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Thursday, May 14, 2009

Great Recession Roundup — May 14, 2009

Items of Interest:

Felix Salmon / Reuters:
GM says Chrysler-like deal best bankruptcy option -- General Motors Corp on Thursday said that if it files for bankruptcy it would most likely pursue a quick sale of its best assets to a new operating company similar to the process now reshaping Chrysler LLC.

The disclosure, which came in a filing for U.S. securities regulators, marked the first time that GM said it would most likely pursue the same legal strategy that Chrysler is using under federal oversight to slash its debt and dealerships.

GM faces a June 1 deadline to restructure its bond debt and reach a sweeping new deal with its major union.

The automaker repeated in its filing with the U.S. Securities and Exchange Commission that it expected to file for bankruptcy if not enough of its bonds are tendered in exchange for shares by that deadline...

Reuters Blogs: GM: Before any bankruptcy, the backlash
The Big Picture: Chrysler, GM and the New Industrial Policy
Chevy Dealer Harry E. Criswell / WaPo: GM and Its Dealers: A Future Worth Fostering
Chrysler Targets 25% Cut In US Dealer Network -- Chrysler LLC revealed plans Thursday to cut a quarter of its U.S. dealer network, though some outlets vowed to fight the proposal in court.

The company has requested a June 3 court hearing to approve the planned cull of 798 of its 3,188 dealers nationwide.

The dealer restructuring is being driven by Fiat SpA, the Italian group that plans to take an initial 20% stake in Chrysler when it emerges from bankruptcy protection.

In a court filing, Chrysler said the move was needed to restore competitiveness with rivals boasting leaner distribution networks.

Chrysler said its dealers sold an average of 303 cars last year, compared with the 1,292 sold by each Toyota Motor Co. outlet.

Some Chrysler dealers questioned the methodology used by the company and Fiat in their deliberations, and have vowed to battle the planned cuts...
Los Angeles Times: Cities Brace for Shutdown of Auto Dealerships

New York Times: FTC Cracks Down on Car-Warranty Robocalls
FOXBusiness: FTC Alleges Massive Robocall Scheme
Washington Post:
Unexpectedly Weak Retail Sales Dash Hopes Recovery Is Near -- New government data released yesterday showed that consumers are still struggling under the weight of the recession, undermining hopes that the economy was poised for a turnaround

The Commerce Department reported retail sales fell 0.4 percent in April from the previous month, worse than economists had predicted. When compared with the previous year, April sales plunged 10.1 percent. In addition, the Commerce Department revised its earlier estimate for March sales from a drop of 1.1 percent to 1.3 percent...
55,000 helped by Obama mortgage rescue -- More than 55,000 troubled homeowners have received loan modification offers under President Obama's foreclosure prevention program, officials said Thursday.

The administration also announced it was expanding the $75 billion program to assist more troubled borrowers. The government will provide incentives for servicers and borrowers to avoid foreclosure using methods such as short sales...
CNBC Realty Check:
Administration Pushes Short Sales And Deeds In Lieu -- Today the Obama administration announced a new addition to its Making Home Affordable program that gives servicers and borrowers incentives to do short sales and deeds in lieu of foreclosure.

These are in the cases where an Obamamod (a modification under the MHA program) doesn't work because the borrower simply can't afford anything. I'm glad to see them address these options, although it's certainly telling that by doing so they are admitting clearly that the modification plan isn't going to help everyone.

As for the new plan, I understand why the servicers would need the incentives. Short sales and deeds in lieu are wildly complicated, paperwork intensive and much more expensive for a servicer to deal with than a simple foreclosure...

Seeking Alpha:
The 'New' New Foreclosure Plan -- The Obama administration rolled out yet another initiative to stem the foreclosure tide even as evidence mounts that the earlier plans are having a marginal effect...

Housing Doom blog:
30% of homeowners plan on selling home when market rebounds

Minyanville: Op-Ed: Eight Reasons Housing Could Rally
BusinessWeek: Pipebombs Found In Foreclosed Home
Obama Says U.S. Long-Term Debt Load ‘Unsustainable’ -- President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.

“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.” ...
Amazon -- Methland: The Death and Life of an American Small TownNick Reding book, available June 9, 2009:
Methland: The Death and Life of an American Small Town -- Crystal methamphetamine is widely considered to be the most dangerous drug in the world, and nowhere is that more apparent than in the small towns of America’s heartland. In Methland, journalist Nick Reding introduces us to one such town: Oelwein, Iowa, population 6,126. Like thousands of other rural communities across the country, Oelwein has been left in the dust by the consolidation of the agricultural industry, a depressed local economy, and an out-migration of people. Now an incredibly cheap, long-lasting, and highly effective drug has taken its hold.

Through four years of reporting, Reding brings us into the heart of rural America by way of a cast of intimately drawn characters. Trafficker Lori Arnold is the queen of Midwest crank. Roland Jarvis is a former meatpacking worker who blew up his mother’s house while cooking meth. Oelwein’s doctor, Clay Hallberg, feels his own life falling apart as he attempts to put that of his town back together. Nathan Lein, the son of farmers, is now the county prosecutor, struggling with what Oelwein has become....
The afternoon that I arrived in Oelwein, Clay Hallberg’s friend Nathan Lein met me at the Super 8 motel. For forty years, Nathan’s parents have farmed and raised livestock on 480 acres north of town. Following law school in Indiana, Nathan returned home to take the job of assistant Fayette County prosecutor. On our way to the police station, Nathan drove by what he described as several working meth labs on the pretty, oak-lined streets that fill out Oelwein’s residential neighborhoods, where the hand-laid stone houses date back in some cases 120 years. We passed Amishmen coming to town in their buggies, the Rent-a-Reel movie rental store, and the farm co-op. Two blocks farther on, Nathan pointed out his favorite restaurant, a drive-in burger joint called EI-EI-O’s, which had recently closed. On the boarded-up windows, the owner had scrawled in red spray paint, “Make Offer — Please!”

The Oelwein Cop Shop, as the police station is known, is a nondescript 1960s-era brick building by the railroad tracks, one block north of the Chicago Great Western round house. Inside, past the blue-lit dispatch station, Nathan introduced me to the new chief of police, Jeremy Logan. Logan had recently been promoted from sergeant by Mayor Murphy with mandates to clean up a force with a reputation for impropriety and to spearhead a desperate effort to get Oelwein’s small-time meth manufacture under control. Sitting in his windowless office wearing a bulletproof vest, Logan scrolled through mug shots of Oelwein’s best-known crank dealers and most notorious addicts, one of whom had recently been taken from his home along with fifteen assault rifles and thousands of rounds of ammunition — all while his fifteen-year-old daughter watched... Prologue con't
If ever there was a chance to see the place of the small American town in the era of the global economy, the meth epidemic is it. - John Robb
NY Times / MSNBC:
Thriving Norway provides an economics lesson -- Norway saved oil riches, allowing economic growth in midst of global slump

When capitalism seemed on the verge of collapse last fall, Kristin Halvorsen, Norway’s Socialist finance minister and a longtime free market skeptic, did more than crow.

As investors the world over sold in a panic, she bucked the tide, authorizing Norway’s $300 billion sovereign wealth fund to ramp up its stock buying program by $60 billion — or about 23 percent of Norway ’s economic output.

“The timing was not that bad,” Ms. Halvorsen said, smiling with satisfaction over the broad worldwide market rally that began in early March...
Edmund L. Andrews, his wife, Patricia Barreiro, and her daughter, Emily, at their Silver Spring, Md., home.Edmund Andrews / NY Times:
My Personal Credit Crisis -- If there was anybody who should have avoided the mortgage catastrophe, it was I. As an economics reporter for The New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning articles in 2004 about the spike in go-go mortgages. Before that, I had a hand in covering the Asian financial crisis of 1997, the Russia meltdown in 1998 and the dot-com collapse in 2000. I know a lot about the curveballs that the economy can throw at us.

But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds...

I had assumed we would start by renting a house or an apartment, but it quickly became clear that it was almost easier to borrow a half-million dollars and buy something...
Amazon -- Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall StreetKate Kelly book:
Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street -- The shocking fall of Bear Stearns in March 2008 set off a wave of global financial turmoil that continues to ripple. How could one of the oldest, most resilient firms on Wall Street go so far astray that it had to be sold at a fire sale price? How could the guys who ran Bear so aggressively miscalculate so completely?

In this vivid and dramatic narrative, Kate Kelly takes us inside Bear’s walls during its final, frenzied 72 hours as an independent firm. Expanding with fresh detail from her acclaimed front- page series in The Wall Street Journal, she captures every sight, sound, and smell of those three unbelievable days.

For decades, Bear had proudly recruited “P.S.Ds”— employees who were poor, smart, and had a deep desire to become rich. An elite family or Ivy League diploma didn’t matter. Were you willing to do almost anything to make money for the firm? Were you tough enough to be a street fighter?

Bear’s leaders were arrogant and didn’t play nice. But their style had made them a fortune, and had helped Bear survive every crisis from the Great Depression to the dotcom bubble.

Yet as the subprime mortgage crisis began to brew, the firm’s key executives descended into civil war. Kelly reveals fresh, never-before-told details about the moves that led to that brutal final weekend...
Carl Hulse / New York Times:
Senate Rejects a 15% Ceiling on Credit Card Interest Rates
The Caucus: The Early Word: Consumers and Credit

Calculated Risk

MishTalk - Mike Shedlock

Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

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