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by Jerome a Paris Fri Mar 6th, 2009 at 08:08:03 AM EST

“We must grasp that a modern insolvency law is a better way to overcome such a crisis than the state taking taking a stake,” Wolfgang Schaeuble, interior minister, told newspaper Handelsblatt.

“Our modern insolvency law is not set on the destruction but on the preservation of economic assets. The public perception is that insolvency is akin to going bust or bankrupt. But that is wrong,” he added.

Strong words, and finally a bit of sense on the banking crisis, from Schäuble?

Alas, not. Such tough lot is reserved for the car industry (GM's European subsidiary Opel, in this case). There's certainly an intellectual case to be made to let the car industry go down the tubes (global overcapacity, poorly managed companies, unsustainable sector in the long term in the face of depleting reserves and climate change) but the double standards with the treatment of the banking sector are staggering. It is not clear that letting the automobile industry collapse will not cause more economic damage than not helping out the financial world, and while it is already obvious that the several layers of bank bailouts have failed utterly (as expected by many), there still is no attempt to let insolvency law take over. Why?

Could it be that the only pundits we listen to these days are financial analysts, ie hardly disinterested parties? That politicians, pundits, lobbyists and financiers increasingly constitute one indistinguishable group of like-minded drones that consider Wall St and the City as the center of the world and see industry as outdated, almost by definition?

The result is that we've wasted trillions on uselessly propping up the financiers, are creating skewed incentives for other failing incumbents to claim similar largesse, and are wasting an opportunity to actually rebuild on sounder foundations (new infrastructure, public transportation, renewable energy, sane government, social equity).


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starting here, including translation of German articles by dvx.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Mar 6th, 2009 at 08:33:01 AM EST

More pics ofunsold cars here, as sales have collapsed by 40-50% in many markets over the past 6 months.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Mar 6th, 2009 at 08:39:11 AM EST
I may be prejudiced, but i would think a strong part of the solution stands turning in the upper right of the photo.  Bremerhaven?

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin
by Crazy Horse on Fri Mar 6th, 2009 at 09:31:05 AM EST
[ Parent ]
Though my prejudice is Grounded in Serious Reality.

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin
by Crazy Horse on Fri Mar 6th, 2009 at 09:37:53 AM EST
[ Parent ]
Jerome, do you think it is possible that the major problem--or a major problem with the car companies, particularly G.M. is that they have essentially become banks, doing all kinds of lending, even beyond lending for car purchases.  I don't know anything about car manufacturing and financing in Europe, but do the European car companies also do lots of lending?  My sense is that this lending business has become the real significant business of the car companies here (because it was so damn lucrative for such a long time).  I wish someone would address this aspect of the automobile "manufacturers" crisis.  It would seem that the excursions into the financial realm is what has dragged the car companies over the edge (ooh, pun city).

If the financial side is what is dragging down the car companies, then they do "deserve" a bailout no less than their brethren at the (other) banks.  On the other hand, perhaps the laborers in the financial sector "deserve" the kind of benefits and respect that the unionized auto workers have earned for themselves.  Oh wait, the bank workers are not unionized.

Perhaps this crisis will lead to a resurgence of unions.  Now, that would be a a positive outcome of this dep, er--recession.

by jjellin on Fri Mar 6th, 2009 at 09:58:11 AM EST
  1. the car makers made so much money on their financing operations that they focused less on their core business and ended up with unsatisfactory cars to offer for sale, thus making them weaker;

  2. that profitability was artificially enhanced by the bubble (nobody was defaulting on anything when all asset prices were going up and you could draw home equity whenever needed) and thus the bubble also hid thie underlying health;

  3. most of the financial analysts focused instead on the proclaimed wekaness of the car manufacturers: their labor costs (inclusing legacy costs, ie pensions and healthcare for ealrier workers) - there was thus relentless pressure to focus any management on labor costs (and breaking the unions) than on cars, again.

Maybe if unions were not seen as a problem, and finance were seen as a side business only, could the management properly focus on its job.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Mar 6th, 2009 at 10:13:34 AM EST
[ Parent ]
Jerome a Paris:
Maybe if unions were not seen as a problem, and finance were seen as a side business only, could the management properly focus on its job.
What gets taught in MBA programs?

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Mar 6th, 2009 at 10:23:23 AM EST
[ Parent ]
I don't have one ;)

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Mar 6th, 2009 at 11:26:01 AM EST
[ Parent ]
that I was actually told a number of years ago by a X who was consultant from one of the big firms (McKinsey, BCG or the like) to get a MBA to improve my prospects to be hired by them - and that was AFTER I had my PhD; which of course only tells something about the contempt or indiferrence the French have for PhDs...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Mar 6th, 2009 at 11:27:49 AM EST
[ Parent ]
I have been advised (including by a Project Finance banker) on a couple of occasions to get an MBA in order to improve my job prospects. Last autumn I had a chat about it over lunch with a colleague who worked part-time in the same firm as I did, and was a professor (also part-time) in the MBA program at a prestigious British University. The gist of his advice was pretty much "WTF would you want an MBA for?"

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Mar 6th, 2009 at 11:37:53 AM EST
[ Parent ]
Never met an MBA in the real world who wasn't worse than useless, capable of only making the tea or coffee. of course if you wish to work somewhere where they are easily impressed by such Baubles, on your own head be it.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Fri Mar 6th, 2009 at 11:45:08 AM EST
[ Parent ]
To improve your job prospects. It doesn't matter if the education itself is useful. If employers see that piece of fancy embossed paper is a significant plus, then it is.
by MarekNYC on Fri Mar 6th, 2009 at 12:34:21 PM EST
[ Parent ]
If you're committed enough to the concept of having a career to the point of spending the kind of money they spend, the prospective employers will believe you'll be committed enough to work quite hard for them...

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Fri Mar 6th, 2009 at 12:59:59 PM EST
[ Parent ]
employers will believe you'll be committed enough to work quite hard for them...
Gotta pay off the student loan.  I wonder if other kinds of indebtedness would similarly impress.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Mar 6th, 2009 at 03:18:32 PM EST
[ Parent ]

GM More Open to Bankruptcy
Car Maker Wants to Avoid Filing, but Sees Speedy, U.S.-Financed Plan as an Option

Top General Motors Corp. executives are more open to a speedy bankruptcy reorganization financed by the government, pushing aside earlier concern that such a move would scare away so many customers the company wouldn't survive, said a person familiar with the matter.

(...)

The increased threat of bankruptcy could prod bondholders into making concessions, since these investors are said to believe a bankruptcy reorganization could harm their holdings, according to a person familiar with their thinking.

GM Chief Executive Rick Wagoner told Congress and the White House in November and December that a Chapter 11 reorganization would spark a plunge in revenue from which the company wouldn't recover.

But after months of research, including analysis done by top bankruptcy advisers, the company has come to believe it could emerge from what is known as a prepackaged bankruptcy, said the person familiar with the matter.

Under a prepackaged bankruptcy, the various constituents -- unions, suppliers, bondholders -- would agree in advance to concessions. Prepackaged bankruptcies typically take just a few months to accomplish.

With a prepackaged bankruptcy, said the person familiar with the matter, "We'd have 60 days of havoc and chaos, but the view is, if it was supported by the government and supported by the constituents, included the bondholders, the VEBA [retiree health-care trust] was negotiated, labor was in, that...we would be able to manage it."

A bankruptcy of any sort could be far more effective than the type of out-of-court restructuring GM is undergoing. For instance, the company's entire debt load could be reworked, rather than a majority of it as it currently is trying to do, and the auto maker could circumvent state franchise laws that have long protected its dealers from GM's restructuring knife.



In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Mar 6th, 2009 at 10:22:20 AM EST
"Speedy bankruptcy" is what Stiglitz describes as the best way out of 1997-Asian-Currency-type crises... The only shocking thing about what's going on is that it's the US and not an "emerging" economy that is undergoing this process...

30 years of Friedmanite economics has resulted in the thirdworldization of the First World.

How the mighty have fallen.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Fri Mar 6th, 2009 at 10:26:50 AM EST
[ Parent ]
Well, at least this is the proof, that advice to Asian economies by the IMF etc. in the 90s wasn't bigot. They would have told their own countries the same.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Fri Mar 6th, 2009 at 01:26:20 PM EST
[ Parent ]
i guess that "government bail-out" does not necessarily equate with "nationalization" or "receivership", but is the German minister recommending insolvency instead of nationalization (as well as any other kind of "government bail-out")?

FT.com / Europe - Opel should consider insolvency, German minister says

Opel, the troubled European unit of carmaker General Motors, should consider the option of insolvency rather than a government bail-out, a German minister said on Friday.


Truth unfolds in time through a communal process.
by marco on Fri Mar 6th, 2009 at 01:27:45 PM EST
I think one important reason, why politicians are reluctant to help, is that Opel is so closely bound to GM. The fear is, that in the end most of financial help will end up in the pockets of the mother company. It is not against the car industry per se.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Fri Mar 6th, 2009 at 01:29:19 PM EST
Doesn't the plan involve splitiing off GM Europe?

But they must remember this...

The Times [UK]: Lehman Brothers' $8bn US transfer raises hackles (September 22, 2008)

The administrator for Lehman Brothers' European business asked for the return of $8 billion transferred from Europe to New York just before the bank's collapse

A fresh spotlight has been thrown on the culture of American investment banks after the administrator for Lehman Brothers' European business asked for the return of $8 billion (£4.4 billion) transferred from Europe to New York in the days before the bank's collapse.

Lehman's London staff are angry that the practice of withdrawing funds to New York at the end of each day left coffers at the European business empty.



Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Mar 6th, 2009 at 01:43:35 PM EST
[ Parent ]
I am reminded of the Catholic Church's practise of having virtually all assets on the books of the central organisation, with a layer of cut-outs... and then cutting parts of the organisation that face liabilities like - say - fines and compensation for kiddie-raping priests out of the formal organisation and letting them go bankrupt.

But of course, there's a simple solution. Have the deal give the European part of the company ownership of the assets that it actually controlled when bailouts were first tabled.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Mar 6th, 2009 at 01:48:28 PM EST
[ Parent ]
I've been following the bank bailout mess in the US closely. I've been trying to follow what is happening with them in Europe, but they are more diffuse there. I have seen people, including Krugman, express the opinion that the efforts in both places are similarly characterized by confusion and indecision. Would you agree with that? If you think that there is any fundamental differences, I'd be interested to know what you think they are.
by Richard Lyon (rllyon@gmail.com) on Fri Mar 6th, 2009 at 06:25:56 PM EST
What I would like to know is why GM doesn't send the excess Opel cars over to the U.S. At least that way they would have something to compete with Toyota.

For example, I have not heard anything in the discussions in Washington about regularizing the emissions and safety regulations between the U.S. and E.U...

by asdf on Fri Mar 6th, 2009 at 09:41:19 PM EST
You've answered your own question. Differences in emissions and safety regulations are the reason "why GM doesn't send the excess Opel cars over to the U.S.". Some European manufacturers, such as BMW and Mercedes, do sell cars in the US, but they adapt them to meet US requirements, and GM's Saturn unit did in fact introduce an Americanised version of the Opel Astra last year. But there's no way to take excess inventory from Europe and sell it in the US - which in any case has its own mountains of unsold cars.
by Gag Halfrunt on Sun Mar 8th, 2009 at 08:16:56 AM EST
[ Parent ]


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