OT - Financial mess 101 ($700 billion bailout)

[XXXIV]

As long as we are in fantasy land. Lets raise the salaries.

In 2006, Toyota’s global output rose 10 percent to 9.018 million vehicles, while GM and its affiliates produced 9.18 million vehicles worldwide — a gap of about 162,000. In the first quarter, Toyota made 2.37 million vehicles worldwide, while GM has only given a planned production number of 2.34 million vehicles.

But Toyota has long beaten GM in profitability, racking up record profits for the past four years, with $11.8 billion profit for the fiscal year through March 2006. GM lost $2 billion last year.

There is also such a thing as profitabilty comrade.

[wco81]

It did but if you compare market share 20-30 years ago, or even in the '60s to market share now, even in its home market, it's been a bad trend.

SUVs, especially the big Suburbans and luxury models like the Escalade were very profitable but their price range probably limited the volume.

[dougb]

Let's switch gears here for a sec.

http://www.cnbc.com/id/28182873

Bernard Madoff Arrested Over Alleged $50 Billion Fraud

Bernard Madoff, a longtime fixture on Wall Street, was arrested and charged Thursday with allegedly running a $50 billion Ponzi scheme, U.S. authorities said.

The former chairman of the Nasdaq Stock Market who remains a member of Nasdaq OMX Group's nominating committee, is best known as the founder of Bernard L. Madoff Investment Securities, the closely-held market-making firm he founded in 1960.

Prosecutors charged Madoff, 70, with a single count of securities fraud. They said he faces up to 5 years in prison and a fine of up to $5 million.




5 years in prison? Probably one of those fancy white collar prisons? Out in a couple years for good behavior? Maybe, just maybe, we should consider making white collar crime come with a little more punishment, for those who get caught.

A sentence that actually fits the crime -

One year for every million you wrangle out of someone.
Mandatory work on the outside, picking up trash etc.
Sharing a cell with someone just as despicable, like a murderer or pedophile.

That sounds good to me BD (by the way, welcome back!)

I wonder though if we might turn a thought to all those financial advisors and fund managers who were parking money (or so they thought!) in this fund. Perhaps they should flogged through the streets for their apparent lack of due diligence? I imagine that a few fund managers will be facing lawsuits shortly.

If we turn over a few more hedge funds, how many other fraud schemes are going to come out crawling from beneath the rubble...

Best wishes,

Doug

[GTHobbes]

That sounds good to me BD (by the way, welcome back!)

I also wanted to say welcome back, bd. Good to see you posting again.

[bdoughty]

Thanks, glad to be back. I am always eager to see a good flogging, the more the merrier.

[GTHobbes]

I hate being such a pessimist but I'm really starting to wonder if we haven't already crossed the point of no return (in terms of sending this country into the financial dumpster):

"WASHINGTON (AP) — The federal deficit for 2008 would top $1 trillion if the government had to use the same accounting methods as private companies.

And that doesn't even account for the huge costs of the Wall Street bailout, which didn't really start until the new budget year began on Oct. 1.

The government is promising $49 trillion more than it can deliver on Social Security, Medicare and Medicaid over the next 75 years unless Congress steps in to shore up the system. Some combination of tax increases, benefit cuts or other policy changes is needed to stave off unsustainable deficits.

That was the finding Monday when the administration released a 188-page "Financial Report of the United States Government" for the 2008 budget year that ended on Sept. 30.

The report, released by the Treasury Department and the White House budget office, found that under the accrual method of accounting used by businesses, the deficit for 2008 would have totaled $1 trillion — not the $455 billion reported in October under the cash system of accounting."

http://www.usatoday.com/news/washington ... titialskip

[bdoughty]

I hate being such a pessimist but I'm really starting to wonder if we haven't already crossed the point of no return (in terms of sending this country into the financial dumpster):

GTHobbes meet Nancy Pelosi and Barney Frank. Nancy Pelosi and Barney Frank meet GTHobbes. Apparently you guys were not aware of each other.

I would not say pessimistic as much as it sounds like you are giving Obama a free pass before he even starts. If you want to see "point of no return" go look into the California state budget and some of the larger towns in Cali.

[matthewk]

I hate being such a pessimist but I'm really starting to wonder if we haven't already crossed the point of no return (in terms of sending this country into the financial dumpster):

I think our country crossed that line a long time ago. We've just been doing everything we can to hide it, and we're just now running out of tricks.

[matthewk]

It's things like this that make noe sense to me:

http://money.cnn.com/2008/12/16/news/co ... 2008121608

Best Buy posts a profit for the quarter, and yet on top of the buyout packages for all corp. HQ employees, they now add the threat of layoffs depending on how many accept the buyout.

Seems to fit the pattern lately. Those at the very top will still "get theirs" no matter what. Meanwhile, thousands of us normal folk will get screwed.

[fsquid]

It makes sense. Best Buy is seeing that their market might really slow down. Those earning calls are more about the future and what is down the line than it is about reporting results.

[GTHobbes]

I hate being such a pessimist but I'm really starting to wonder if we haven't already crossed the point of no return (in terms of sending this country into the financial dumpster):

I think our country crossed that line a long time ago. We've just been doing everything we can to hide it, and we're just now running out of tricks.

Can't say I disagree, Matt. I used to think spending $10 billion/month fighting the war in Iraq was a big part of the problem, but now that looks like just a drop in the bucket.

[wco81]

Toyota, despite not having the burden of UAW contracts, today announced that it will have a loss of about $1.7 billion for the current year, compared to a profit of $25 billion in the previous year.

They attribute the loss, its first ever, to plummeting sales.

[XXXIV]

Toyota, despite not having the burden of UAW contracts, today announced that it will have a loss of about $1.7 billion for the current year, compared to a profit of $25 billion in the previous year.

They attribute the loss, its first ever, to plummeting sales.

Add the UAW and the US taxpayers are bailing their asses out too.

They arent dumb enough to throw money down the toilet. They pay fair wages for fair work. Why they have always made a profit.

[wco81]

If the sales decline in the US market continues over a year, Toyota will probably get US govt. money too. The states they're in gave them concessions to locate in those states in the first place. Toyota and Honda can just say we need more concessions or else we have to do massive layoffs.

Certainly they will get aid from the Japanese govt too.

Even with more favorable labor contracts, these companies are structured for twice the unit volume than what the market as a whole has seen in the last few months.

Biggest recession since at least the early '80s and maybe since the early '30s. Sales are the main problem right now, not costs.

[XXXIV]

Good thing they have avoided the UAW like the plague that it is. Buys us time instead of s*** debt.

There is a reason those companies were making profits vs losing money with less sales...Hint...3 letters.

[Rodster]

Biggest recession since at least the early '80s and maybe since the early '30s. Sales are the main problem right now, not costs.

I say that's about right. This whole mess has The Great Depression II written all over it.

[pk500]

If the sales decline in the US market continues over a year, Toyota will probably get US govt. money too. The states they're in gave them concessions to locate in those states in the first place. Toyota and Honda can just say we need more concessions or else we have to do massive layoffs.

Hogwash. They won't get it.

GM's valuation right now is about $4.5 billion. Ford's is about $6.5 billion. Toyota's is about $85 billion.

GM and Ford are getting government money because they're nearly bankrupt. Toyota, despite the first announced loss, is flush with cash.

One of the reasons that Toyota has so much cash on hand is that it pays its workers an average of $10 per hour less than UAW workers for Ford and GM. That doesn't even factor in the legacy costs incurred due to the UAW golden pension and health plans for retirees.

Nice try at putting Toyota into the same sinking ship as the Big Three. But Toyota has tons of cash and isn't saddled with ridiculous union contracts.

Take care,
PK

[wco81]

Nice try at putting Toyota into the same sinking ship as the Big Three. But Toyota has tons of cash and isn't saddled with ridiculous union contracts.

I never claimed they had the same long-term structural problems as the Big 3.

But what all auto companies are going through right now is a precipitous decline in sales.

Toyota has the cash reserves to ride out the drop in revenues. But they will shut down factories too if the sales don't pick up. As one of the leaders in JIT manufacturing, they're not going to pile up inventory for too long if the cars aren't moving.

The $10 differential in hourly pay pales in comparison to the drop in unit volume. Toyota was gaining marketshare before this crisis. That also has more to do with the troubles of the domestic makers. Their income was declining while the costs remained the same and then it fell off a cliff with the crisis.

Nice try trying to scapegoat the unions as usual.

[pk500]

I never claimed they had the same long-term structural problems as the Big 3

No, but you did say that Toyota and Honda would go to Uncle Sam with hats in hand and get a bailout just like the Big Three. That won't happen, especially with cash-flushed Toyota.

The $10 differential in hourly pay pales in comparison to the drop in unit volume.

Not when factor in the obscene legacy costs that the Big Three are paying compared to their Japanese competitors.

You are simply putting your head in the sand or worshiping at the altar of Sam Gompers if you think that the legacy costs and higher wages created by UAW contracts aren't an equal -- along with declining sales -- or primary reason behind the Big Three's problems.

Yes, declining sales do not help. But if the Big Three weren't saddled with these additional costs, they also would have more of a cash cushion to ride out the storm.

Take care,
PK

[wco81]

Well everyone seems to think they know the labor costs of these companies.

Here are sales figures. There is a chart in the bottom half of the page comparing numbers for November, YTD vs. Nov. of last year and the YTD figures for 2007:



http://online.wsj.com/mdc/public/page/2 ... sales.html

[pk500]

From a New York Times op-ed piece:

>>>>>
G.M. acknowledged in its most recent annual report that from 1993 to 2007 it spent $103 billion “to fund legacy pensions and retiree health care — an average of about $7 billion a year — a dramatic competitive and cash-flow disadvantage.” During those 15 years, G.M. paid only $13 billion or so in shareholder dividends. The company has been sending far more money to its retirees than to its owners.

After falling $20 billion behind on its pension earlier this decade, G.M. doggedly put money into its plan to catch up. It has also agreed to invest more than $30 billion in a fund to cover future health-care expenses. But these efforts have starved its business.
<<<<<

http://www.nytimes.com/2008/07/10/opini ... stein.html

Take care,
PK

[F308GTB]

Certainly they will get aid from the Japanese govt too.

How much help can they get from their government? I was completely shocked when I read this item

Japan has borrowed money every year since 1965 to finance its budget, saddling each household with the equivalent of 17 million yen ($182,000) in debt. The spending has pushed the government's debt to the highest among the Group of Seven economies -- 170 percent of annual gross domestic product last year, compared with 63 percent in the U.S., according to the Organization for Economic Cooperation and Development.

You thought our national debt was bad

The article points more to the failing of public projects, which is one of Obama's primary talking points for "recovering" from the recession.[/url]

[RobVarak]

Certainly they will get aid from the Japanese govt too.

How much help can they get from their government? I was completely shocked when I read this item

Japan has borrowed money every year since 1965 to finance its budget, saddling each household with the equivalent of 17 million yen ($182,000) in debt. The spending has pushed the government's debt to the highest among the Group of Seven economies -- 170 percent of annual gross domestic product last year, compared with 63 percent in the U.S., according to the Organization for Economic Cooperation and Development.

You thought our national debt was bad

The article points more to the failing of public projects, which is one of Obama's primary talking points for "recovering" from the recession.[/url]

I've beat this horse before, but this is the kind of stuff that happens when one relies on the improper conclusion that the alphabet soup of New Deal programs was the engine of recovery from the Great Depression. Unfortunately, it's one of those combinations of falsehood, exaggeration and myth that can undermine historical accuracy.

[Jackdog]

I liked this:

Interesting, to say the least. Letter from Troy Clarke, President of General Motors - followed by a response from Gregory Knox of Knox Machinery:

Dear Employees & suppliers,

Next week, Congress and the current Administration will determine whether to provide immediate support to the domestic auto industry to help it through one of the most difficult economic times in our nation's history. Your elected officials must hear from all of us now on why this support is critical to ou r continuing the progress we began prior to the global financial crisis......................As an employee or supplier, you have a lot at stake and continue to be one of our most effective a nd passionate voices. I know GM can count on you to have your voice heard.

Thank you for your urgent action and ongoing support.

Troy Clarke President General Motors North America


~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

From Gregory Knox,

In response to your request to call legislators and ask for a bailout for the United States automakers please consider the following, and please also pass this onto Troy Clark, the president of General Motors North America for me.

You are both infected with the same entitlement mentality that has bred like cancerous germs in UAW halls for the last countless decades, and whose plague is now sweeping the nation, awaiting our new "messiah" to wave his magical wand and make all our problems go away, while at the same time allowing our once great nation to keep "living the dream"...

The dream is over!

The dream that we can ignore the consumer for years while manageme nt myopically focuses on its personal rewards packages at the same time that our factories have been filled with the worlds most overpaid, arrogant, ignorant and laziest entitlement minded "laborers" without paying the price for these atrocities...and that still the masses will line up to buy our products

Don't tell me I'm wrong. Don't accuse me of not knowing of what I speak. I have called on Ford,GM, Chrysler, TRW, Delphi, Kelsey Hayes, American Axle and countless other automotive OEM's and Tier ones for 3 decades now throughout the Midwest and what I've seen over the years in these union shops can only be described as disgusting.

Mr. Clark, the president of General Motors, states:

There is widespread sentiment in this country, our government and especially in the media that the current crisis is completely the result of bad management. It is not...

You're right - it's not JUST management...how about the electricians who walk around the plants like lor ds in feudal times, making people wait on them for countless hours while they drag ass...so they can come in on the weekend and make double and triple time...for a job they easily could have done within their normal 40 hour week.

How about the line workers who threaten newbies with all kinds of scare tactics...for putting out too many parts on a shift...and for being too productive (mustn't expose the lazy bums who have been getting overpaid for decades for their horrific underproduction, must we?!?) Do you really not know about this stuff?!?

How about this great sentiment abridged from Mr. Clarke's sad plea: over the last few years ...we have closed the quality and efficiency gaps with our competitors.

What the hell has Detroit been doing for the last 40 years?!? Did we really JUST wake up to the gaps in quality and efficiency between us and them?

The K car vs. the Accord? The Pinto vs. the Civic?!?

Do I need to go on?

We are l iving through the inevitable outcome of the actions of the United States auto industry for decades.

Time to pay for your sins, Detroit.

I attended an economic summit last week where a brilliant economist, Alan Beaulieu surprised the crowd when he said he would not have given the banks a penny of "bailout money". Yes, he said, this would cause short term problems, but despite what people like George Bush and Troy Clark would have us believe, the sun would in fact rise the next day... and something else would happen...where there had been greedy and sloppy banks new efficient ones would pop up...that is how a free market system works...it does work...if we would let it work...

But for some reason we are now deciding that the rest of the world is right and that capitalism doesn't work - that we need the government to step in and "save us"...save us, hell - we're nationalizing...and unfortunately too many of this once fine nations citizens don't even have a clue th at this is what's really happening...but they sure can tell you the stats on their favorite sports teams...yeah - THAT'S important...

Does it occur to ANYONE that the "competition" has been producing vehicles, EXTREMELY PROFITABLY, for decades now in this country?...

How can that be???

Let's see...

Fuel efficient...

Listening to customers...

Investing in the proper tooling and automation for the long haul...

Not being too complacent or arrogant to listen to Dr W Edwards Deming 4 decades ago.

Ever increased productivity through quality, lean and six sigma plans...

Treating vendors like strategic partners, rather than like "the enemy "...

Efficient front and back offices...

Non union environment...
I could go on and on, but I really wouldn't be telling anyone anything they really don't already know in their hearts.

I have six children, so I am not unfamiliar with the concept of wanting someone to bail you out of a mess that you have gotten yourself into - my children do this on a weekly, if not daily basis, as I did at their age. I do for them what my parents did for me (one of their greatest gifts, by the way) - I make them stand on their own two feet and accept the consequences of their actions and work them through.

Radical concept, huh...

Am I there for them in the wings? Of course - but only until such time as they need to be fully on their own as adults.

I don't want to oversimplify a complex situation, but there certainly are unmistakable parallels here between the proper role of parenting and government.

Detroit and the United States need to pay for their sins. Bad news people - it's coming whether we like it or not

The newly elected Messiah really doesn't have a magic wand big enough to "make it all go away" I laughed as I heard Obama "reeling it back in" almost immediately after the vote count was tallied..."we might not do it in a year...or in four..." where was that kind of talk when he was RUNNING for the office ?

Stop trying to put off the inevitable ...

That house in Florida really isn't worth $750,000...

People who jump across a border really don't deserve free health care benefits...

That job driving that forklift for the big 3 really isn't worth $85,000 a year...

We really shouldn't allow Wal-Mart to stock their shelves with products acquired from a country that unfairly manipulates their currency and has the most atrocious human rights infractions on the face of the globe...

That couple whose combined income is less than $50,000 really shouldn't be living in that $485,000 home...

Let the market correct itself people - it will. Yes it will be painful, but it's gonna be painful either way, and the bright side of my proposal is that on the other side of it is a nation that appreciates what is has...and doesn't live beyond its means...and gets back to basics...and redevelops the work ethic that made it the greatest nation in the history of the world...and probably turns back to God.

Sorry - don't cut my head off, I'm just the messenger sharing with you the "bad news"


Gregory J. Knox
President
Knox Machinery, Inc.
Franklin, Ohio 45005

[wco81]

Administrations of both parties come in for criticism for the economic mess we're in:

http://www.vanityfair.com/magazine/2009 ... litz200901

But the one these that unites figures like Greenspan, Paulson, Summers and Rubin is that free-market corrects itself and finds equilibrium and that government has to back off (in regulations, enforcement, oversight) and let the market sort itself out.

Governments all over the world, including the Obama administration, will be adopting interventionist measures:

http://online.wsj.com/article/SB1230571 ... od=djemEMU

Yet the ideology of the market won't go away any time soon and stands ready to pounce if these measures fail to turn around the global economy.