I’ll try to make this somewhat complicated event easy to understand. Insurance companies submit estimates for insurance costs (payouts) in to the federal government. If the payouts exceed 103 percent of the estimate, the taxpayers cut a check to insurance companies for 50 percent of the loss. 108 percent equals an 80 percent bailout.
The plan put forth by European finance ministers is to outright confiscate 9.9 percent from any person with a Cyprus bank account with more than €100,000 ($129,000 US). Of course, there are not many accounts holders who have that much cash, so ministers went after everyone else too, demanding 6.7 percent from anyone with cash in the bank.
David John is one of five experts who “exert more influence” on the Social Security debate than anyone else in Washington – and he is The Heritage Foundation’s lead analyst on issues relating to pensions, financial markets and institutions, banking regulation, asset building, and Social Security reform.
Join us as we get to the bottom of the “Dodd Bill” that would regulate financial institutions and hand more power to the White House to determine just who is too big to fail. Here’s what John has written.
There are many valid reasons to be angry with bankers, and supporters of Senator Chris Dodd’s (D-CT) latest rewrite of his financial regulatory bill, the Restoring American Financial Stability Act, have mentioned them all. Americans have heard all about greedy bankers, huge bonuses, shady accounting practices, and outright greed. But the reason for this rhetoric is nothing less than an attempt to seize control of the financial services industry and to micromanage it.
Republicans are pushing back but Democrats are pushing hard for the “Restoring American Financial Stability Act”.
Obama, speaking briefly to reporters before the closed meeting began, said he was “absolutely confident that the bill that emerges is going to be a bill that prevents bailouts. That’s the goal.”
Treasury Secretary Timothy Geithner later said that the cost of taking down large failing financial institutions will be borne by big banks, not taxpayers. The House and Senate bills call for funds, financed by large financial institutions, to cover the costs of liquidating firms deemed too large to go through bankruptcy proceedings.
Get the real story tomorrow morning at 11am.
The Center for Freedom and Prosperity charges ahead with another economics video to push back basic economic ignorance. The video describes what happened and how Congress, big-bank, and Fannie Mae and Freddie Mac combined forces to create a foreseen financial collapse.
Take this for what it is worth. Ford sales were up 33 percent in Dec. 2009 as compared to Dec. 2008. Toyota and Subaru’s sales also increased by a third, and Honda and Nissan sales were up 24 percent and 18 percent respectively. GM and Chrysler sales below the fold, but how is the Ford quality for you buyers out there?
A Christmas Eve White House decision that nobody will notice. President Obama and his treasury secretary, Timothy Geithner, have elected to increase loss coverage for the Government Sponsored Enterprises (GSE) of Fannie Mae and Freddie Mac from $200 billion to unlimited for the next three years.
Even as I read this article, I sat here stunned. But as I calmed myself, I realized, I should not be surprised. Banks, investment houses, automobile companies, and now … newspapers.
The state of New Hampshire last week agreed to guarantee 75 percent of a $250,000 loan from an Upper Valley bank to the new owner of the Eagle Times, an unusual deal because it involves a daily newspaper and the government it covers.
The Executive Council on Wednesday unanimously approved without debate the “working capital loan guarantee,” which would be administered by the New Hampshire Business Finance Authority.
Ok, the previous yard stick was being too big to fail, now it’s saving a “free press”?
Gov. John Lynch, who presided over the Executive Council meeting, said in an interview after an appearance at Dartmouth College on Friday evening that he had no problems with the loan guarantee.
“It’s really more of a job development, economic development type of issue,” said Lynch who said he has not met Sample and was not involved in putting the deal together. “I think it was the right thing to do, and it came up through the appropriate channels.”
But as bad as this is … the AP says, it’s just begun:
At least two other states have explored similar deals as newspapers across the country face an unprecedented decline in advertising revenue, but no other state has gone through with it yet, news industry analysts said this week.
It used to be you would succeed or fail on your own, that was until we began to find excuses for everything from grade school through college. It used to be newspapers jealously guarded their independence, but that was until people stopped reading their drivel.
Last Friday, the small group of Chrysler’s secured creditors, who had thus far refused to buckle under to the pressure, decided to throw in the towel and withdraw their legal protest to the Obama administration’s plan to resuscitate the failed auto company. In a move more symbolic than meaningful, the group has decided that although it will not support the President’s plan, it won’t raise any further legal objections.
Thomas Luria, lead counsel for the “dissident” creditors, put it this way:
Being such a small group trying to fight the force of the government made [the funds] very uncomfortable. In the end, they just concluded that the political cost to their institutions was too high to bear.
The group became “small” months ago, and, it should come as no surprise why it did.
The White House’s success at dividing and conquering the creditors began even before the April 30 bankruptcy filing, when it persuaded four large banks acting as Chrysler’s top lenders to accept the deal. The White House used as a cudgel the more than $100 billion in bailout funding given to the banks since last fall, including JP Morgan, Citigroup, Goldman Sachs and Morgan Stanley.
So, in the end, Chicago style political muscle trumps both fairness and the law.
Going forward then, Chrysler will be sold to Fiat, although, given the circumstances, “sold” is a term only this administration could use with a straight face. In reality, Fiat will be given up to a 35% interest in Chrysler in exchange for Fiat’s “automotive expertise”. (That, too, is hard to say with a straight face.) And, the UAW will own 55% of the new company. The problem, of course, is when this new Chrysler emerges from bankruptcy it will find the same world as existed before bankruptcy. Labor contracts will still make Chrysler vehicles uncompetitive with foreign manufacturers, folks that didn’t like Chrysler products before still won’t like them, and the plan to build “little green” cars will still be met with the same public disdain as it always has.
So, as taxpayers, brace yourself for a very long “ride” of government subsidy after government subsidy until the majority of some future Congress puts a stop to the madness.
Jim spoke on Thursday morning about the “deal” being offered to the bondholders of General Motors which, if accepted by them, will presumably keep GM out of bankruptcy. I say presumably because this “restructuring” has all of the earmarks of failure that are found in the Chrysler plan, but without the help of Fiat. However, I digress.
On the chance you missed it, there was a wonderful opinion in the April 30, 2009 Wall Street Journal aptly titled, “Gettelfinger Motors“. It is definitely worth the time it will take you to read it. Here’s how the “equitable” restructuring of GM would work.
There are three groups of GM creditors that, as a matter of law, would be on similar footing in the Bankruptcy Court… the federal government, the UAW’s retiree health-care benefit trust, and the bondholders. The federal government is owed $16.2 billion, the UAW benefit trust is owed $20 billion, and the bondholders are owed $27.2 billion. One would assume that if the plan was to swap debt for equity in the “new” GM, that the debt/equity swap would be done fairly and proportionately. But, I’m guessing by now, you know that isn’t the plan.
The federal government would receive 50% of the stock of the “new” GM, and $8.1 billion in debt. The UAW retiree health-care benefit trust would receive 40% of the stock, and $10 billion in cash to be paid over time, and the bondholders, who are owed the lion’s share, would receive 10% of the stock and, well, nothing else.
But, here’s the best part.
GM CEO Fritz Henderson says Treasury insisted that bondholders receive, at most, 10% of the company. “We went to the maximum and offered 10%,” Mr. Henderson said. Mr. Rattner’s office did not return our calls, so we can’t say why Mr. Rattner [Obama’s car czar]wanted private risk capital cut out of the ownership of the new GM, but no one has contradicted Mr. Henderson. (emphasis supplied)
So, let me see if I have this right. The entity that is owed the least amount of money out of the three, not only receives the most equity, but also gets to direct how the pie will be divided. I’m guessing that Richard Wagoner, the former CEO of GM, would never have stood for this. Thus, he was “fired” by the Obama Administration.
However, more problematic is President Obama’s insistence that it is the bondholders who are the greedy ones. Is anyone else tiring of hearing our President say one thing only to find out that the facts are quite different?
I have not had too much time to review the “deal” floated yesterday concerning the restructure of General Motors, but a friend sent me a link this morning to a Washington Post article providing some of the details.
I read part of it, and what caught my eye was that the government, bond holders and the union would all end up owning a percentage of the auto giant. The fed’s $27 billion investment would give them a 50 percent stake in the company. Bond holders with about the same invested would get a 10 percent stake. Finally, the United Auto Workers would get about 40 percent of the company in exchange for $10 billion of the health plan funding for retired workers.
Go back and read that paragraph again please. I’m serious.
I read the information in the article and nothing clicked, until Ed Morrissey over at Hot Air picked up on what I totally missed.
Does anyone at the Treasury do math any longer? The total sacrifice of all three parties would be $64 billion, of which the federal government and the bondholders are contributing the same percentage: 42.2%. The UAW will contribute about 15.6%. Why would the Obama administration expect bondholders to contribute 42% of the solution in order to gain 10% of the company?
Here is the important notes from the Washington Post article. Read the full article.
He [White House press secretary Robert Gibbs] said the government “could have gotten nothing for something, or something for something” and that it insisted on a 50 percent stake to leave open the potential to recover some of the $18 billion the Treasury Department has already lent GM and the additional $9 billion that it would inject under the new plan. …
Under the proposed offering which GM filed with the Securities and Exchange Commission, investors holding $27.2 billion of GM bonds would swap those bonds for 10 percent of the equity shares of the restructured company. The United Auto Workers would get up to 39 percent of the company in return for half of the $20 billion GM owes to a health fund for retired workers. Current shareholders would get 1 percent of the new shares.
I understand that GM made a deal with the unions about health care and other benefits. I too understand that those deals were unsustainable in the first place. This deal puts the union way ahead of the bondholders who provided capital to GM at a time of need.
This action will simply ensure that private investors will avoid helping companies like GM and be risk adverse. Why would you want to put your money into a situation where unions and the federal government have the ability to pull strings like this?
But remember – this is exactly what liberal politicians and many Democrats want. They want you to depend on the federal government. It is all about control.
Update: This story is starting to get noticed. From Hinderaker at Power Line…
As we’ve said for a long time, the only way to bring transparency and the rule of law to the issues raised by the troubled automakers is through a bankruptcy proceeding. Instead of that, we have a national-socialist type top-down restructuring carried out by politicians to achieve political purposes. It is deeply ironic, with hindsight, that the Left used to accuse the Bush administration of “shredding the Constitution.”
This is exactly what I expected. Remember this post I wrote in the days after General Motors CEO Rick Wagoner was shown the door?
What if Wagoner wanted to go the straight Chapter 11 route? This would allow the car not-so-giant to restructure while keeping operations rolling, stay protected from creditors, and allow the company to specifically rework union contracts.
Our guess – after review of Obama’s statement yesterday – is that this will not be a straight Chapter 11 bankruptcy, but a more modern union-friendly version using specific parts of the bankruptcy law to avoid having to renegotiate the union contracts.