Tiny Cat Warriors

Feds agree to back GM warranties

Jeez, I have a couple of problems with this:

1.    I own a GM car under the factory warranty.  Since the Feds basically equals me (and you and everyone else who pays taxes), doesn't this mean that I'm essentially self-insuring for warranty claims on the car?  That's totally not the deal I was expecting when I agreed to help GM out last year by buying a car made in the US.  Except it's even worse than that - I'm not just adding any old bureaucracy as a middle man, I'm adding the federal government as a middle man.  Great.  So I can expect my warranty claims to be handled as efficiently as, say, a problem with the Social Security Administration.  Perfect.  I probably should just set the car on fire before anything goes wrong that might mean having to deal with the Federal Warranty Administration, or whatever it's going to be called.

2.    Rather than have the taxpayers fund this, wouldn't it make more sense to have the UAW fund it?  That's where the money went when GM pissed it away.

3.    How long before some idiot in Congress (i.e., Nancy Pelosi, Henry Waxman, Barney Frank, etc.) gets the bright idea that the federal government doesn't have any business insuring warranty claims for either: a) expensive cars, or b) rich people?  Any group of 435 idiots that can pass (in 24 hours, with no debate) a 90% tax retroactively on a select group of citizens is completely capable of deciding to "means test" warranty coverage.  I can totally see Henry Waxman giving a mincing speech about why the government shouldn't provide coverage on Cadillacs.  Totally.

4.    Isn't it also easy to see that one or more idiots in Congress might decide that the money set aside to pay GM warranty claims would be better spent on studying diaper rash in the New Orleans 9th ward?  C'mon, you know something like that will happen.

5.    Are the shareholders of Ford looking like total dumbasses now - they ran their company such that it wouldn't need the anywhere near the bailout that GM needs.  So Ford will have to cover its own warranty cost on the cars it's selling.  How dumb is that on Ford's part? 

There's no way this ends well.

Spring day - downtown San Francisco

Walking back from Union Square this afternoon.

San Francisco skyline March 2009

San Francisco skyline March 2009

San Francisco skyline from Sausalito waterfront, March 27 2009

Sausalito hill March 2009

Sausalito hill March 2009

Picture of the hill on the South side of Sausalito from the waterfront, March 27 2009

Caturday #1

Bartok enjoying a post-breakfast moment.

1st and Howard

1st and Howard

Corner of 1st and Howard, last night. Downtown San Francisco.

Building at night

Building at night

Corner of 1st and Howard, last night. San Francisco

Hair of the dog

Tim Geithner's finally described his plan to deal with the bad assets held by banks.  My opinion is that it leaves a lot to be desired & is really a "hair of the dog that bit you" plan.  

What caused the problem: First and foremost, bad lending practices by banks, but then it was exacerbated by banks and other financial institutions not understanding risk, not pricing risk accordingly (because they were doing the investing largely with borrowed money that, even worse, was borrowed on a nonrecourse basis), and then carrying the assets on their balance sheets at values that were wholly unrealistic based on the relative risk.  It's worth remembering that the mark-to-market accounting that everyone is complaining about requires companies to mark to present value based on discounted cash flow in situations where there is not a fluid market - so a lot of the complaints by companies now are simply bitching that they don't want to mark the assets down.  No one is requiring them to mark to fire-sale pricing.

Geithner's plan injects substantial leverage into the purchases of the "toxic assets" of the banks, in some cases 20/1 leverage.  You can bet that hedge funds will be trying to leverage even the 5% in cash minimum they're required to put up, in all likelihood pushing the leverage up to 100/1 or more.  The loans from the FDIC to purchase the assets that will constitute the leverage will be, get this, nonrecourse.  If the point of the exercise is to try and get a real grasp of the value of the assets, will letting hedge fund investors buy the bad loans using taxpayers' money and less than 5% (probably much less) of their own money encourage bids on the toxic assets that are realistic?  Hell no.  The incentive for the hedgies will be to overpay for the assets since they'll keep the majority of the upside through profit participation and fees, while shifting virtually the entire downside to the US taxpayers.  

If one of the substantial causes of the problem to begin with was excessive leverage giving people an incentive to overpay for assets, how can creating a situation where there is excessive leverage giving people an incentive to overpay for assets be the solution?

Interesting question: why did Geithner (with many connections to various investment banks <cough>Goldman Sachs<cough>) create a system where investment banks (<cough>Goldman Sachs<cough>) are likely to be the primary beneficiaries at no risk to themselves?

Spring morning in March, photo #2

Spring morning in March 2

Spring morning in March, photo #1

Spring morning in March