Sunday, November 09, 2008

Welcome to the United Land of Bailouts....

Anyone want to get together and drive to DC to ask for a bailout of for the Typewriter Industry? How about we bailout the telegraph industry? I hear if they just reconfigure their factories to include fancy new "voice" technologies that the US telegraph industry will come roaring back. Maybe we could get some options or warrants on the telegraph stocks......

Weekend Bailout News......

1) We're screwed with AIG - After throwing $85 billion at AIG about six weeks ago and another $40 billion in October, it looks like AIG needs another $75 billion or so. Now, this is starting to become real money. $60 billion would likely create a smart power grid that could eliminate 50% of our energy dependence on fossil fuels. Instead we're going to throw it at an insurance company that became a hedge fund that no one can really understand (disclaimer - when I worked at AIG in the early 90's it was a source of pride that we were smarter than Wall Street b/c we could earn money when others couldn't. AIG's organizational chart would make a grown man cry - All good things come to an end).

"The Bush administration was overhauling its rescue of the American International Group on Sunday night, according to people involved in the transaction, amid signs that the interest on its initial credit line of more than $100 billion was putting too much strain on the ailing insurance giant.

The Federal Reserve is near a deal to invest another $40 billion into the company, these people said, as part of a huge restructuring of A.I.G.’s debt. The government made an $85 billion emergency line of credit available in September to keep it from toppling and added $38 billion in early October when it became clear that the original amount was not enough."

2) China offers a Super-Sized Stimulus - China surprised few with their announcement over the weekend of a $4 trillion yuan stimulus plan (about $600 billion US). They had telegraphed this for some time and the announcement goosed the Asian markets about 5% (we'll see if it holds). This stimulus strikes me as strange. It's like Yao Ming has a growth spurt from 5'10 to 7'4" and then someone wants to put him on the racks to see if they can get him to 8'0". China should welcome a little break in the their growth. They are still set to be the dominate global economic power in the next 100 years. Well, at least they can afford it.

"The stimulus package, of which 100 billion yuan is earmarked for this quarter, will go toward low-rent housing, infrastructure in rural areas, as well as roads, railways and airports, it said.

The government will allow tax deductions for purchases of fixed assets such as machinery to stimulate investment, a move that will reduce companies' costs by an estimated 120 billion yuan.

In addition, grain purchase prices and subsidies for farmers will be raised, as will allowances for low-income urban households. The government also scrapped loan quotas to help boost lending to small businesses."

3) And finally, my favorite - The Big 2 1/2 come begging...

This is probably not going to win me any fans domestically, but the idea of throwing money at the Big 3 (2 1/2 once Chrysler winds down) is absolutely insane. I've said before that the Wall Street bailout was creating a slippery slope - who do we save? Car companies, Commercial Real Estate, etc, etc. Yes, Ford and GM employ many people in the heart of the US. Yes, those are generally good jobs. Unfortunately, they are good jobs with bad companies that make inferior products. The auto industry represents our past. I'd be much happier offering a 1,000 $1 million grants to engineers around the world to design a high quality 50mpg sedan. Then let VC's buy us out for a couple of billion and let them create a new auto industry.

What's truly stunning is that the new $5o billion request includes just $25 billion for operations (considering the companies are burning almost $10 billion a month, this is literally throwing money away) and $25 billion for retiree healthcare costs !!!! What? Did that $25 billion just suddenly show up overnight? Did they not know they were underfunding their healthcare costs? None of this money does anything to shore up their business - it just prolongs the inevitable.

Cheers.

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