If the U.S. Big Three automakers want bailout help from the Federal government they should submit to at least an afternoon of new public hearings.
Automakers were heard from in September on the subject of attaching the $25 billion loan program to a continuing resolution for the Federal budget. That legislation, which passed, kicked off the process for such loans to move ahead—-loans that were part of last year’s energy legislation. The money is meant to go to help the companies re-tool factories and offset some research and development costs associated with more fuel efficient vehicles. The key is that all the loans must be attached to offset costs of vehicles that get 25% better fuel economy than the vehicle segment average. In other words, if Ford wants loan money to offset the costs of bringing its Fiesta to market, the car will have to exceed the average of the vehicles in the segment by 25% at the time the application is made.
An analyst reiterated his “Underperform” rating on America Express Co. Tuesday morning, a day after the credit card lender received regulatory approval to change its structure to a bank holding company.
On Monday, American Express received approval from the Federal Reserve to become a bank holding company, a structure similar to most commercial banks. The change allows American Express to create a large deposit base and have permanent access to financing from the Fed.
The change also allows the credit card company to take part in recent programs initiated by the government to help reduce the current turmoil in the global credit markets, including the Treasury Department’s program to directly invest in banks.
Friedman, Billings, Ramsey & Co. analyst Scott Valentin maintained his “Underperform” rating and $22 price target on the stock, noting that the change in status is a “modest positive,” but unlikely to significantly bolster the struggling company.
In a research note, Valentin said American Express’ earnings power and business model “are under severe stress in the current environment” and that is unlikely to change greatly with the shift in the company’s structure.
Last month, American Express said its third-quarter profit fell 24 percent as cardholders reduced their spending and more customers fell behind in paying off their balances.
Valentin said American Express will now have an easier time rolling over maturing debt in the coming quarters as it will have access to cheaper funding through federal programs.
Much of American Express’ funding comes from packaging credit card receivables and selling them as securities to investors. The market for those securities has all but dried up in recent months amid the ongoing credit crisis as investors have shied away from purchasing all but the safest forms of debt.
American Express is still likely to heavily rely on the securitization market for funding in the future as the company lacks a branch presence to help rapidly increase its deposit base, Valentin said. If American Express wants to grow its deposit base, which would be a more stable form of funding, it is likely to have to remain reliant upon high-cost certificates of deposits and possibly money market accounts, Valentin added.
American Express is the latest company to switch structures, joining investment banks Goldman Sachs Group Inc. and Morgan Stanley in becoming bank holding companies. Goldman and Morgan Stanley received approval in late September amid worries that stand-alone investment banks were no longer viable after Lehman Brothers Holdings Inc. filed for bankruptcy protection and Merrill Lynch & Co. was sold to Bank of America Corp.
I’m going to be watching that Hank Paulson very closely because that bill had a lot of BS and hidden crap in it and NO ONE can do anything about it since our dumb A$$ congress gave them the money to do as they will!
Even as the company was pleading the federal government for another $40 billion dollars in loans, AIG sent top executives to a secret gathering at a luxury resort in Phoenix last week.
Brian Ross investigates the insurance giant’s “seminar” at a posh resort.
Reporters for abc15.com (KNXV) caught the AIG executives on hidden cameras poolside and leaving the spa at the Pointe Hilton Squaw Peak Resort, despite apparent efforts by the company to disguise its involvement.
“AIG made significant efforts to disguise the conference, making sure there were no AIG logos or signs anywhere on the property,” KNXV reported.
A hotel employee told KNXV reporter Josh Bernstein, “We can’t even say the word [AIG].”
A company spokesperson, Nick Ashooh, confirmed AIG instructed the hotel to make sure there were no AIG signs or mention of the company by staff.
“We’re trying to avoid confrontation, keep our profile low,” said Ashooh. “Some of our employees have been harassed.”
“What do they have to hide,” asked Congressman Elijah Cummings (D-MD) who said he had been promised by AIG CEO Edward Liddy that the company would stop such “junkets.”
“They came to us and said they were drowning and needed help. A person who is drowning doesn’t jump up and start partying,” said Congressman Cummings.
Cummings said Liddy should resign as AIG CEO.
The AIG spokesman said Cummings “was mistaken” about the nature of the Phoenix event.
“It’s terrible,” said former AIG chairman Hank Greenberg. “I don’t think the left hand knows what the right hand is doing there.”
AIG came under fire last month when Congressional investigators revealed its executives attended a seminar for independent insurance agents at another luxury resort, in Southern California.
The AIG spokesman said the meeting in Phoenix was for independent financial advisors and “was the kind of thing we have to do to run our business.”
Company officials confirmed the company spent an estimated $343,000 to sponsor the 2008 Asset Management Conference. A spokesperson said much of the cost would be recouped from product sponsors at the conference.
KNXV said the president of AIG unit Royal Alliance Associates, Art Tambaro, stayed in a two-story Casita suite and worked out at the spa while others participated in seminars.
the whole point of “buying into the healthy banks” is to allow them to take over failing banks and preventing the failure. The FDIC doesn’t have the money to bail out something the size of National City or Wachovia.
This was believed by most economists as a much better idea than buying the garbage securities or giving the money to weak banks to shore up.
Gooner – great explanation of the derivitives market and where the recent failure came from.
Then they won’t need a bloody bailout.
What a joke
IMO if they created their own problems and looked the other way and the tax payer is exected to bail them out and the majority of the public agrees with it then I may need to evaluate why it pays to be a responsible adult when everyone else is allowed to be so reckless and ruin our economy.
Like they say, “when in Rome do as the Romans do”. No offense to my italian buddies. ” title=”” class=”bbcode_smiley” /> hehe
With attention on bailout debate, Treasury made change to tax law
The financial world was fixated on Capitol Hill as Congress battled over the Bush administration’s request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.
But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.
The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.
“Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no,” said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. “They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks.”
The story of the obscure provision underscores what critics in Congress, academia and the legal profession warn are the dangers of the broad authority being exercised by Treasury Secretary Henry M. Paulson Jr. in addressing the financial crisis. Lawmakers are now looking at whether the new notice was introduced to benefit specific banks, as well as whether it inappropriately accelerated bank takeovers.
BTW did I hear correctly that $140 billion of that $700 billion wallstreet bailout was used for purposes (hidden) by the banks to buy other banks and there is nothing that can be done about it now? If so then I will feel justified in calling Hank Paulson a crook!
They talk so fast when they say this stuff to where it’s hard to get the entire story and then the news is so new it’s not on the net to verify.
I always figured that the banks would just keep the money (like they did) and not use it to ‘stimulate’ the economy. We got scammed on that deal! :flush:
The reason it’s global is because a lot of foreign banks became big players in CDOs and had to pocket huge write offs. Phase two was when trust between banks eroded and they started to hoard cash and interest rates for interbank lending went through the roof. This second phase and problems with banks refinancing themselves led to the collapse of some European banks.
It took the gasoline engine to get it going and then he’d switch to natural gas but it was sluggish and I’m confident could not have pulled much weight.
so thinking 18 wheelers … from that experience I”d say no way. not up no big hills anyway. but I hope I’m wrong and man it’s been forever since that time so maybe they’ve figured something out.
then again … my son and I were talking about that very subject the other day and he reminded me how much trouble his little car had pulling him up the mountains in Col … and he’s right.
Has anybody tried the electric scooters you can get on ebay for like $100 (that was 5 yrs ago) they really do cook right along and will pull my fat ass up a very steep hill we have so I think as transportation for people the electric stuff should be ample, even up steep mountains (don’t ask me about in the snow however cause I don’t know)
but I don’t see them pulling 18 wheelers either.
It would cost a lot but what we’ need and may end up doing is having our 18 wheelers running on fossil fuel and people would travel kinda like the jetsons … everybody in their own little bubble zooming along to whereever.
problem with that is if you put a kitten in a corral full of elephants … sooner or later kitty gets squashed so we’d need to keep them separated much as possible. and that’s what would cost a lot. have a fossil fuel lane and electric car lane and my favorite. the donkey with carrot and a stick lane ” title=”” class=”bbcode_smiley” />
Almost all US auto sub-assemblies are imported. Many dodge cars use mitsubishi engine. Even when I was young my 1969 mercury as well as many ford products had fisher bodies which were made in Canada. American cars are basically designed and (final) assembled in the USA.
The problem with these bailouts is those receiving them aren’t doing what they are supposed to, they’re still taking care of #1. It’s business as usual. GM has even stopped funding R&D.
Until there is a different way of thinking its like using oxygen to put a fire out.
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