Rick Newman
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Needed in 2009: More Failure
Continue reading… 19 CommentsIn his new autobiography, 1,000 Dollars and an Idea, entrepreneur Sam Wyly praises the privations of failure. As a child, his family fell into poverty when his father's grocery store went bust. The experience "taught me at an early age that failure forces you on to another path," Wyly writes. "You have to go in search of new opportunities." His father found new opportunities, selling insurance and running a newspaper. And Wyly became a billionaire building a string of companies including Bonanza Steakhouse, Sterling Software, and Michael's Arts and Crafts.
Lots of entrepreneurs succeed on account of failure. Sometimes it's their own failure, which teaches invaluable lessons. Sometimes it's the failure of others, which creates new opportunities. Quite often, it's both.
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Best Move of 2008: Letting Lehman Fail
Continue reading… 28 CommentsIt's conventional wisdom on Wall Street that the biggest government mistake of the last year was letting Lehman Brothers fail. I guess the barons of capitalism still don't get it.
Here's how the Wall Streeters see it: The March 2008 government bailout of Bear Stearns—if you can call a $2-per-share fire sale a bailout—sent a signal that the feds would not let a big investment bank go down. When Lehman started to sink in early September, the presumption was that the government would prevent an all-out liquidation because of the collateral damage it might cause throughout the financial system. By that logic, when the feds stepped aside and Lehman filed for bankruptcy on September 15, investors were so shocked that credit froze worldwide and the stock markets went into a record plunge from which we still haven't recovered.
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More Welfare For Really Rich Guys
Continue reading… 15 CommentsJust in case anybody's keeping track, the government has now appropriated $9 billion in bailout funds to some of the richest folks in America. This would be Cerberus Capital Management, the private equity fund that owns majority stakes in GMAC and Chrysler and whose chairman is John Snow - the last Treasury Secretary before the current one, Henry Paulson.
Cerberus is a worthy supplicant because it's flat out of money - hahaha, just kidding! Cerberus actually has plenty of money, courtesy of a secret list of well-heeled investors. And that's not even counting the personal stash of billionaire Stephen Feinberg, the company's founder and CEO. No, Cerberus is a worthy supplicant because of the 35 or so companies that it owns, its two auto-related properties are really hurting.
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9 Reasons This Recession Will Be Good
Continue reading… 28 CommentsRecessions are lousy - as Americans have learned about 10 times over the last 50 years. But they’re also necessary. Prosperity tends to produce a lot of economic sediment, like unneeded purchases and excessive debt, that coagulates like gunk in a pipe. A good recession flushes it out. It also washes away things we need, like jobs and businesses. But on the whole, the “troughs” in the business cycle - recessions - help refresh the economy and keep it healthy.
There will be plenty of pain in 2009, as employers cut more jobs, the unemployment rate rises toward 8 percent or higher, and shellshocked consumers curtail spending even more. But beneath the dismal headlines will be some hopeful trends. Here are some of them:
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How the Feds will Govern GM and Chrysler
Continue reading… 43 CommentsThe federal government has rescued banks, insured a huge insurance company, and stepped up as a lender of last resort. Now, with its bailout of the auto industry, it's the functional equivalent of a bankruptcy judge, too.
By agreeing to loan General Motors and Chrysler a combined $17.4 billion, the government keeps the two companies on life support during the worst car-industry downturn in decades. But the deal also gives the two companies a tight, three-month window to prove how they'll get competitive, become profitable, and pay back taxpayer largesse.
[See the cars that drove Detroit's customers away.]
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The Chevy Vega: the Worst Detroit Car Ever?
Continue reading… 115 CommentsIt didn't start as a contest. But as readers have weighed in on the numerous lousy cars that have driven the Detroit automakers to the brink of bankruptcy, it's become an irresistible question: What's the worst car ever built by General Motors, Ford, or Chrysler?
Odds are it wasn't built in the past 10 years. For all the criticism aimed at Detroit, the carmakers have actually turned out some decent rides lately, like the Ford Fusion, Chevrolet Malibu, and GMC Acadia. But it's obvious that a long, sad parade of Detroit Disappointments over the past four decades has alienated millions of car buyers, many of them permanently. And now, with Detroit dialing 911, many Americans don't even want to pick up the phone.
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The Cars That Drove Detroit's Customers Away
Continue reading… 374 CommentsWhen I wrote recently about 10 cars that sank Detroit, I was too stingy. Apparently, there are way more than 10.
Hundreds of readers wrote to ask how we could have left the Chevy Nova off the list, or the Pontiac Aztek, or a number of other models that left a long legacy of buyer's remorse.
Many of Detroit's notorious bombs date to the 1970s and 1980s, and the car companies' offerings are much better today. But car buyers have long memories--and many remain unmoved by the current plight of the Detroit automakers. General Motors and Chrysler are now at the government's mercy, in need of billions in federal aid just to stay afloat. If they don't fulfill tough government demands, Chrysler could be forced into bankruptcy by early April, GM by early May. Ford hasn't asked for bailout money, but it's bleeding cash too.
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Is Chrysler Shutting Down for a Month, or Forever?
Continue reading… 19 CommentsChrysler calls it an "adjustment." After the last shift on December 19, all of its factories will close for an extended holiday vacation. "Impacted employees will not return to work any sooner than Monday, Jan. 19, 2009," the automaker said in a statement.
If I were one of those impacted workers, I'd make sure to gather up all the personal stuff in my locker, and maybe grab an impromptu memento or two. Because this sounds like a break that might never end.
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Why I Deserve a Bailout
Continue reading… 36 CommentsTo: Tim Geithner, Bailout Decider, U.S. Treasury
CC: Ben Bernanke, Bailout Buddha, Federal Reserve
CC: Santa Claus, just in case
Dear Sirs: Please be advised that I am changing my status from ordinary American consumer (OAC) to bank-holding company (BHC) in order to qualify for funds from the government’s Troubled Assets Relief Program. Since I couldn’t find the official application form, I’ve listed my qualifications below:
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5 Risky Assumptions for 2009
Continue reading… 11 CommentsFor many Americans, 2008 was a year of hard lessons. We learned that things we've taken for granted for years, like easy credit and solvent banks, can evaporate with little warning. Unthinkable developments—like the collapse of once mighty corporations—actually happen. We've even begun to question one of the core tenets of life in America, the virtue of homeownership.
[See the 10 Worst Assumptions of 2008.]
As economists might say, we're re-evaluating our assumptions, the core beliefs we use to make choices and plan our lives. And while we're at it, we should be careful about our expectations for the coming year, which could be even more challenging than 2008. As the recession deepens and job losses mount, here are some of the riskiest assumptions we could make in 2009:
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The 10 Worst Assumptions of 2008
Continue reading… 26 CommentsAn old military saying has become popular on Wall Street: "Amateurs study the plan. Professionals study the assumptions."
It's too bad that nostrum wasn't in fashion a few years ago, when it seemed as if nothing could go wrong in the go-go economy. An epic housing boom fueled by low interest rates was turning ordinary Joes into real estate magnates, and everybody wanted in. Home equity materialized out of nowhere, helping everyday Americans buy fancy vacations and luxury cars. When Henry Paulson was nominated to be treasury secretary in 2006 and came to Washington for confirmation hearings, nobody even brought up the topic of subprime loans or a housing bust. What, us worry?
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Why AIG Gets Billions, GM Gets Scorn
Continue reading… 58 CommentsLet me see if I’m getting this right: AIG, the huge insurance company, has so far gotten $173 billion worth of federal aid, because traders at one small division made bets on exotic securities that were so calamitous they threatened to bring down the whole company. So far, the amount of money the feds have pledged to this one firm equals nearly one-third of the nation’s defense budget.
General Motors, America’s biggest automaker, has asked for a $10 billion federal loan, equal to one-seventeenth of what AIG has gotten – and Congress has said no. There were no rogue traders at GM, and the company’s problems have intensified in plain view, over several months, instead of coming from out of nowhere in a single, cataclysmic episode.
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How The Smart Money Turned Dumb in 2008
Continue reading… 8 CommentsIf you feel like you got sideswiped by the 2008 financial meltdown, you're in good company: Some of the smartest money minds in America got fleeced, too.
With the stock markets down about 40 percent since the start of the year, most investors are feeling pain. Yet this is the kind of environment in which many of the richest money mavens have made fortunes: By making shrewd counterconventional bets; or buying damaged assets others won't touch and finding a way to breathe life back into them; or taking on astounding levels of debt, certain of their own abilities to turn it into profit; and, above all, putting total faith in their moneymaking intuition.
Except for this year. It turns out that the same overwhelming developments that swamped millions of ordinary Americans—an unprecedented housing bust, frozen credit markets, and a reeling economy—knocked the wind out of billionaire investors who should have known better. Here's how a few of America's most fabled financiers went astray in 2008:
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Even With a Bailout, Automakers Would Still Be Running on Fumes
Continue reading… 14 CommentsCall it a starter bailout. And get ready for a second, a third, or even a fourth.
The $15 billion in emergency loans that the White House seems ready to approve for GM and Chrysler would extend their lifeline into the first weeks of the Obama administration. And by putting a "car czar" in place to oversee the companies, the bailout would create a new structure for forcing change in the beleaguered automakers.
But GM and Chrysler would remain very weak and continue to lose ground to the competition. Ford may, too, although it hasn't asked for any emergency cash just yet. Here are some problems that Detroit Bailout I doesn't address:
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Bailout Tally So Far: Twice the Entire U.S. Budget
Continue reading… 7 CommentsDon’t say your government isn’t generous.
It may have gotten hard to follow bankers-aid programs like the term auction facility (TAF) and the primary dealer credit facility (PDCF), but rest assured, your represenatives in Washington are spending a a tidy sum – a gargantuan fortune, actually – to keep the arcane financial system humming. The nonprofit Milken Institute in Los Angeles has added up all of the money the government has spent or pledged to help the ailing economy so far, and come up with a tally of $7,500,000,000,000.
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In Defense of Rick Wagoner
Continue reading… 34 CommentsIt’s been a bad year for CEOs, and Rick Wagoner, the head of General Motors, seems poised to join an ignominious crowd: Corporate leaders who have resigned after their firms sought federal help. Key members of Congress have said that Wagoner should step down before GM gets a big chunk of a $15 billion automaker aid package, and incoming President Barack Obama has said that GM’s leadership “has to move on.” It’s hard to imagine Wagoner staying on, in defiance of his new lords in Washington.
But even if he leaves, Wagoner doesn’t fit the mold of the rapacious CEO. Like his Motor City colleagues – Alan Mulally of Ford and Bob Nardelli of Chrysler – Wagoner showed poor judgment by flying a corporate jet when he came to Washington in November to ask for aid. And his insistence that “bankruptcy isn’t an option” for GM has seemed presumptuous – as if the feds are obligated to rescue his company.
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How To Grill a CEO
Continue reading… 2 CommentsImagine if General Motors CEO Rick Wagoner called up Mary Peters (Secretary of Transportation, for those unfamiliar with the invisible half of the Bush Cabinet) on a Friday evening and said, “Psssttt. We’re in trouble. We need money. Can you help?” And then, a couple of days later, there was a middle-of-the-night announcement detailing billions in bailout funds for the foundering automaker.
That’s effectively what has happened with Citigroup, AIG, and several other huge companies that managed to arrange rapid-fire rescue packages from the government through a weekend’s worth of negotiations. Except instead of the Transportation Secretary, they’ve been dealing directly with Treasury Secretary Hank Paulson, a fellow banker with a CEO’s push-it-through mentality.
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Grading the Automaker Bailout Plans
Continue reading… 20 CommentsNow that's more like it.
After a disastrous performance before Congress in November, execs from General Motors, Ford, and Chrysler have finally offered some meat to members of Congress wondering if the automakers deserve $34 billion in federal aid. All three automakers have submitted plans to the government showing how they would slash costs, build better cars, become profitable, and pay back the taxpayers. Members of Congress will be able to peruse private plans containing proprietary information on operations and competitive strategy, but each automaker also released a public plan outlining its goals. Here's how the plans rate:
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Auto Industry: Who Gains From Detroit’s Pain
Continue reading… 21 CommentsYou'd think an automotive apocalypse was nigh. In their pleadings to the government, executives from General Motors, Ford, and Chrysler make it sound as if the entire U.S. auto industry will crash if they don't get billions in aid. But we're forgetting something: Americans will still need to buy cars, even if they don't say GM or Ford or Chrysler on the badge.
Once the recession fades and prosperous times return, in fact, Americans might buy 16 million or 17 million cars per year, a lot more than the 12 million or fewer they'll buy this year. So who will get all that business? Here's some handicapping on who might benefit from the woes in Detroit: -
The 7 Worst Ways to Rescue Detroit
Continue reading… 32 CommentsCommence Kabuki.
With the Detroit automakers in the late stages of supplication, a predictable ritual will now take place. The CEOs of GM, Ford, and Chrysler will do as instructed: travel like common men from Detroit to Washington and present the government with new-and-improved restructuring plans showing that this time, they really are serious about slaughtering sacred cows and right-sizing their businesses. Members of Congress will deliver a few lashings about overpaid CEOs and overentitled union workers. Then, in the end, the feds will pony up at least $25 billion—and maybe $50 billion or more, eventually—to help stave off automotive Armageddon.
There are many routes to a Detroit bailout, however, and some go straight through Follyville. Here's how the feds could mishandle the automaker rescue package:
