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Old 11-24-2008, 10:40 AM   #239
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I had left this thread until I heard this news today:

Bush: U.S. will act to safeguard financial system - Nov. 24, 2008

Then please, enlighten my as to why this is ok and not giving the automakers money? Citibank was just given another 20 billion having already been given 25 billion a few weeks ago, and the government is guaranteeing 300 billion in losses.

So I know you are totally against these actions as well, but if we are already doing it, I can't see still how even $100 billion to the domestic automakers is any less important, degree in economics or not. We've already opened up the treasury for the banks, and I see the point of where do you stop, but my point is, you can't just stop with the banks. I mean really, 45 billion to Citibank in the last 4 weeks and zero to the big 2.5? Both institutions are important.
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Old 11-24-2008, 10:42 AM   #240
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Hampstead, I know it's unlikely I'm going to change your mind about free markets. I do see that you aren't worried about a depression. The last one had 25% unemployment, assets wiped out, extreme poverty, well, you know the rest. I'm not willing to risk that. I know you may reply that govt intervention made the Great Depression worse and you know I'll reply that's only the belief of only a minority of economists and we can repeat ourselves again and again. But, I'm still not willing to take the chance.

On to safety. Mrmossy', I think all those statistics are interesting and I'm glad you didn't post more. We agree all things being equal, more mass means more destruction. But, I don't think all things are equal and hopefully there can be safe small vehicles designed. Some are pretty safe now. I guess we'll buy as much mass as we want to if we can afford the fuel. I suggest looking for my father's '56 Lincoln Premiere—it was massive and seemed to be able to go through brick walls, but it kept falling apart because it was built badly. He didn't learn and bought two Thunderbirds in the mid-'60's—they were pretty, but badly made too. Then he went back to GM. He had a Buick around '67 that had a suspension that rocked like a boat on a flat road and made me carsick to drive, something I tried to avoid. He seemed to think all those bad cars were normal. Meanwhile I was buying foreign and spending less on repairs and having more fun driving. Well, that '66 Triumph and the '68 or '69 MGB had little QC, but they were fun, but maybe they were my mistakes. Despite my past life with small cars, I remain uncrushed, though now that I've learned pickups are so unsafe, my time may be up soon.

Gene
One major reason cars with more mass are safer is that they generally have much larger crush zones to dissipate energy release. There is new technology coming on line to help increase the size of crush zones without increasing mass which would be safer in an accident with a car of same or less mass and even help in a wreck with a vehicle with more mass. There is no doubt that everyone would be safer if there were only small cars with very little litlle mass and large crush zones( which is not currently the case with small cars), but your playing with the big boys out there on the road and will continue to do so in the forseeable future. Small cars can be made to be much safer in auto accidents, the technology is there but be prepared to pay a whole lot more for the car.
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Old 11-24-2008, 10:43 AM   #241
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Bailout and economics...

My opinion is that the current product mix - and therefore the current difficulties are in large part due to the well-intentioned but ultimately counterproductive use of CAFE standards to raise fuel economy while leaving big loopholes (literally, large enough to drive an Escalade through) allowing the continued production of very inefficient vehicles. (and it affected domestics the most because this was their chief market)

If the government had a hand in creating those conditions - a unique set of tax & safety laws among the home countries of auto producing nations - then that government probably needs to do something about the resultant mess.

As far as the US being too small for three manufacturers, the presence of 3 independents in Germany (plus a 4th, Opel, which is a subsidiary of GM's) shows that to be false.

As Wagoner said back in July or August, "We're going to need some help on the demand side" which Autoblog (or Autobloggreen, I forget) translated as a request for higher gas taxes. This would have the effect of stabilizing the conditions, creating demand for fuel efficient products, and moving us away from the fragile truck-based manufacturing model.

Also, remember Nardelli came from Home Depot - Chrysler's current state is more a reflection of Daimler's wishes (they owned it until last October) than anything. Mullaly came from Boeing, where he rolled the dice on the next big Boeing being fuel efficient instead of fast. Only Wagoner is an "insider" and stories are circulating about the extent of GM's cost cutting. I think they're serious.
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Old 11-24-2008, 10:46 AM   #242
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One other note, the US Government has already approved 25B in loans. These loans will be made available in the indefinite future. One of the requests of the 3 is to make the money available sooner than late 2009, which seems reasonable.

Also seemingly reasonable is a statement on how the loan money would be used and plans to pay it back.
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Old 11-24-2008, 10:47 AM   #243
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Originally Posted by Silvertwinkie View Post
I had left this thread until I heard this news today:

Bush: U.S. will act to safeguard financial system - Nov. 24, 2008

Then please, enlighten my as to why this is ok and not giving the automakers money? Citibank was just given another 20 billion having already been given 25 billion a few weeks ago, and the government is guaranteeing 300 billion in losses.

So I know you are totally against these actions as well, but if we are already doing it, I can't see still how even $100 billion to the domestic automakers is any less important, degree in economics or not. We've already opened up the treasury for the banks, and I see the point of where do you stop, but my point is, you can't just stop with the banks. I mean really, 45 billion to Citibank in the last 4 weeks and zero to the big 2.5? Both institutions are important.
By this logic the government can't then stop when any industry puts their hand out, they will all have very compelling reasons why they are so vital to our economy. I hope smarter people than me will figure this out but I don't personally see how throwing good money after bad will help anything.
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Old 11-24-2008, 10:55 AM   #244
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One major reason cars with more mass are safer is that they generally have much larger crush zones to dissipate energy release. There is new technology coming on line to help increase the size of crush zones without increasing mass which would be safer in an accident with a car of same or less mass and even help in a wreck with a vehicle with more mass. There is no doubt that everyone would be safer if there were only small cars with very little litlle mass and large crush zones( which is not currently the case with small cars), but your playing with the big boys out there on the road and will continue to do so in the forseeable future. Small cars can be made to be much safer in auto accidents, the technology is there but be prepared to pay a whole lot more for the car.
Slightly OT, but a fun watch: 1960's Crash Test compilation.
a more modern head on Truck vs car

I suspect if smaller cars become the norm, there may be some insurance increases to the larger cars/trucks to account for the difference. Do not know that, however. The trick is to find an 80 year old who's never had an accident and learn from them. I did that while learning to fly and didn't regret it :-) .
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Old 11-24-2008, 11:01 AM   #245
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Re: Citibank vs. GM


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Old 11-24-2008, 11:33 AM   #246
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You have not demonstrated that the loans are necessary... or even a good thing.

Look at how long it took us to understand the Great Depression.
Hampstead, your reference to Silvertwinkie never having shown loans were necessary is incorrect. I just went, quickly, through the entire thread and among others he's posted, his point of view can be seen in Posts 6, 7, 14, 18, 19, 36, 57, 222, 227. Of course, many others have also written on this thread about why the loans are necessary.

As for the G. Depression, given our disagreement on the causes and cures, it appears it will take somewhat longer to reach a universal agreement.

'twinkie didn't stay away for long and the pull of this thread seems strong. Even jimmini came back. I do think we are tending to repeat ourselves, however.

Gene
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Old 11-24-2008, 11:46 AM   #247
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Hampstead I looked up your link on moral hazard and I will copy this short section:

Quote:
Brokers, who were not lending their own money, pushed risk onto the lenders. Lenders, who sold mortgages soon after underwriting them, pushed risk onto investors. Investment banks bought mortgages and chopped up mortgage-backed securities into slices, some riskier than others. Investors bought securities and hedged against the risk of default and prepayment, pushing those risks further along. In a purely capitalist scenario, the last one holding the risk (like a game of musical chairs is the one who faces the potential losses. In the 2007–2008 subprime crisis, however, national credit authorities – in the U.S., the Federal Reserve – assumed the ultimate risk on behalf of the citizenry at large. This led to concerns about the rise of corporate welfare, or economic fascism(corporatism), given the potentially large transfers of wealth to investors in mortgage-backed securities.
I am learning a lot in this thread. That explanation is easy to follow. We used to play hot potato besides musical chairs, excellent analogy I thought.

I too have wondered why building and rebuilding in unstable places such as beach front that often floods should be passed along to those that do not make risky decisions. Good link you posted. Knowing you have a fall net would encourage engaging in riskier behaviour.

So while I am learning I am still inclined to think intervention is necessary at this point. I can't disagree with what you have said and now that I am learning it it is clearer than ever. And I agree with you that no one knows what will happen either which way until it is long over.

This has been a good thread as mentioned before, very civil and very good information and very diverse and interesting.
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Old 11-24-2008, 11:49 AM   #248
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I'm not an expert, but I believe the difference between the loans to the financial institutions and those to the auto industry is that the former need the funds for liquidity rather than to meet operating expenses, which is what the auto makers need.

The cash and credit markets have gotten so intertwined that they have got to be sorted out. Cash provides the time to sort it. Absent an infusion of cash, you'll have crises similar to bank runs, in which good assets are devalued along with the bad ones.

Pat
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Old 11-24-2008, 11:50 AM   #249
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Just to be fair..

Quote:
Originally Posted by mrmossyone View Post
One major reason cars with more mass are safer is that they generally have much larger crush zones to dissipate energy release. There is new technology coming on line to help increase the size of crush zones without increasing mass which would be safer in an accident with a car of same or less mass and even help in a wreck with a vehicle with more mass. There is no doubt that everyone would be safer if there were only small cars with very little litlle mass and large crush zones( which is not currently the case with small cars), but your playing with the big boys out there on the road and will continue to do so in the forseeable future. Small cars can be made to be much safer in auto accidents, the technology is there but be prepared to pay a whole lot more for the car.
Yes, the technology is there and, you don't have to pay a whole lot extra either~!
The range of prices is "acceptable"
YouTube - smart car crash
I found this to be very, very interesting..
Even the windshield survived~!
ciao
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Old 11-24-2008, 01:57 PM   #250
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Moral hazard hypocrisy

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Originally Posted by wheel interested View Post

I too have wondered why building and rebuilding in unstable places such as beach front that often floods should be passed along to those that do not make risky decisions. Good link you posted. Knowing you have a fall net would encourage engaging in riskier behaviour.
Giving people flood insurance to protect something they built after it was learned there was a flood hazard has never made sense to me. If they want to build after being flooded out, they should be required to build a bunker—and they are to some extent.

But I think the problem with the moral hazard argument is that it cannot be absolute. I accept it for people who build in a flood plain now, but those who built decades ago, before there was a societal recognition of the dangers, should be able to get the insurance. We also subsidize people in flood plains by building flood control projects and the gov't doesn't even collect insurance premiums for that.

With the flood issue, there was a societal decision that there were too many homes and businesses in flood plains to allow them to be destroyed or to let all those people have massive losses since they couldn't get private insurance. In other words, they were too big to fail because of the severe dislocation that would be caused.

We have had another example of the "too big to fail" argument when Citigroup has been propped up again. And, unfortunately, it appears there have been no controls, restrictions, execs fired, just like the other banking bailouts. This refusal to trade restrictions and the rest of it for the bailout is a perfect example of the moral hazard argument—banks have learned they can screw up and just get bailed out.

I am not condoning that. There has to be a trade off to promote good banking behavior and protecting other parts of the national economy.

And, still nothing from the Treasury Dept to help homeowners facing foreclosure because they were sold bad mortgages and they didn't have the financial knowledge to understand what they were getting into. They respected the sales people as authority figures, didn't have economics, accounting or law degrees, and got screwed. This is where the problem started and yet there's no attempt except from the FDIC to solve the underlying problem. As so all suffer because of that. Every attempt to create national legislation to prevent predatory lending was defeated by free market guys like Phil Gramm. Now Treasury (Hank Paulson) talks moral hazard about mortgages while ignoring it when bailing out his banking buddies. This is the utmost in hypocrisy.

Gene
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Old 11-24-2008, 03:00 PM   #251
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And, still nothing from the Treasury Dept to help homeowners facing foreclosure because they were sold bad mortgages and they didn't have the financial knowledge to understand what they were getting into.
Well, Gene, I'm going to have to respectfully disagree. I have more than a little problem w/ the idea that people were "screwed". If it were me it probably would have occurred to me that I would not have qualified for a house because:
a. I didn't have a job
b. I didn't have any savings
c. I didn't have any down payment
d. I'm up to my neck w/ credit card debt
e. I owe money to the check cashing places and pawn shops
f. My car has been repossessed
g. I never could afford a house before, why can I now?

Or some combination of the above--lots of people were simply
not qualified for home ownership never mind the idea of home
ownership for everyone.

I think people should be more aware, act for themselves, and look out for themselves w/out waiting for the government to do every single thing for them.

**Flippancy alert**
The dikes have broken and the water is rushing in. Maybe we should move up the hill to higher ground.

Government involvement, such as the Community Reinvestment Act signed by President Carter 1977 which pushed Fannie Mae and Freddie Mac to aggressively lend to minority communities by lowering the bar for qualification in lending. Along come President Clinton and about 1977, he pushed rule changes that gave Fannie Mae and Freddie Mac extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks. Let the cronyism begin!

With incentives in place, banks poured billions of dollars of loans into poor communities, often "no doc" and "no income" loans that required no money down and no verification of income. Screwed? No, but certainly not helped any.
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Old 11-24-2008, 03:02 PM   #252
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As to the question of "why bail out one sector (financials) but not another (auto industry)," here's my take. (Opinion follows.)

The failure of the auto industry will certainly affect many, but likely not all. The failure of large firms in the financial sector undermines the public's belief in the stability of the entire sector. It's likely a very short short step and very long fall from perceived instability to complete monetary panic. Therefore, the failure of large banks/holding companies like Citigroup has the potential to create panic on a much larger scale, with much longer-lasting effects.

(Again, my opinion, based in a "fair" understanding of the economy and markets.)

--SM
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