Friday, October 31, 2008

GM and Chrysler - another bailout?

Cerberus Capital Management is the parent company of General Motors and Chrysler. It's a private equity group. GM and Chrysler are suffering from a precipitative decline in US auto demand. The sales are the lowest in 15 years. At the same time GM's debt is $US 43 billion and Chrysler's is $US 9 billion. Their debts have been cut another grade toward junk status by Moodys.[*} Concurrently there are hundreds of billions of dollars of notional insurance on GM debt through the credit default swap market. The US government is expected by some observers to intervene because of a possible domino effect on the wider economy but the bailing- out of a private equity concern is not going to going to go down very well with those that have studied this financial model's nature and behaviour over the last 30 years or so.

* From 'GM and Chrysler downgraded as demand drops'. Australian Financial Review, 29th October 2008.


Anonymous said...

Oh boy, where does this stop? As Robert Reich recently said, too big to fail is too big. This government funded concentration of risk is just plain loony.



Anonymous said...

Is it too late for us to form some kind of financial entity that is "too big to fail?" Do you have acces to irresponsible banking sources that would be willing to put up the funds for us to purchase several NYC properties at too high a price? We should then be able to purchase credit default swaps on the mortgages and wait around for the Treasury to bail us out of our unfortunate situation so that the banks which have lent us the money and the entities that hve sold us the swaps don't go broke. We can pay our selves appropriately outsized compensation
and bonuses as evidence of our essential importance to the economy. Sounds like a workable plan. I only need several PhD economics people on board to further enhance the image of the whole package. I'm willing to pay excessive compensation to any one willing to provide the absurd expert assurances that the plan will work and that there was no way to foresee the destructive nature of the enterprise.

Anonymous said...


Great shame is due the corporations
That have bamboozled me--
So various their depredations
And truth the casualty
Whilst I am counseled, "to have patience"
Lest their demise I see.

"A corporation cannot die"
And yet it is a person!
The riddle leaves no wonder why
Do situations worsen,
Whilst, wounded, I sit idly by,
Malicious anger nursing.

There is no one accountable,
No recourse left at all,
Advantage insurmountable
They hold, while someone Small,
Upon no road to bountiful
A man´s reduced to crawl.

Great shame is theirs, and malice mine
To nurse--how I regret it--
But there were not an anodyne
(Besides, how could one get it!)
Save to the dustbin fate consign
Their lot--if I could let it!