MichaelZZ

GM: The Bailout vs. Bankruptcy Meme

GM should go through a "packaged" Chap. 11 re-organization to include:

1) Adjustments in pay - union and white collar

2) Strict control over management's salaries and bonuses

3) A massive, but rational, reduction in legacy responsibilities

4) A 100% loss for all common and preferred shareholders

5) At least an 80% loss for bond holders, other than GMAC holders, to be paid for with new common stock

6) An infusion of the People's funds in the form of preferred stock with "business-like&qu.... parameters, such as 10% dividends, a very healthy option to convert into new common, and a serious number of long-term warrants to purchase new common

7) Reduce obligations to suppliers by 30% with the reduced amount paid in new common

The above is a good starting-point of discussions



Michael Z.
Sherman Oaks
[e-mail]
[e-mail]

General Motors: Time to Pull the Plug

GM should go through a "packaged" Chap. 11 re-organization to include:

1) Adjustments in pay - union and white collar

2) Strict control over management's salaries and bonuses

3) A massive, but rational, reduction in legacy responsibilities

4) A 100% loss for all common and preferred shareholders

5) At least an 80% loss for bond holders, other than GMAC holders, to be paid for with new common stock

6) An infusion of the People's funds in the form of preferred stock with "business-like&qu.... parameters, such as 10% dividends, a very healthy option to convert into new common, and a serious number of long-term warrants to purchase new common

7) Reduce obligations to suppliers by 30% with the reduced amount paid in new common

The above is a good starting-point of discussions



Michael Z.
Sherman Oaks
[e-mail]
[e-mail]

Spending, Production Slowing: Happy Holidays, You're Fired

GM should go through a "packaged" Chap. 11 re-organization to include:

1) Adjustments in pay - union and white collar

2) Strict control over management's salaries and bonuses

3) A massive, but rational, reduction in legacy responsibilities

4) A 100% loss for all common and preferred shareholders

5) At least an 80% loss for bond holders, other than GMAC holders, to be paid for with new common stock

6) An infusion of the People's funds in the form of preferred stock with "business-like&qu.... parameters, such as 10% dividends, a very healthy option to convert into new common, and a serious number of long-term warrants to purchase new common

7) Reduce obligations to suppliers by 30% with the reduced amount paid in new common

The above is a good starting-point of discussions



Michael Z.
Sherman Oaks
[e-mail]
[e-mail]

General Motors Bailout: Consider Other Alternatives

GM should go through a "packaged" Chap. 11 re-organization to include:

1) Adjustments in pay - union and white collar

2) Strict control over management's salaries and bonuses

3) A massive, but rational, reduction in legacy responsibilities

4) A 100% loss for all common and preferred shareholders

5) At least an 80% loss for bond holders, other than GMAC holders, to be paid for with new common stock

6) An infusion of the People's funds in the form of preferred stock with "business-like" parameters, such as 10% dividends, a very healthy option to convert into new common, and a serious number of long-term warrants to purchase new common

7) Reduce obligations to suppliers by 30% with the reduced amount paid in new common

The above is a good starting-point of discussions



Michael Z.
Sherman Oaks
[e-mail]
[e-mail]

Wall Street Breakfast: Must-Know News

RESOLUTION FOR DISTRESSED "RESET" MORTGAGES:

Concepts:

1) One size does not fit all, i.e., each situation should be tailored for the borrower.

2) Responsibility should be resolved between the lender and the borrower.

3) No taxpayers’ funds should be involved.

4) A mortgagor must sign a document, subject to perjury, whereby the mortgagor states that he or she was unaware that the interest rate was to be reset.

The mortgagor has the option of the following alternatives:

The mortgagor will be allowed to wind the clock back to the time prior to the purchase with the information that the mortgage will be reset at the end of five years at a rate to be determined and explained that the rate may be significantly higher than the rate offered at the time of purchase.

1) Can agree to the purchase and will remain with the current situation.

2) Can refuse the 5/25 loan as offered and opt for a conventional fixed rate loan
at a rate of the then-current rate, e.g., 7.25% and will have all payments adjusted to reflect that loan.

3) Can terminate the potential purchase.

4) Can remain in the property, while making the same payments. The lender or agent thereof will be given a lien on the property that will be equal to the accumulation of the difference between the contractual payments and the payments being made. Further, interest will accrue on this differential at the contractual rate.

If the mortgagor opts for option 3), and there is no significant evidence reflecting that the rate reset information was given prior to entering into the mortgage, the mortgagor will vacate the premises and the mortgage will be cancelled, with no further obligation.

Any other encumbrance upon the property will be the responsibility of the mortgagor.

Further, the mortgagor will be responsible for any damages done to the property.

One of the most critical factors is the business model of a CountryWide negotiating mortgages, and then having them bundled and sold as securities. That "model" stimulated the numbers, since the negotiators were no longer involved with these mortgages.

The logistics of my idea would be to have the funds consisting of two pieces (one, the payment from the mortgagor, and the second, the augmented payment from the "negotiator", who will hold the 2nd) and the total would be paid to the "security" as a whole payment.

This would place the responsibilities where they should be, on the mortgagor and on a "CountryWide", i.e., the negotiator.

If these logistics require some tweaking, so be it.


Michael Z.
Sherman Oaks
[e-mail]

Wall Street Breakfast: Must-Know News

Paraphrasing Isaac: Objects in motion tend to remain in motion, objects at rest tend to remain at rest, and to change either condition, requires energy.
In this case the energy factor should be effected by Congress by legislating the appropriate fiscal adjustments, i.e., immediately (do not wait until 2010) repeal those portions of the Bush tax legislations for those with taxable incomes in excess of $200,000 (arbitrary, i.e., could be $225M, $230M) and legislate permanent tax reductions for those with taxable incomes under $80,000.
This will be the energy factor, which will prime the engine of our economy. The longer it takes to do this, the more problematic will be the results.
A one-shot stimulus package will not work, as the recipients will pay down debt or add to savings due to insecurities, whereas a permanent tax reduction will mean that they will see their net paychecks increase and will have greater confidence. Unless consumers increase their collective confidence and spend, the situation will become much graver.
The parameters of the first traunch of $125 billion should be changed:
1) Only those institutions who want the funds should receive, i.e., none should be coerced into taking
2) The dividend rate should be changed to, at least 11%, for the purpose to stimulate the institutions to attempt to raise capital from private sources. They would know that they have the backstop of the 11% preferreds.
3) The conversion factor should be significant
4) As in the case of the Buffett purchase of GS preferreds, there should be substantial long-term warrants
5) The "fund" should be given seats on the Boards.
6) All dividends, other than any preferred stock dividends should be deferred for one year and will be re-assessed at the end of the year
7) There should be a moratorium for any bonuses and this will be reevaluated at the end of the first year
8) Those institutions which do not accept the "fund's" requirements and eventually fail, and which have exacted bonuses will place in civil and criminal jeopardy those recipients of the bonuses. The punishments will include imprisonments and the return of the bonuses plus substantial monetary penalties.
The common shareholders will be adversely affected (much of which has already been reflected), but that is appropriate.
Capitalism will be alive and well.

Michael Z.
Sherman Oaks
[e-mail]

Greed Kills and Other Observations

Resolution for Distressed “Reset” Mortgages:

Concepts:
1) One size does not fit all, i.e., each situation should be tailored for the borrower.
2) Responsibility should be resolved between the lender and the borrower.
3) No taxpayers’ funds should be involved.
4) A mortgagor must sign a document, subject to perjury, whereby the mortgagor states
that he or she was unaware that the interest rate was to be reset.

The mortgagor has the option of the following alternatives:
The mortgagor will be allowed to wind the clock back to the time prior to the purchase
with the information that the mortgage will be reset at the end of five years at a rate to
be determined and explained that the rate may be significantly higher than the rate
offered at the time of purchase.
1) Can agree to the purchase and will remain with the current situation.
2) Can refuse the 5/25 loan as offered and opt for a conventional fixed rate loan
at a rate of the then-current rate, e.g., 7.25% and will have all payments adjusted to reflect that loan.
3) Can terminate the potential purchase.
4) Can remain in the property, while making the same payments. The lender or agent thereof will be given a lien on the property that will be equal to the accumulation of the difference between the contractual payments and the payments being made. Further, interest will accrue on this differential at the contractual rate.

If the mortgagor opts for option 3), and there is no significant evidence reflecting that the
rate reset information was given prior to entering into the mortgage, the mortgagor will
vacate the premises and the mortgage will be cancelled, with no further obligation.
Any other encumbrance upon the property will be the responsibility of the mortgagor.
Further, the mortgagor will be responsible for any damages done to the property.


One of the most critical factors is the business model of a CountryWide negotiating mortgages, and then having them bundled and sold as securities. That "model" stimulated the numbers, since the negotiators were no longer involved with these mortgages.
The logistics of my idea would be to have the funds consisting of two pieces (one, the payment from the mortgagor, and the second, the augmented payment from the "negotiator", who will hold the 2nd) and the total would be paid to the "security" as a whole payment.
This would place the responsibilities where they should be, on the mortgagor and on a "CountryWide", i.e., the negotiator.
I would have argued this concept during the negotiations between the various AG's and Bank of America regarding the CountryWide resolution. I think the cost would be much less than the eight billion dollar settlement
If these logistics require some tweaking, so be it.

Michael Z.
[e-mail]