Bankruptcy – Page 5 – Infinite Unknown

GM Collapse at $200 Billion Would Exceed Bailout Tab, Firm Says

November 15, 2008 by Infinite

Nov. 15 (Bloomberg) — General Motors Corp., burning through cash as sales slump, would cost the government as much as $200 billion should the biggest U.S. automaker be forced to liquidate, a forecasting firm estimated.

A GM collapse would mean “more aid to specific states like Michigan, Ohio, and Indiana, and more money into unemployment and extended benefits,” Nariman Behravesh, chief economist at IHS Global Insight Inc. in Lexington, Massachusetts, said yesterday in an interview.

Behravesh’s projection of $100 billion to $200 billion in costs dwarfs the $25 billion industry bailout plan that will be debated in Congress next week to prop up Detroit-based GM, Ford Motor Co. and Chrysler LLC. The drain on taxpayers from a rescue or a GM failure is a central issue for U.S. lawmakers.

Included in the Global Insight estimate, which Behravesh supplied to Bloomberg News, are the anticipated costs for existing programs, such as unemployment insurance, and new measures that the economist said would be needed to revive economic growth after millions of auto-related job losses.

A GM shutdown would wipe out jobs among suppliers as well as at the automaker itself, pushing the U.S. unemployment rate next year to 9.5 percent, compared with current projections of as high as 8.5 percent, Behravesh said.

GM Judged Too Big to Fail as Pelosi Embraces Rescue

November 12, 2008 by Infinite

Vehicles are parked at the Jefferson Chevrolet dealership in Detroit on Nov. 7, 2008. Photographer: Jeff Kowalsky/Bloomberg News

Nov. 12 (Bloomberg) — House Speaker Nancy Pelosi has thrown her support behind the premise that General Motors Corp., the largest U.S. automaker, is too big to be allowed to fail.

In urging Congress to enact emergency aid for the ailing auto industry, Pelosi rejected calls to let GM collapse and sided with the company and its allies in trying to prevent a “devastating” domino effect that would cost millions of jobs.

“Trying to reorganize the auto industry in bankruptcy would be as close to reorganizing the whole U.S. economy as you could get,” said Alan Gover, a bankruptcy lawyer with White & Case LLP in New York. “The vast supply chain involves thousands of businesses, millions of existing jobs and just as many retirees, as well as whole communities and states.”

Passage of an industry bailout plan may keep GM from running out of operating cash by year’s end, which it says may happen without U.S. help. GM is the second-biggest provider of private health-care benefits and was the third-biggest advertiser in this year’s first half.

“It’s truly one of those companies that’s too big to fail, and everybody understands that,” said Nariman Behravesh, chief economist at IHS Global Insight Inc. in Lexington, Massachusetts. “If it does collapse, it could make the recession deeper and longer.”

Behravesh said a GM bankruptcy could send the U.S. jobless rate as high as 9.5 percent, up from a 14-year high of 6.5 percent in October, and produce a recession comparable in length to that of 1980-82.

US May Lose Its ‘AAA’ Rating

November 11, 2008 by Infinite

The United States may be on course to lose its ‘AAA’ rating due to the large amount of debt it has accumulated, according to Martin Hennecke, senior manager of private clients at Tyche.

Source: YouTube

“The U.S. might really have to look at a default on the bankruptcy reorganization of the present financial system” and the bankruptcy of the government is not out of the realm of possibility, Hennecke said.

“In the United States there is already a funding crisis, and they will have to sell a lot more bonds next year to fund the bailout packages that have already been signed off,” Hennecke told CNBC.

In order to solve or stem the economic slowdown, Hennecke suggested the US would have to radically reduce spending across all sectors and recall all its troops from around the world.

As for a stimulus package, there is not much of an industry left to stimulate back into life, Hennecke said.

10 Nov 2008 | 07:49 AM ET

Source: cnbc

VeraSun Seeks Bankruptcy Protection

November 1, 2008 by Infinite

VeraSun Energy Corp., one of the nation’s largest ethanol producers announced late Friday that it is filing for Chapter 11 bankruptcy protection.

The South Dakota-based company says it expects to continue normal operations and pay its workers regular salaries while it reorganizes. According to a company news release “the filing was precipitated by a series of events that led to a contraction in VeraSun’s liquidity, impairing its ability to operate its business and invest in production facilities.”

VeraSun made bad bets on the corn market over the summer as grain prices reached record highs, resulting in significant losses for the company. That came just as the U.S. economy began deteriorating.

“Worsening capital market conditions and a tightening of trade credit resulted in severe constraints on the Company’s liquidity position,” the company said.

Ron Paul: Spending the Economy into Oblivion

October 28, 2008 by Infinite

With news this week that Congress is poised to consider a new stimulus package, I am forced to again ask a question that seems silly in Washington: How will we pay for this?

While a few Members of Congress have raised the issue, it certainly was not the primary concern of the House Budget Committee when they interviewed Ben Bernanke on Monday. And, when they did direct this question to the Chairman of the Federal Reserve, his answer was the standard rhetoric about how Congress needed to make tough choices. Needless to say, not many specifics were discussed.

IMF may need to “print money” as crisis spreads

October 28, 2008 by Infinite

The International Monetary Fund may soon lack the money to bail out an ever growing list of countries crumbling across Eastern Europe, Latin America, Africa, and parts of Asia, raising concerns that it will have to tap taxpayers in Western countries for a capital infusion or resort to the nuclear option of printing its own money.

IMF's work in countries such as Turkey is only just beginning
IMF’s work in countries such as Turkey is only just beginning

The Fund is already close to committing a quarter of its $200bn (£130bn) reserve chest, with a loans to Iceland ($2bn), Ukraine ($16.5bn), and talks underway with Pakistan ($14.5bn), Hungary ($10bn), as well as Belarus and Serbia.

Neil Schering, emerging market strategist at Capital Economics, said the IMF’s work in the great arc of countries from the Baltic states to Turkey is only just beginning.

“When you tot up the countries across the region with external funding needs, you get to $500bn or $600bn very quickly, and that blows the IMF out of the water. The Fund may soon have to start calling on the West for additional funds,” he said.

Brad Setser, an expert on capital flows at the Council for Foreign Relations, said Russia, Mexico, Brazil and India have together spent $75bn of their reserves defending their currencies this month, and South Korea is grappling with a serious banking crisis.

“Right now the IMF is too small to meet the foreign currency liquidity needs of the larger emerging economies. We’re in a dangerous situation and there is the risk of extreme moves in the markets, as we have seen with the Brazilian real. I hope policy-makers understand how serious this is,” he said.

The IMF, led by Dominique Strauss-Kahn, has the power to raise money on the capital markets by issuing `AAA’ bonds under its own name. It has never resorted to this option, preferring to tap members states for deposits.

The nuclear option is to print money by issuing Special Drawing Rights, in effect acting as if it were the world’s central bank. This was done briefly after the fall of the Soviet Union but has never been used as systematic tool of policy to head off a global financial crisis.

“The IMF can in theory create liquidity like a central bank,” said an informed source. “There are a lot of ideas kicking around.”

Jim Rogers on Bloomberg: Massive inflation is coming (Oct. 24, 2008)

October 25, 2008 by Infinite

Added: October 25, 2008

Source: YouTube

“Under water” mortgages are growing threat to U.S.

October 22, 2008 by Infinite

A real estate broker checks a foreclosed California home for damage and missing appliances in a May 2008 photo.
REUTERS/Robert Galbraith

CAPE CORAL, Florida (Reuters) – Long before she filed for bankruptcy, Ann Neukomm was “under water” — she owed more on her mortgage than her house was worth — a situation more and more Americans are finding themselves in.

As the financial crisis hits Main Street America, nearly one in six U.S. homeowners are finding themselves in the same position, threatening the U.S. economy with a new wave of foreclosures and bankruptcies.

About 12 million U.S. homeowners owe more than their homes are worth, compared with 6.6 million at the end of last year and slightly more than 3 million at the close of 2006, said Mark Zandi, chief economist at Moody’s Economy.com.

“At the root it’s ‘the’ problem,” said Zandi. “If you’re going to put your finger on the one thing that’s gotten us into this fiasco, it’s the fact that millions of homeowners are under water on their homes.”

If, like Neukomm, these homeowners go into foreclosure, it would add to the oversupply of homes, delay a recovery in the housing market, and add to pressure on banks.

Already, U.S. consumer spending is slumping as homeowners find they can no longer take equity out of their homes to fund their lifestyles.

In a slowing economy, it doesn’t take much to push an underwater mortgage into default.

Ron Paul: We could take our lumps, save money, pay our bills, restore liberty, and in a year we could have the most booming economy ever

October 27, 2008October 21, 2008 by Infinite

Ron Paul, whose libertarian-leaning candidacy for the Republican presidential nomination spurred millions of supporters, says the federal government could do much to repair the economy short of regulating.

While running for the Republican presidential nomination, Rep. Ron Paul of Texas frequently sounded the alarm regarding the nation’s fiscal health. Years ahead of the current economic crisis, Paul was questioning the nation’s debt level, now an acutely pressing issue amid all the recent stock market volatility.

With the Treasury Department and the Federal Reserve rapidly moving toward more government intervention in the marketplace while trying to stabilize the nation’s banks and shore up its financial institutions, Paul has argued for a hands-off approach. He opposed both versions of the financial rescue plan that came before the House – the first one, which was rejected, and the second, which was passed and signed into law.

Politico’s David Mark interviewed the 10-term congressman, who has still not endorsed Republican John McCain for president. Here are some excerpts.

Q: With the stock market still in flux and the risk of massive financial failures growing, what’s the worst-case economic scenario you envision over the next couple of years?

A: The worst part could be that this would linger for a decade or more. In fact, a very serious recession or depression is on schedule. You cannot avoid it. Eventually it has to come, but it doesn’t have to end badly. We could take our lumps, save money, pay our bills, restore liberty, and in a year we could have the most booming economy ever. But it would take a complete change in attitude.

If we continue to believe it’s freedom, capitalism and private markets that are the problems, we’re in for very bad times.

Probe of Lehman collapse escalated: NYT

October 18, 2008 by Infinite

NEW YORK (Reuters) – Prosecutors have stepped up the investigation into the collapse of Lehman Brothers, with at least a dozen subpoenas being issued including one to the investment bank’s chief executive, Richard Fuld, The New York Times reported on Saturday.

Citing people close to the probe who requested anonymity, the Times said federal prosecutors in Brooklyn, Manhattan and New Jersey were examining events leading to Lehman’s collapse and bankruptcy filing.

One person said New Jersey prosecutors were looking into whether Lehman executives including Fuld misled investors involved in the $6 billion infusion of capital announced by Lehman in June about the bank’s condition, the Times said. That infusion came as Lehman disclosed a $2.8 billion third-quarter loss, which caused its shares to plunge.

Birmingham on the brink of bankruptcy

October 16, 2008 by Infinite

With $3.2 billion in debt, the county that is home to Alabama’s largest city is about to go bust. How the credit crisis went South.

(Fortune Magazine) — Bob Riley wanted to help. It was Sunday, Oct. 5, and the Alabama governor was on the phone with Neel Kashkari, a Treasury Department official who the next day would be named by Treasury Secretary Hank Paulson as interim leader of the government’s just-approved $700 billion Troubled Asset Relief Program. But Riley couldn’t wait for Kashkari’s role to become official. He needed to impress upon the new bailout boss the seriousness of the exploding financial crisis in Jefferson County, home to Birmingham. Riley argued that it was urgent that the federal government come to the aid of his state – now.

As he would describe it in a follow-up letter to Kashkari, the situation in Jefferson County was “the single biggest threat to the municipal bond market today and a poster child for how the subprime mortgage crisis is hurting Main Street America.”

For months now, Riley and other civic leaders in Alabama have been battling to avert what appears almost certain – that Jefferson County will file for Chapter 9 protection, in what would be the largest municipal bankruptcy in our nation’s history. The county has fallen hopelessly behind on payments to service the $3.2 billion it borrowed – on reckless terms – from Wall Street over the past decade to build a new sewer system. As Fortune went to press, the Jefferson County Commission was days away from a vote that could make the bankruptcy official.

Feds investigate Washington Mutual failure

October 15, 2008 by Infinite

A sign at a Washington Mutual Bank (WaMu) branch is shown in San Francisco, California September 26, 2008. REUTERS/Robert Galbraith

NEW YORK (Reuters) – Federal investigators have opened an investigation into the collapse of Washington Mutual Inc, the largest U.S. banking failure.

Jeffrey Sullivan, U.S. attorney for the western district of Washington, said in a statement on Wednesday that he has set up a task force that includes investigators from the FBI, the U.S. Securities and Exchange Commission, the Federal Deposit Insurance Corp and the Internal Revenue Service’s criminal investigations unit.

“Given the significant losses to investors, employees and our community, it is fully appropriate that we scrutinize the activities of the bank, its leaders and others to determine if any federal laws were violated,” Sullivan said in a statement. He said the probe comes on the heels of “intense public interest in the failure of Washington Mutual.”

Icelandic Shoppers Splurge as Currency Woes Reduce Food Imports

October 13, 2008 by Infinite

Reykjavik, Iceland, on Monday, Oct. 13, 2008. After a four-year spending spree, Icelanders are flooding the supermarkets one last time, stocking up on food as the collapse of the banking system threatens to cut the island off from imports. Photographer: Arnaldur Halldorsson/Bloomberg News

Oct. 13 (Bloomberg) — After a four-year spending spree, Icelanders are flooding the supermarkets one last time, stocking up on food as the collapse of the banking system threatens to cut the island off from imports.

“We have had crazy days for a week now,” said Johannes Smari Oluffsson, manager of the Bonus discount grocery store in Reykjavik’s main shopping center. “Sales have doubled.”

Bonus, a nationwide chain, has stock at its warehouse for about two weeks. After that, the shelves will start emptying unless it can get access to foreign currency, the 22-year-old manager said, standing in a walk-in fridge filled with meat products, among the few goods on sale produced locally.

GM, Ford, Chrysler Face Bankruptcy Risk on Crisis, S&P Says

October 10, 2008 by Infinite

Oct. 10 (Bloomberg) — General Motors Corp., Ford Motor Co. and Chrysler LLC, the three biggest U.S. automakers, may be forced into bankruptcy as the global credit freeze damps U.S. sales, Standard & Poor’s analyst Robert Schulz said.

“Macro factors could overwhelm them at some point” even as GM, Ford and Chrysler vow to stick with their turnaround plans, Schulz, S&P’s lead automotive credit analyst, said today in a Bloomberg Television interview in New York. The companies said they have no plans to seek bankruptcy protection.

His assessment underscored the pressure on the industry as the worsening credit crisis makes it harder for buyers to get loans and dealers to finance their operations. S&P said yesterday it may further trim credit ratings for GM and Ford on forecasts for 2009 auto demand to fall to its lowest since 1992.

With all three companies working to boost cash, any bankruptcy filing would be a last resort, not a “strategic” decision, Schulz said.

Zeitgeist: Addendum

October 8, 2008 by Infinite

Added: Oct 3, 2008

Source: Google Video

The Dollar is Doomed

October 6, 2008 by Infinite

When the precious metals were smashed out of nowhere and the dollar started climbing this summer I became very worried. I didn’t question my conviction that commodities are in a bull market, or that precious metals in particular are undervalued. I felt something sinister was at work. Neither move was justified on a fundamental level. I assumed that something very bad was about to happen and the metals needed to be brought lower in advance of the bad news.

Now we have a glimpse at the ugly consequences foreseen by the Treasury Department and the Federal Reserve. In early September, Fannie Mae and Freddie Mac were nationalized with a financial commitment of USD$200 billion from the taxpayers. Incredibly, the loan limits at the former GSEs were raised from $417,000 to $729,750 in March when it was more than obvious these institutions needed to be reined in. Like most bailouts and bank failures, this one was announced on a weekend to limit the impact on the stock markets.

As I mentioned in last month’s issue, Treasury Secretary Paulson was under severe pressure to act, as the Chinese started selling Fannie and Freddie bonds while threatening further retribution. Common shareholders were left with nothing, while bondholders like Pimco and Asian central banks benefited. The small investor was stung again, as taxpayer dollars were used to bail out foreigners and wealthy Americans in a policy that Jim Rogers terms “socialism for the rich.”

Unfortunately, $200 billion is just the tip of the iceberg. As the government has assumed responsibility for Fannie and Freddie’s $5.4 trillion in liabilities, the Congressional Budget Office correctly states that these institutions “should be directly incorporated into the federal budget.” The Bush Administration has strongly opposed this move.

Lehman Hedge-Fund Clients Left Cold as Assets Frozen

October 1, 2008 by Infinite

Barclays Capital logos are displayed on the facade of the Lehman Brothers Holdings Inc. headquarters building in New York, Sept. 24, 2008. Photographer: Gino Domenico/Bloomberg News

Oct. 1 (Bloomberg) — Lehman Brothers Holdings Inc.’s bankruptcy probably means the end of hedge-fund manager Oak Group Inc. after 22 years in business.

John James, who runs the Chicago-based firm with $25 million of assets, didn’t buy Lehman stock or debt. Instead, his potentially fatal mistake was to rely on the bank’s prime brokerage in London, a unit that provides loans, clears trades and handles administrative chores for hedge funds. He’s one of dozens of investment managers whose Lehman prime-brokerage accounts were frozen when the company filed for protection from creditors on Sept. 15.

“We’re probably going out of business and liquidate, game over,” James, 59, said. “We’ve lost 70 percent of our assets.”

The list of funds trapped in the Lehman morass keeps growing. London-based MKM Longboat Capital Advisors LLP said last week it will close its $1.5 billion Multi-Strategy fund in part because of assets stuck at Lehman, according to an investor letter.

Fed Pumps Further $630 Billion Into Financial System

September 29, 2008 by Infinite

Sept. 29 (Bloomberg) — The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

The Fed increased its existing currency swaps with foreign central banks to $620 billion from $290 billion to make more dollars available worldwide. The Term Auction Facility, the Fed’s emergency loan program, will expand to $450 billion from $150 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

The Fed’s expansion of liquidity, the biggest since credit markets seized up last year, comes as Congress prepares to vote on a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, forcing European governments to rescue four banks over the past two days alone.

Lehman Files Biggest Bankruptcy Case in History

September 15, 2008 by Infinite

Sept. 15 (Bloomberg) — Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history.

The 158-year-old firm, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. The collapse of Lehman, which listed more than $613 billion of debt, dwarfs WorldCom Inc.’s insolvency in 2002 and Drexel Burnham Lambert’s failure in 1990.

Bailouts Will Push US into Depression

September 12, 2008 by Infinite

Source: YouTube

The end result of the global economic slowdown may be the U.S. announcing national bankruptcy as the government cannot afford the bailouts that it promised and the market will not bail out the government, Martin Hennecke, senior manager of private clients at Tyche, told CNBC on Thursday.

“We expect a depression in the United States. We expect a depression, very possibly, also in Europe,” Hennecke said on “Worldwide Exchange.”

The estimated $300 billion cost of the Fannie/Freddie bailout will probably be considered as a loss that the government will have to take, therefore passing it on to taxpayers, he explained.

“We already have $3 trillion of debt, as far as the U.S. government is concerned. These debt figures across the U.S. economy are rising very sharply.”

When the government can no longer pass the United States’ “immense debt” on to taxpayers, it will turn to the holders of U.S. dollars, leading to the eventual downfall of the currency, Hennecke said.

“Definitely, it (the dollar) is not a safe place to be invested in, as real inflation is closer to 10 or 11 percent than the actual inflation numbers given by the U.S. government,” Hennecke said on “Worldwide Exchange”.

Investors should avoid exposure to debt and stay away from leveraging on any investment or asset, including property, Hennecke advised, adding that “banks have been too highly leveraged in the past, private households, everybody.”

Hennecke’s stock allocations are mainly Asian-based, especially in the Chinese market as the country’s government has a large amount of cash and the macroeconomics are fundamentally strong.

He also suggested investing in gold, despite the recent fall in price.

11 Sep 2008

Source: CNBC

Freddie, Fannie Scam Hidden in Broad Daylight

September 10, 2008 by Infinite

Sept. 9 (Bloomberg) — When the history is written on the collapse of Fannie Mae and Freddie Mac, it will go down in the annals of corporate scandals as one of the greatest accounting scams committed in broad daylight.

All anyone had to do to know the government-guaranteed mortgage financiers were insolvent was read their financial statements. You didn’t need a trained professional eye to discern this open secret, only a skeptical one.

Just last month, Fannie and Freddie said their regulatory capital was $47 billion and $37.1 billion, respectively, as of June 30. The Treasury Department now says it may have to inject as much as $200 billion of capital into the two companies. Nothing much changed at the companies in that span. They just couldn’t get the government to keep up the ruse any longer.

Why Government Bailout Of Fannie And Freddie Will Fail

September 9, 2008 by Infinite

With yesterday’s announcement of the most massive federal bailout of all time, it’s now official: Fannie Mae and Freddie Mac, the two largest mortgage lenders on Earth, are bankrupt.

Some Washington bigwigs and bureaucrats will inevitably try to spin it. They’ll avoid the “b” word with vengeance. They’ll push the “c” word (conservatorship) with passion. And in the newspeak of 21st century bailouts, they’ll tell you “it all depends on what the definition of solvency is.”

The truth: Without their accounting smoke and mirrors, Fannie and Freddie have no capital. The government is seizing control of their operations. Their chief executives are getting fired. Common shareholders will be virtually wiped out. Preferred shareholders will get pennies. If that’s not wholesale bankruptcy, what is?

GM, Ford, Chrysler Sales Collapse

September 5, 2008 by Infinite

Chrysler President Jim Press: “Maybe towards the end of ’09, going into 2010, there’ll start to be some signs of recovery.” Maybe not.
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The Wall Street Journal is reporting Auto Sales Tumble, But Industry Sees Signs of Hope.

Sales of cars and light trucks fell 15.5% to 1.25 million last month, down from 1.48 million a year earlier, according to Autodata Corp. The closely watched seasonally adjusted annualized selling rate was 13.7 million vehicles, up from 12.55 million in July, but down from 16.3 million in August 2007, Autodata said.

Read moreGM, Ford, Chrysler Sales Collapse

JPMorgan Is Facing Federal Probe

September 4, 2008 by Infinite

Sept. 4 (Bloomberg) — JPMorgan Chase & Co. will stop selling interest-rate swaps to government borrowers in the $2.6 trillion U.S. municipal bond market roiled by an antitrust probe and the near bankruptcy of Alabama’s most-populous county.

At least seven former JPMorgan bankers are under scrutiny in a Justice Department criminal investigation of whether banks conspired to overcharge local governments on swaps and other derivatives. The bank also is embroiled in negotiations over how to resolve a debt crisis with Jefferson County, Alabama, where the county’s former adviser says a group of firms led by JPMorgan, the third-largest U.S. bank by assets, overcharged it by as much as $100 million for financing a new sewer system.

Beijing swells dollar reserves through stealth

August 26, 2008 by Infinite

China has resorted to stealth intervention in the currency markets to amass US dollars, using indirect means to hold down the yuan and ease the pain for its struggling exporters as the global slowdown engulfs the economy.

A study by HSBC’s currency team in Asia has concluded that China’s central bank is in effect forcing commercial banks to build up large dollar reserves, using them as arms-length proxies in a renewed campaign of exchange rate intervention.

Beijing has raised the reserve requirement for banks five times since March, quickening the pace with two half-point rises in late June.