Markham's Mix Tape: April 13, 2009

Includes: GM, JPM
by: Markham Lee

The usual mixture of news stories and other tidbits I think you may find interesting, today's edition is primarily composed of item from last week with only a couple of items from this one.

Let's start off today's mix with some humor, namely Stanley Bing's offer to sell some of his toxic Assets to the Treasury. In keeping with this theme I would like to sell the treasury some of my used cassette tapes from the 80s that I feel are simply undervalued in the current economy, for I am confident my Bon Jovi, Def Leopard, and White Snake tapes will all be worth billions some day. At least that's what my valuation models tell me.

Here is a look at the news that the Treasury is instructing GM to prepare for a "surgical bankruptcy". I won't say much about this one since nothing is official yet, except to say that the old model is dead, the Government can't support GM indefinitely and the company would be wildly profitable if it could free itself from its myriad liabilities. At this juncture bankruptcy is the only option that will allow the company to make this happen, and while it may be unpleasant it's better than keeping the company on life support while waiting for their ill fated restructuring plans to work.

Despite a law that was designed to curb bankruptcies, filings have been surging in recent months. I suspect that the reason for this is that creators of the law didn't quite understand why people file in the first place, in terms of it being more driven by unfortunate life events than irresponsibility with debt per se. The other issue is that some people are so overburdened with debt that they are probably able to file in spite of the law, even if the primary cause is in fact the very irresponsibility the law was designed to prevent.

Here is a look at the some of the changes Chase (NYSE:JPM) is going to make to their WAMU branches , in particular they're removing the "customer friendly" elements of the branches and implementing a more traditional branch layout.

As a WAMU customer I can't say I support this move, as the customer orientated layout and the overall emphasis on customer service was something I liked about WAMU. When a Chase executive claims that the traditional layout is superior in every way, I think he's missing the point as far as what WAMU a leader in customer service. In an era where people generally hate banks, I think it would be wise for Chase to find a happy medium between WAMU's friendlier branch layout and the more efficient traditional layout.

In general the banking industry needs to stop acting as if it's doing its customers a favor, and start acting as if they truly want our business.

Looking at car sales woes across the pond: there is a recent trend in Britain where used cars sometimes cost more than new ones, due to the amount of incentives that are being used to sell new cars. I know I keep harping on this but the Auto Industry needs to step back for a minute an ask itself a fairly simple question: "Has any other industry gotten itself out of trouble by selling its products for deep losses, especially during a time of economic difficulty?"

Here is a look at a NY Times sector snapshot for the Insurance Industry.

A NYC lawyer has committed fraud that while a fraction of the size of Madoff's, was undoubtedly several times more "Brazen" according to Fortune Magazine. It's definitely an interesting read, particularly as we enter an era where more and more of these types of frauds are going to be discovered.

Here is a link to a section of the Financial Times web site that is dedicated to the situation in Detroit. I don't have much more to say on the subject for now I just hope that the Chapter 11 plans move forward, and that everyone involves recognizes the fact that GM and Chrysler can be very profitable if you are able to separate the good parts of the company from the liabilities that are dragging them down.

Speaking of Detroit: here is a look at the real life economics around the proposed government plan to pay bonuses to people who trade in their gas guzzlers/clunkers/older cars, for newer more fuel efficient American cars. It turns out that in many cases it's cheaper for the person to keep their current car, either due to the bonus being less than the trade-in value and/or it being cheaper to keep the old car than to take on the debt from a new car purchase.

In the end I think that this program's success will hinge on people buying into it more from a psychological perspective than a mathematical one. Still, I have to say that it's a bit disturbing to see a government program that is basically trying to incent people to make bad financial decisions.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.