zalo

Playing the Auto Bailout With Yields as High as 45%

Buy bonds, prefereds, etc in the face of a bankrupcy situation? This is a value trap, yields doesn´t matter at this point, only how much from the face value you will get back.

The Hypothetical Automaker Bailout Gets Another Supplicant

The government should not bailout the automakers. The BIG mistake in the US is thinking that they need to keep alive inefficient companies running for the sake of the employments. By doing this, they keep excess capacity running in whole industries and this makes it worse for the sector. For example, by allowing airlines permanently going into chapter 11 instead of liquidating them, excess capacity remains in the industry which endangers the profitability of the whole industry. By allowing the offer side to shrink, the remaining more efficient companies could actually raise prices and take pressure out on themselves. Solvent more powerful companies would appear instead, which in the long term is much better for employment conditions. The same is for automakers. Let them go bankrupt and shrink down. Automakers carry too heavy health and pension burdens combined with inefficient strategies and excess capacity. Bankrupcies would reduce this burdens and clean up capacity in the industry, allowing the surviving part, though smaller, run smoother. So, save the employees with the $25 billion through job insurance, but do not save the companies.