Wall Street Breakfast: Must-Know News

• Auto bailout runs out of gas. After being fast-tracked through the House of Representatives, a $14B emergency loan package for the auto industry failed to gain traction in the Senate. After talks deteriorated last night, a White House-backed compromise bill was introduced, but fell short of the 60 votes needed by a margin of 52-35. 'Deeply disappointed' General Motors (GM) hired advisers for what could be one of the largest and most controversial bankruptcy filings in U.S. history. Chrysler has hired bankruptcy experts as well, warning it could run out of cash by the end of the month. The White House expressed disappointment at the bailout's failure and said officials would evaluate their options (though a spokesman declined to specify just what those options were). Sources say GM and Chrysler, as well as a handful of lawmakers, are pushing the White House to finally relent and allow the Treasury to extend TARP funds to the auto industry. Meanwhile, the government of Sweden announced a 28B Swedish kronor ($3.4B) bailout for its auto industry, including car producers Saab (GM) and Volvo (F).
• Bailout fails, markets flail. "I dread looking at Wall Street tomorrow," said Senate Majority Leader Harry Reid. "It's not going to be a pleasant sight." Indeed. Asian markets opened down and continued down. European markets and U.S. futures followed their Asian counterparts into the red (see below). Crude, which had rallied strongly early yesterday, fell by nearly $3 to $45/barrel. The dollar fell to a 13-year low against the yen. Treasurys rallied, sending yields on 10-year notes to 2.48%, the lowest level since 1954. General Motors (GM) and Ford (F) were -49% and -27% in Germany, respectively, as of 3:30am. In Japan, Honda (HMC) -12%, Toyota (TM) -10%, Nissan (NSANY) -11%.
• Madoff, mad and off to court. Famed broker Bernard L. Madoff, a former chairman of the Nasdaq Stock Market and a force in Wall Street trading for nearly 50 years, was arrested yesterday for allegedly running a 'giant Ponzi scheme' that defrauded investors of an astounding $50B. In a civil complaint, the SEC alleges 'a stunning fraud that appears to be of epic proportions' and has asked a judge to seize the firm and its assets. The FBI filed a separate criminal complaint, alleging Madoff's pyramid scheme resulted in the loss of billions of dollars. Madoff is the founder and primary owner of Bernard L. Madoff Investment Securities LLC, a firm known mainly for its market-making business, but also oversaw an investment-advisory business whose financial statements he kept under lock and key. Hedge funds, already in trouble, could face a fresh round of redemptions as investor distrust falls to new lows.
• BoA constricts workforce. Bank of America (BAC) plans to slash around 35,000 jobs over the next three years as it absorbs Merrill Lynch (MER), or roughly 10-11% of the companies' combined workforce. The cuts reflect both redundancies created by the Merrill acquisition and the 'current recessionary environment,' and will affect employees from both companies. BoA hopes the cuts will help it save $7B annually.
• PNC sees fewer branches in NCC deal. PNC Financial Services (PNC) will have to sell 61 National City Corp. (NCC) branches to secure Justice Department approval for the acquisition. The DoJ order didn't come as a surprise as the $5.6B deal, announced at the end of October, would create the nation's fifth-largest bank by deposits and fourth-largest bank by branches. As of June 30, the 61 branches being sold held a total of $4.1B in deposits. PNC is the first U.S. bank to make an acquisition using TARP funds.
• Newsweek becomes news-weak. Newsweek magazine (WPO) will slim down, print fewer copies, publish more photos and opinion, and cut staff. Unlike Time magazine (TWX), which is profitable, Newsweek is bleeding and ad pages are down 21% this year. The company's strategy is to build a more 'contemporary' look and to place a greater emphasis on editorializing rather than costlier news gathering. Some industry veterans say news weeklies will have to significantly shrink their readership base and charge more per copy in order to build an audience for which advertisers will pay a premium. Deloitte has warned the 'downward spiral' of newspapers and magazines will only get worse.
• Mister, can I lend you ten bucks? Stung by the loss of more than $2.8T in net wealth, U.S. households paid down debt for the first time since at least 1952 in Q3, the Fed said in its quarterly Flow of Funds report. Outstanding household debt shrank 0.8% on an annual basis to $13.91T.
• South Korea's currency swaps. South Korea agreed on bilateral currency swaps with Japan and with China. South Korea and Japan will increase an existing won-yen arrangement to $20B from the $3B in place since May 2005. China and South Korea will create a swap accord worth 38T won ($28B). South Korea wants to stabilize its currency and maintain external credibility, while all three countries are looking to ensure financial stability in Asia.
• Gov't spending up Down Under. Australia adds A$4.7B ($3.2B) of infrastructure spending to its stimulus plan in a continued attempt to forestall recession. Australia's economy grew at its weakest pace in eight years in Q3 as consumer spending stalled.
• More unemployment. Initial jobless claims of 573,000, up 58K from last week's revised numbers, were worse than the 525,000 economists expected. The 4-week moving average rose 14,250 to 540,500.
• Import prices fall. Import prices fell 6.7% in November vs. consensus -4.7%, driven by falling petroleum prices. It was the fourth consecutive month of heavy declines. Export prices fell 3.2%.
• Trade deficit widens. October's Trade Deficit came in at $57.8B, more than the $53.5B economists expected, and up a bit from September's $57.1B (revised). Imports of $141.7B vs. exports of $199.5B, both up slightly from last month.

Today's Markets

• News of the auto industry bailout breakdown weighed heavily on overseas markets. Asia closed heavily down: Nikkei -5.56% to 8,236. Hang Seng -5.48% to 14,758. Shanghai -3.81% to 1,954. BSE +0.46% to 9,690.
• Same story in Europe. At midday: London -3.9%. Paris -4.9%. Frankfurt -4.8%.
• U.S. futures: Dow -3.4% to 8303. S&P -4.2% to 837.50. Nasdaq -3.95%. Crude -6.15% to $45.03. Gold -1.4% to $815.

Friday's Economic Calendar

• 8:30 Producer Price Index
  8:30 Retail Sales
  10:00 Business Inventories
  10:00 University of Michigan Consumer Sentiment

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[axelrod608:]

The US automakers and autoworkers have had decades to fix the problems they all knew they have had forever. I grew up in a "Chevy town" and the worker/management rancor was rife in the 1950's and has continued ever since. Even knowing the pain that eventual restructuring will cause, I have no sympathy for either side. Both sides have been greedy and intransigent and have simply not wanted to fix the mess they made.

As they exist now, the US automakers are unsustainable. Any bailout funds dumped into them now might as well be burned. There's a reason they don't try to raise the Titanic. Same reason applies to the automakers.

Despite the massive pain it will cause now, I believe the US automakers can be restructured to compete successfully in the future, but their management, labor contracts and dealer network will be far different than they are now.

UNSUSTAINABLE - the key word of this decade. The bloated banks, automakers, consumer debt, real estate valuations we brought into the 21st century are unsustainable. The sooner we accept that as a fact and downsize accordingly, the sooner we can get back to a solid foundation for our economy.

If we keep flooding more good money after bad in a vain attempt to resurrect dysfunctional businesses, we wil turn our economy into one like the Japanese have - in permanent recession. Bailing out the automakers ( and everyone else) is the feelgood thing to do, but it will solve nothing. It will only prolong the agony and the losses.

2008 Dec 12 09:40 AM

[hanson001:]

The sad thing is the automakers will probably end up getting your money. With all the socialist in Washington, I see it as a done deal. Thus the pain is prolonged.

There is a GM plant in my town and I know many people that work there. I loved observing their behavior over the years. The arrogance of people with only high school diplomas making almost 30% more than people coming out of college. I told a GM friend (spending and not saving because her job would last a life time) long ago to save her money because the global business model could not support her pay. Like all the other workers there, she looked at me as though I was crazy.

Needless to say, most these workers are forced to vote for what ever communist is running for office. Just like the government workers. Study their pay and pension plans and it will make you sick. You will never get the same set up in the private sector. Then when you need their service you are treated like a an illegal alien.

Bailing out the Big Three will create the same entitlement behavoir you see in the government (federal, state, and local) workers.

Next stop the health care industry. Like the autoworkers, the health care industry needs to wake up to the new paradigm that the people and nation is growing poorer in real terms. In fact, we have been for over a decade. Wealth created with debt is an ignorant game.

Looks like the American people know the deal. They are paid down debt for the first time since 1952. If they would of had a bailout option (no more home equity loans...hehehe) this would not have happened.

Merry Christmas.

2008 Dec 12 09:48 AM

[easygo:]

I see this with a different perspective folks. While not throwing money at these may sound like a BAD idea, the truth is in order for North American auto industry to succeed, they need to quit carrying the the drag forces they have ( Union contracts, Heavy debt, Executive contract breach agreements, Other contracts done with poor judgement etc).

It is only possible by filing for banrupsy and allowing the companies to re-structure. I wish they keep 90% work force(10% can't help it, as it is warrented for most corporations in this market) and emerge as stronger companies.

2008 Dec 12 10:01 AM

[Steve20423:]

Possibly just another step toward socialism. What better way to continue the process FDR started with big government programs than the UAW losing all their benefits. The Socialist response will be for the government to step in with a program that will expand to the entire nation to include pensions and healthcare. Once established the auto industry will reorganize and right size. Goodbye 401k plans.
In the global market US wages must conme down for us to compete in the manufacturing arena. We may be the last generation to live better than our parents. Life aswe knew it is over.

2008 Dec 12 10:11 AM

[notsosmart:]

we had a good run.whats all the complaining about?the stadiums are still full.i guess beer sales havent dropped all that much.most folks havent checked nor do they care about their 101k's.the scammers,scoundrels & crooks on wall st & govt are safe as they cover each others ass.so have a happy holiday season.

2008 Dec 12 10:12 AM

[19Larry42:]

Prediction: The UAW will give a small fraction of pay & benefits. The Auto companies will reorganize their failed operations just enough to claim billions of dollars. The politicians will then tell the taxpayers they have been successful in averting a major calamity and the taxpayers will be stuck with the bill. As a side note, all the handouts will result in a huge increase in inflation down the road, just another form of taxation that the politicians don’t have to vote on.

2008 Dec 12 10:18 AM

[Alakh:]

I am an economist with expertise in macro and helath economics. I agree completely with your comments. In health sector Doctors exploit too much to their patients because of insurance and restrictions on entry of new doctors. Only in USA doctors and auto workers are paid that much. It is clear cut corruption at the cost of rest of the US people and it must be stopped immediately.


On Dec 12 09:48 AM hanson001 wrote:

> The sad thing is the automakers will probably end up getting your
> money. With all the socialist in Washington, I see it as a done
> deal. Thus the pain is prolonged.
>
> There is a GM plant in my town and I know many people that work there.
> I loved observing their behavior over the years. The arrogance of
> people with only high school diplomas making almost 30% more than
> people coming out of college. I told a GM friend (spending and not
> saving because her job would last a life time) long ago to save her
> money because the global business model could not support her pay.
> Like all the other workers there, she looked at me as though I was
> crazy.
>
> Needless to say, most these workers are forced to vote for what ever
> communist is running for office. Just like the government workers.
> Study their pay and pension plans and it will make you sick. You
> will never get the same set up in the private sector. Then when
> you need their service you are treated like a an illegal alien.

>
>
> Bailing out the Big Three will create the same entitlement behavoir
> you see in the government (federal, state, and local) workers.

>
>
> Next stop the health care industry. Like the autoworkers, the health
> care industry needs to wake up to the new paradigm that the people
> and nation is growing poorer in real terms. In fact, we have been
> for over a decade. Wealth created with debt is an ignorant game.

>
>
> Looks like the American people know the deal. They are paid down
> debt for the first time since 1952. If they would of had a bailout
> option (no more home equity loans...hehehe) this would not have happened.

>
>
> Merry Christmas.
>
>
>

2008 Dec 12 10:45 AM

[Amentohanso...:]

Amen to hanson001!! We can not compete in the car industry until we quit paying $ 60 an hour for some high school drop out to tighten 5 lugs on a car tire. Also, do not forget the benefit of continuing to pay these people 90% of the compensation while they sit home and watch TV because their plant had to be idle. How many other workers in the US get this kind of financial security. Screw GM, Ford, Chrysler! Pre packaged bankruptcy and let us try to clean the car industry up for good. UAW great real or get out of the way!!!


On Dec 12 09:48 AM hanson001 wrote:

> The sad thing is the automakers will probably end up getting your
> money. With all the socialist in Washington, I see it as a done deal.
> Thus the pain is prolonged.
>
> There is a GM plant in my town and I know many people that work there.
> I loved observing their behavior over the years. The arrogance of
> people with only high school diplomas making almost 30% more than
> people coming out of college. I told a GM friend (spending and not
> saving because her job would last a life time) long ago to save her
> money because the global business model could not support her pay.
> Like all the other workers there, she looked at me as though I was
> crazy.
>
> Needless to say, most these workers are forced to vote for what ever
> communist is running for office. Just like the government workers.
> Study their pay and pension plans and it will make you sick. You
> will never get the same set up in the private sector. Then when you
> need their service you are treated like a an illegal alien.
>
> Bailing out the Big Three will create the same entitlement behavoir
> you see in the government (federal, state, and local) workers. <br/>
>
> Next stop the health care industry. Like the autoworkers, the health
> care industry needs to wake up to the new paradigm that the people
> and nation is growing poorer in real terms. In fact, we have been
> for over a decade. Wealth created with debt is an ignorant game.
>
>
> Looks like the American people know the deal. They are paid down
> debt for the first time since 1952. If they would of had a bailout
> option (no more home equity loans...hehehe) this would not have happened.
>
>
> Merry Christmas.
>
>
>

2008 Dec 12 10:55 AM

[secmaven:]

When the Pension Benefit Guaranty Corp has to take over the pensions of 420,000 retired auto workers the 14 billion bridge loan to the auto companies will seem like chump change. Citibank got 300 billion of its losses covered by the Feds and no Senators were upset. Is there a double standard operating here? Maybe it is because the Senators who want to bring down Detroit and the UAW all have foreign auto plants in their states? Just wait until the secret ballot for unionization is scrapped in favor of the face to face vote shakedown. These fine senators will not be riding so high.

2008 Dec 12 11:15 AM

[jackooo:]

No one wants to se job losses and unemployment. Neither do we want to send good money after bad.
2 months ago GM final shut down a SUV plant. Kinda late don't you think?


On Dec 12 08:02 AM John D wrote:

> It's really hard to believe that so many that want to see the North
> American economy fail so much that they are blind as to what the
> consequences are going to be - 1st the financial crisis - 2nd the
> credit crisis and strike 3 - failure to give the industry help to
> keep the economy rolling - Is it the company - the union or the government
> ....Hmmmm. Lets back up now if all of the high priced help in the
> government with all of their expertise could not see the financial
> crisis was going to hit the industrials - THEY LET THE USA DOWN -
> not to mention the tsunami that is rippling around the globe. They
> would rather see 3 million American families without a way to support
> their families (which is now 12 million Americans - 4 per family)
> instead of sucking it up - do the math and fix that which should
> never have gotten started in the 1st place - were there no flags
> or warnings that this was coming or did they just ignore it long
> enough to head to higher ground in Washington with their pensions
> and investments intact. Hmmmm??? It was not the fault of the employees
> and their families they were just trying to make a living, I guess
> the term "casualties of WAR" comes into place - TRILLIONs spent to
> protect the country from others and ZERO to protect it from itself.

2008 Dec 12 11:26 AM

[auto44:]

The rest of us cannot afford $70+ per hour no matter how much money is thrown at cars. Detroit will not be able to compete until their labor rates corespond to foreign makers. Forcing them to build hybrids and electric cars is a nutty idea also. The electricity they use is produced by coal burning polution spewing power plants. Electrical power is not as efficient or as clean as the internal combustion engine, and I know they are huge wasters of energy, and what about the polution created by the construction and then disposal of batteries. electric power was sold big time in the northeast for home heating fuel using heat pumps and backup resistaance heating. most of those systems have been converted to Natrual gas and the heating part of the heat pumps were disabled and used solely for air conditioning. the whole deal was really a fraud perpetrated by over bulilt electrical generating capacity. Electric cars are the same type of fraud this time trying to quiet and fool the ecologically concerned segment of our society.

2008 Dec 12 11:31 AM

[axelrod608:]

<<"When the Pension Benefit Guaranty Corp has to take over the pensions of 420,000 retired auto workers the 14 billion bridge loan to the auto companies will seem like chump change. Citibank got 300 billion of its losses covered by the Feds and no Senators were upset. Is there a double standard operating here?" >>

Of course. And for those who call what's happening "socialism", you're wrong. Emperor George II's first move was the tax cuts to rich peoiple. Everything he's done since is to benefit rich people at the expense of working people. Rich people make BIG campaign contributions. Workers don't. This is not rocket science.

When rich corporate execs take the company jet to a Caribbean island for a "seminar", it is written off as a business expense against tax liabilities. The wealthy play at the working taxpayers' expense.

The most insanely overpaid execs are on Wall St. Thus, they were first in line for bailouts. That is NOT socialism.

When the government buys a building, equips it with medical equipment, hires the doctors, nurses and other staff who then treat patients for free, THAT is socialism. When the government pays insurance companies, huge medical corporations and Big Pharma to ration out "health care" to people who already paid for insurance, that's NOT socialism.

The government is creating and sustaining oligarchs and huge corporations. This is NOT socialism.;

2008 Dec 12 11:53 AM

[hanson001:]

Socialism: The means of producing and distrubuting goods are owned collectively.

Thus bailout equals socialism.

2008 Dec 12 12:12 PM

[doubleguns:]

The housing industy is many times bigger than the spoiled 3 autos. If we bail out the autos with the pathetic notion that its to save jobs then why havent we argued for the housing industry bailout. 4-5 times more jobs at least when we include all of the suppliers, tree cutters, log haulers home depots, brick makers, stone cutter, The list is endless. How pray tell do we tell the housing idustry no if we bail out the spoiled three. Where does it end. Financial industry effected every man, women and child not to mention retirements in america. We had to do something there but all of the other industrys should be on thier own or we bail out EVERYONE!!! We know that cant happen.

2008 Dec 12 01:22 PM

[Joe Public:]

Not that I was ever tempted to do this, but I won't be taking market timing advice from Harry "it's not going to be a pleasant sight" Reid. As I write this, the S&P is up a point on the day. Bravo to the Senators who just said no to this multi-billion dollar band-aid. But a big Thumbs Down to every single one of them who value their December vacations more highly than continuing to work on this problem. Didn't we rip the Iraqis for taking their August vacation instead of working on their constitution? What's so different here?

2008 Dec 12 01:26 PM

[notsosmart:]

sheeples-have a happy holiday mess season.

2008 Dec 12 01:37 PM

[bbowen7:]

Two problems for a solution this week:
1. Pelosi added the requirement that the auto companies accept state environmental laws, then sent her troops home. A non-starter in the Senate.
2. The UAW refused to commit to a competitive wage package any time in 2009, on the assumption that the Obama regime with a more solidly Democratic congress will give them what they want.

The choice is bankruptcy or limping along with a non-competitive industry.

2008 Dec 12 01:46 PM

[wallyjm:]

the big 3 producers of those suv crap. produce good quality up to date normal cars and problem solved.

2008 Dec 12 02:38 PM

[axelrod608:]

>>"Socialism: The means of producing and distrubuting goods are owned collectively. Thus bailout equals socialism." >>

Hanson - OWNED BY. yes. But the US gummint is NOT buying Goldman, AIG, etc. At current levels, all of GM's stock could be bought for around $4Billion. And then we, the sheeple, would OWN GM. That's not what's happening. We're just giving them more money than it would cost to buy the entire company and taking a place in the line of creditors.

Socialist governments RUN the businesses they own. Under the US bailout, the same incompetent managers that got them here would keep running the company (into the dirt).

This is NOT socialism. It's cronyism, corporate welfare.

2008 Dec 12 07:06 PM

[woodsey:]

Now let's see; who will be affected? Auto workers, auto companies, auto unions, ditto suppliers, and ... oh yes and VOTERS.

2008 Dec 12 11:29 PM