘But, but, but … that money was only for my friends on Wall Street and not for the people.’
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Henry Paulson, U.S. treasury secretary, left, and Ben S. Bernanke, chairman of the U.S. Federal Reserve, right, listen during a hearing of the House Financial Services Committee in Washington, on Nov. 18, 2008. Photographer: Jim Lo Scalzo/Bloomberg News

Nov. 18 (Bloomberg) — Treasury Secretary Henry Paulson rejected using the government’s financial-rescue program as a “panacea” for economic difficulties, clashing with lawmakers who want the funds to help beleaguered homeowners.

“The rescue package was not intended to be an economic stimulus or an economic recovery package,” Paulson said in testimony to the House Financial Services Committee in Washington. The Troubled Asset Relief Program was designed to stabilize financial markets and the flow of credit and “is not a panacea for all our economic difficulties.”

Representative Barney Frank, who heads the House panel, cut off Paulson during the question-and-answer session, saying “the bill couldn’t have been clearer” in also being aimed at reducing foreclosures. Paulson told lawmakers he has no plans to use the second half of the $700 billion program, indicating it will be up to the incoming Obama administration to resolve the matter.

“We don’t have a lot of time and I don’t usually do this,” Frank said in interrupting Paulson during an exchange on how to deploy TARP cash. “I read sections of the bill that says — write it down — give them assistance,” Frank, a Massachusetts Democrat, told the Treasury chief.

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Tags: bailout, Banks, Ben Bernanke, Chrysler, Congress, Economy, Fed, Federal Reserve, Ford, Foreclosures, General Motors, GM, Government, Henry Paulson, Politics, Treasury, U.S.

Should Congress bail out the Big Three? Here’s what lawmakers are considering and what’s at stake.

NEW YORK (CNNMoney.com) — For more than a century, the U.S. auto industry has been at the center of the American industrial economy. Events over the next month could determine if that remains the case.

This week, Congress will consider whether to cough up billions of dollars to bail out the troubled companies.

There are loud advocates with strong arguments on both sides.

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Tags: bailout, Cars, Chrysler, Congress, Economy, financial crisis, Ford, General Motors, GM, Government, Politics, U.S., Wall Street

Nov. 16 (Bloomberg) — U.S. automakers should not get $25 billion in proposed federal loans to save them from possible bankruptcy, Senator Richard Shelby, the top Republican on the Banking Committee, said.

“Companies fail every day and others take their place,” Shelby said on CBS’s “Face the Nation” today. “There’s not a bank in this country that would loan a dollar to these companies.”

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Tags: bailout, bankruptcy, Bush administration, Chrysler, Congress, Economy, Ford, General Motors, GM, Politics, U.S.

Nov. 15 (Bloomberg) — General Motors Corp., burning through cash as sales slump, would cost the government as much as $200 billion should the biggest U.S. automaker be forced to liquidate, a forecasting firm estimated.

A GM collapse would mean “more aid to specific states like Michigan, Ohio, and Indiana, and more money into unemployment and extended benefits,” Nariman Behravesh, chief economist at IHS Global Insight Inc. in Lexington, Massachusetts, said yesterday in an interview.

Behravesh’s projection of $100 billion to $200 billion in costs dwarfs the $25 billion industry bailout plan that will be debated in Congress next week to prop up Detroit-based GM, Ford Motor Co. and Chrysler LLC. The drain on taxpayers from a rescue or a GM failure is a central issue for U.S. lawmakers.

Included in the Global Insight estimate, which Behravesh supplied to Bloomberg News, are the anticipated costs for existing programs, such as unemployment insurance, and new measures that the economist said would be needed to revive economic growth after millions of auto-related job losses.

A GM shutdown would wipe out jobs among suppliers as well as at the automaker itself, pushing the U.S. unemployment rate next year to 9.5 percent, compared with current projections of as high as 8.5 percent, Behravesh said.

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Tags: bankruptcy, Cars, Chrysler, Economy, Ford, General Motors, GM, Politics, taxpayers, U.S., Unemployment

A man exits the American International Building, home to the headquarters of American International Group (AIG), in New York, Nov. 10, 2008. Photographer: Daniel Acker/Bloomberg News

Nov. 11 (Bloomberg) — The revised bailout of American International Group Inc. marks a new phase in the government’s effort to shore up financial markets: It’s the first time cash from the rescue fund Congress created last month has been committed to a failing company.

The Federal Reserve, which saved the insurer from collapse two months ago with an $85 billion loan, yesterday reduced that loan and offered lower rates, while the Treasury chipped in $40 billion from its bank-rescue fund to buy preferred shares. The new terms represent a departure for Secretary Henry Paulson, who until now has said he only wants to invest Treasury funds in “healthy” firms.

Taxpayers are “keeping the zombie alive,” said Robert Eisenbeis, chief monetary economist at hedge fund Cumberland Advisors and former director of research at the Atlanta Fed. “We keep getting deeper and deeper into these holes.”

The shift is likely to vastly expand political demands for saving dying companies in the name of financial or economic stability. The administration of President-elect Barack Obama may soon have to consider credit or capital injections for other insurers, automakers, even retailers as the U.S. slides deeper into what could be the worst recession in a quarter-century.

“Are you going to do General Motors and Ford, and, if you do those, are going to go on and do retailers?” said William Isaac, former chairman of the Federal Deposit Insurance Corp. and now chairman of the Secura Group LLC. “ Where does it stop? That is a very difficult decision we are going to face as a country.”

AIG’s Losses

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Tags: AIG, Economy, Fed, Federal Reserve, financial crisis, Ford, General Motors, GM, Government, Henry Paulson, Politics, Recession, taxpayers, Treasury

Sunny Yang, left, a masters degree student from Shanghai and employed banker in New York City, speaks with World Bank representative Roberto Amorosino about opportunities for unemployed friends of his during a career fair at Columbia Univeristy Friday, Nov. 7, 2008 in New York. The U.S. unemployment rate bolted to a 14-year high of 6.5 percent in October as another 240,000 jobs were cut, far worse than economists expected and stark proof the economy is deteriorating at an alarmingly rapid pace. (AP Photo/Julie Jacobson)

WASHINGTON (AP) — The nation’s jobless ranks zoomed past 10 million last month, the most in a quarter-century, as piles of pink slips shut factory gates and office doors to 240,000 more Americans with the holidays nearing. Politicians and economists agreed on a painful bottom line: It’s only going to get worse.

The unemployment rate soared to a 14-year high of 6.5 percent, the government said Friday, up from 6.1 percent just a month earlier. And there was more grim news from U.S. automakers: Ford Motor Co. and General Motors Corp., American giants struggling to survive, each reported big losses and figured to be announcing even more job cuts before long.

Regulators, meanwhile, shut down Houston-based Franklin Bank and Security Pacific Bank in Los Angeles on Friday, bringing the number of failures of federally insured banks this year to 19.

The Federal Deposit Insurance Corp. was appointed receiver of Franklin Bank, which had $5.1 billion in assets and $3.7 billion in deposits as of Sept. 30, and of Security Pacific Bank, with $561.1 million in assets and $450.1 million in deposits as of Oct. 17.

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Tags: bank failure, Banks, Barack Obama, Credit Crisis, credit crunch, Economy, FDIC, Ford, Foreclosures, General Motors, George Bush, GM, Government, housing market, Labor Department, mortgage crisis, Mortgages, Politics, Recession, Stock Market, U.S., Unemployment, Wall Street

Nov. 7 (Bloomberg) — Ford Motor Co., with U.S. sales shredded by the worst financial crisis since the Great Depression, posted a third-quarter operating loss of $2.98 billion and said it used up $7.7 billion in cash.

The per-share operating loss of $1.31 was wider than the 93-cent average of 10 analyst estimates compiled by Bloomberg. Ford said it would trim more salaried jobs by January, deepen its fourth-quarter production cuts and shrink capital spending by as much as 17 percent.

Revenue plunged 22 percent to $32.1 billion, forcing Ford to triple its consumption of cash compared with the second quarter. Cash, cash equivalents and marketable securities for Ford’s automotive business plummeted 29 percent to $18.9 billion on Sept. 30, the Dearborn, Michigan-based company said today.

“Cash burn is the No. 1 issue,” Rebecca Lindland, an IHS Global Insight Inc. analyst, said in a Bloomberg Television interview. “We associate cash burn with General Motors. It has not always been a problem with Ford. That is potentially a new problem.”

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Tags: Cars, Economy, financial crisis, Ford, Stock Market, U.S., Wall Street