Financial Wisdom – By Kalidas

Radical Solution for Credit Crisis from Kalidas

Vultures Circling on US Auto Makers

with 14 comments

0811-016-vultures-on-auto-makers

Ref: 0811-016 of 2008/11/23

 

Wall Street and Private Equity vultures are at it again. They are aided and abetted by Republican senators and its sponsoring media with well orchestrated campaign to cause the death of the United States’ biggest employer – General Motors, Ford and Chrysler.


The vultures are interested in causing deliberate bankruptcies so that all the equity and options owned by United Auto Workers in their respective companies be turned worthless, the pension fund liabilities avoided partly or altogether, the health and insurance benefits to retirees reduced to zero, termination benefits also reduced substantially for want of funds, and the companies so stripped off its statutory liabilities be bought over in Bankruptcy Court for a song.

 

The officials from FED, Treasury, Office of the President, and hosts of senators mainly from Republican Party want to rehearse the events of United Airlines, WorldCom, Bethlehem Steel and lately Lehman Brothers, all of whom were allowed to go bankrupt to the detriment of all its workers and employees

 

Destroy the United Auto Workers…

REASON, all these companies were partly or majority owned by the Employees or Workers, which acted as “eyesore” to the brokers on the Wall Street and predators- Private
Equity firms.

 

The Courts of United States also favor the predators. They also award the companies to those vultures by refusing to let the company liquidated compulsorily, but handing over to bond or debenture holders by allowing writing off the entire equity of the company, so that the employees are not left with any power without money.

 

The whole system sucks – from monetary (FED & Treasury) to Political (Senators and Representatives), to Executive (President) to Judiciary arm (Courts) – all are corrupted by the wily suckers on the Wall Street who use its orchestrated media – in print or television. Day in and out, you tune in to CNBC, NBC, Fox News, CNN or CBS or read Wall Street Journal, Barron’s, Business Week, Forbes who all praise such actions in the name of saving the company and enforcing cost savings.

Even today, the questions are asked – why Lehman Brothers were allowed to fail. Why not Merrill Lynch, Bear Stearns, Morgan Stanley, or even Goldman Sachs?

 

What is so common in rest of four and unique in Lehman Brothers? The answer is LHB was majority owned by employees. The employees or workers are treated like disposable diapers in United States, whatever is the outer façade to describe them.

 

It happened to United Airlines only in recent past…

Why United Airlines was allowed to fail and thrown into bankruptcy court – because it was majority owned by employees. All of their shareholdings were reduced to ZERO by the bankruptcy court and awarded the company to the debt holders who deliberately bought debts to exercise the control. The life time savings of all employees were lost in a flash like homes destroyed in Californian wild fires.

 

The debt holders were given the new equity at most favorable terms and reducing all past equities (majority owned by workers or employees) to Zero value. If the company was still worth, the question arises why UA was not placed by the court on auction block with open and transparent public tender or why was it not sold part by part to realize the best value? The stocks owned by employees were reduced to zero and the new stocks awarded to debt holders in exchange of debt soared to as high as $ 49 from just under few cents.

 

All have been accomplished in the name of free enterprise, freedom, capitalism, efficiency of the capital market, and similar nouns and adjectives. They invent new names, phrases or synonyms from Roget’s Thesaurus.

 

Wall Street Brokers Cheers and Jeers at the Loss of Other People’s Jobs

Whenever a company merges or taken over by a predator, announcements are made to dismiss the thousands of employees in the name of cost cutting exercise and boosting the profits. Wall Street Brokers from Goldman Sachs, Morgan Stanley, Smith Barney, Merrill Lynch, UBS and all down the line, applaud such moves and start recommending the respective stocks by shooting them up by 10% to 50% in a few days.

 

While the thousands of laid off employees live sleepless nights, sobbing until dawn how to meet the mortgages or tuition fees of their kids, the irresponsible brokers and investment bankers on the Wall Street go on celebrating in high profile parties hitting wine or champagne glasses with the shouts of “cheers”. They are interviewed on popular channels like CNBC or Bloomberg by Anchors with glee on their faces.

 

There could not have been better shameless spectacle. Read every take over in the past or mega merger, you will find the same gimmicks all the time.

 

Consign the Wall Street Brokers and Investment Bankers to Guantanamo Bay…

It is therefore highly a celebration event that finally the Wall Street brokers saw what they deserved most. Thousands of Wall Street brokers are now being laid off in worst ever crisis which was their own making. They now realize how it feels like losing a job – celebrating with wine glass or with full glass of tears of their loved ones.

 

There should be no sympathy for all these bankers, Investment bankers and brokers – they should be condemned and consigned to Guantanamo Bay Detention Camp. Osama Bin Laden may have caused pain only once – on 911. But these Wall Street brokers, banks and investment banks are the biggest financial terrorists who cause pains every day to every family in United States.

 

$ 218 Billions charity by Paulson to AIG to help them pay Goldman Sachs, his former company?

And look at the perfidy of Hank Paulson, Treasury Secretary and Ben Bernanke (FED Chief) who have been pouring the billions, even trillions of dollars, into bankrupt banks and brokers for the losses of their offshore arms who never contributed any taxes or employment to the local American Tax Payers.

 

They never asked or justified why the off shore obligations of banks have suddenly become the liability of domestic Americans who have nothing to do with independent off shore operations of those defunct companies.

 

And why does Paulson pays $ 89 billions +$ 129 billions to AIG? Is it because AIG could repay its dues to Goldman Sachs (wild guess is $ 20 billions to $70 billions), a firm of whom he was the President before joining Bush Administration? Yet, the President Bush is so blind and complacent that he can not see the naked truth.

 

Devils’ Donation to Tax Dodgers and Denial to Domestic Tax Paying Corporations.

They are giving hundreds of billions of dollars to “Asset Void Banks with no possibility of Repayment” for the obligations of their off shore operations, the tax dodgers. Same gang is refusing to pay $25 billions to 3 Auto makers – General Motors, Ford, and Chrysler who have been paying billions of dollars of taxes for over 60 years, who have created over 2 million jobs, who have solid assets, who developed thousands of townships, who became the backbone of the American Industrial expansion.

 0811-016-bankruptcy

United Auto Workers may come out in full force to demand full justice and ensure that all the excesses of the past defeating the cause of labor are put to rest. It is now or never for them.

 

NO, this stubborn Paulson and Bernanke say. And the Republican Senators join them – Do not give them $ 25 billions – they are inefficient. As if AIG, Citigroup, JP Morgan Chase, Bank of America who are recipient of over $300 billions were efficient.

 

If these 3 auto makers fail, and 3 million affected Americans are laid off, it will cost $12 Billions per month towards “unemployment allowances” that is over $144 Billions annually, if we consider the recent extension granted by the President Bush. Simple arithmetic – lose $ 25 billions now with full guarantee of repayment or lose $144 billion in a year without any possibility of repayment towards the unemployment allowance alone, loss of tax income if they were gainfully employed is not even counted.


What would you do, if you were the President of United States? 

 

The country is on steep decline. There could be unrest, strong protests, riots, loots, murders, real blood bath on the main streets of United States, if no actions were taken to blunt the attack of the Wall Streeters on the Main Street participants. Can you imagine what happens when 52000 employees of Citi Group and over 2 million direct or indirect employees of 3 Auto makers are suddenly thrown out on the street in just under 7 days? Blue collar workers are normally less tolerant of job losses than white collar employees.

 

It just defies my common sense – how come these VIPs in the White House are pouring hundreds of billions of dollars into bankrupt off shore operations in the form of 100% unsecured advance while denying relatively small but fully secured $25 billions to America’s biggest industry at home – Auto Makers?

 

The present administration has gone absolutely mad, just mad.

 

Kalidas, Hong Kong

Ref: 0811-016 Vultures preying on US Auto Makers

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Written by anilselarka

November 24, 2008 at 1:33 am

14 Responses

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  1. Dear sir

    I am a silent reader cum hardcore fan of yours. I would request you to write some thing on uae finacial system/dubai’s real estate. Real estate in uae has grown many fold in past few years.since i am residing here i long to hear from you about the effect of credit crsis on uae.

    Brgds
    Philip,Fujairah,UAE

    Philip

    November 24, 2008 at 7:11 am

  2. Anil Sir,
    I agree with your view on wall street firms. They have created biggest financial tsunami by being reckless and worst part is they behave as if they are not answerable or accountable to any one and still get bailout from taxpayers’ money.I wonder why people in the world consider them the brightest and the best and every youngster wants join them after college and become an investment banker?

    jigs, USA

    jigs

    November 24, 2008 at 7:41 am

  3. I appreciate your depth in writting and vision. This blog has become a daily must read for me. Thanks for your selfless service to people like me. God bless you

    Mohan, Mumbai, India

    Mohan

    November 24, 2008 at 12:16 pm

  4. Dear Kalidas ji,

    Very true. The last line of this article just sums up the state of the administration.

    Look at what they just did, giving away $20 billion to Citi Group!

    If these auto makers go down, im sure there are very less chances of US housing to breathe……what happens to the mortgages held by millions of labours who are in line of fire?

    A wishfull thinking though……Wish people like you were allowed to take over the control of the revival of financial markets.

    Peace,
    Girish, Pune (INDIA)

    0811-111 Kalidas Replies to Girish (Monday, November 24, 2008)
    Not only $20 Billions cash infusion on top of $25 billion last month and almost 70 billions more not yet disclosed.

    They also guaranteed $360 billions of debt! Are they crazy? They do not have even authority to do so. It requires Senate approval.

    This means that there is a deep hole of $ 517 bilions ($42 billions written off earlier + $25 last month + $20 billion of new cash this month + $70 billions of withdrawal facility used (rumored) + $360 billions of new guarantees).

    It seems that majority of sum is owed to Goldman Sachs, and this is why Paulson is hell bent to extract as much guarantee and cash possible from US government. And that idiot at the top is still going on signing those papers.

    More like ODI – when only few balls are left, whichever batsman comes in lifts the bat all the time to hit fours and sixes.

    You also raised a valid point. If 2 millions jobs are lost, and they are not going to be replaced soon, almost 1.5 millions of additional mortgage will get into foreclosure. If median prices are $ 250,000 per home, the potential additional foreclosure will be $250,000 x 1.5 millions or 375,000 Millions or $375 billions. since derivatives are issued nearly 5 to 6 times, more Sub Prime related losses to be written off will be $ 2 trillions or $2000 Billions. This will happen in next 6 months, because the lag time from default to final sale is 6 months.

    Additionally, 2 millions will need to be paid “unemployment allowance” @ $ 4000 per month or $8 billion per month or $ 96 billions per year (due to extension of period to 12 months). PLUS potential income Tax loss to the state to almost $ 30 billions. Thus, the total losses will be $126 billions non returnable.

    Yes, AMERICA IS BANKRUPT. Let us not discuss any company here any more. Now it is a bankruptcy of a nation.

    And the rating agencies like Moody and S&P still rate Citi’s debt at AA-, 3 stages above junk bond status; and same rating agencies have threatened to downgrade India’ rating to “junk status” because India’s growth will be less.

    If you can not call them SOB, what you will?

    Girish

    November 24, 2008 at 4:55 pm

  5. Informative article it informs real story behind the picture Only who has indepth knowledge can write this article

    Ketan,Hongkong

    ketan

    November 24, 2008 at 5:35 pm

  6. WOW!, so far we only know how to read news, for the first time I am understandig how to Analyze the news..? Thanks a lot for your valuable knowledge allowing us to see insights.

    BTW recently I read an article that FED is a private entity, how far it is true.?
    And also another news that Gold will go through deflationary cycle, but blomberg news says China is planning to buy 400 tonnes of gold, how these things will affect price of gold in near to long term future

    Thanks,
    Siva
    New York

    Siva Kollipara

    November 24, 2008 at 11:07 pm

  7. Dear Kalidas sir, After reading your wonderful article i have one question. what Paulson will achieve by destroying the entire economy through out the world and how goldman sachs can alone benefit. will it not sink in future by its own weight. How long can they short gold and oil
    Thanks and regards
    Ravi, Chennai, India

    Ravi

    November 24, 2008 at 11:38 pm

  8. Dear Sir,
    This was precisely even I was thinking, as to why US is not giving such a paltry sum to automakers. Whereas, they don’t mind giving billions to the bankers.
    I hope Obama has guts to straighten up things.

    Regards,
    Prakash
    Rotterdam, The Netherlands

    dutchman

    November 25, 2008 at 5:26 am

  9. Hi all
    Time to wake up (common man)As can be seen in the US bailout of thier financial instituions citing more disaster if they did not, I wonder who are the real beneficiaries (is it not bush, Bernanke and Paul), becuase it would be foolish to think that they did all this in the name of saving the nation, did they not see it comming ? Does anyone think that in thier last days at office they suddenly became patriotic?
    In fact a similar situation prevails in India (especially with airlines) Was it not a show that was put up by Jet after the meeting with Kingfisher to terminate employees and then blackmail the government for concessions in reducing fuel charges , delaying the payment of fuel charges by 6 months and then a proposal to allow 51% investment into thier airlines by outsiders. Also India is also probably the only country where ATF is costing Rs 39 while Petrol is costing above Rs 50. So who is paying for the luxury of these airline owners and travellers it is the man on the street.
    In you earlier article Kalidsji had suggested helping Tata and Birla, I say why not Mukesh, Anil, Ruia, Bajaj and even the Kirana shop onwer who would have employed a couple of guys in his shop.
    I would like to hear the views on where does the buck stop? Who should pay for the mistakes of some – is it the common tax payer who gets it below the belt all the time or the guys in power or at the top ?
    Responses welcome
    Xavier
    UAE

    xavier

    November 25, 2008 at 11:21 am

  10. Sir

    When is your book ‘Subprime resolved’ going to be published?

    Thanks..

    Kamesh

    November 25, 2008 at 2:16 pm

  11. Respected Sir,
    Are you coming to Amravati in the 3rd week of this month ?.I am very eager to meet you. I have not received any mail from you till the date.Hope you will reply .

    Pankaj Belsare

    Kalidas: Not yet decided yet. We are planning to be in Amravati on 9th January, 2009. I will send you email with my contac6t tel numbers

    Nagpur-08,Maharashtra,India

    pankaj

    November 25, 2008 at 11:30 pm

  12. * END THE FED *
    DEAR SIR,
    The Most best & perhaps only single answer I can get of all world’s economic problems is title of my post.

    First, I believed that An average 35 year American Person’s IQ = A 10 year Boy Indian IQ. Now I am 1000% Sure after reading your analysis and reply to Girish.

    Why so called brilliant people in world are allowing to Destroy their and next generations futures by these few crooks ????. They should act like title of My post or End the rule of Fed.

    BTW, As far I have found the detail of Loan guaranty has given to Citi bank of US$ 306 bln against Mortgage backed securities at “FULL OF COST” of Citi’s purchase prices of Assets, Not Current prices which are 30-50% down from Cost.

    TREASURY STATEMENT ON CITIGROUP
    “As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a NON-RECOURSE LOAN”

    And here is the Detail of NON RECOURSE LOAN

    “A non recourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender’s recovery is limited to the collateral. If the property is insufficient to cover the outstanding loan balance”

    Simply anyone wonder What will Citi Provide against loan as Collateral ? I Think It will give Very WORST Quality assets to FDIC AND FED as Collateral Which has not only 10% market value.
    Who the hell will go to release the worst properties by giving the $306 Bln ????

    Will Citi Do??
    Commonsense says ” A BIGGER NO”
    CITI WILL DEFINITELY DEFAULT…….
    Bhavesh, Mumbai

    0811-128 Kalidas Replies to Bhavesh (Wednesday, November 26, 2008)

    My new article had the same theme.

    FED is not going to exist. This is why Paulson and Bernanke are defrauding Americans by milking as much money as possible in the name of helping banks like Citi bank who must be owing hundreds of billions to Goldman Sachs to whom Paulson belongs.

    After milking out FED, it might be dissolved, so that no one will be able to find out posthumously what really happened. Reg Non Recourse Loan – this indicates that Paulson really knows the solution but does not want to offer. If it is tax payer’s money, no one is going to invest into preference Shares which are subordinated to Debt. Why did not he give the loan in the form of Convertible Bonds which would have had the first priority over preference share equity holders?

    He also fooled Warren Buffet by getting him agree to preference shares in Goldman Sachs and General Electric. As professional stock broker, he knows pretty well the startling difference between the Preference Shares and Convertible bonds (debt). In spite of knowing, he is goading everyone into choosing Preference Share route.

    Amazing that con men like Paulson and Bernanke could loot the US treasury in the name of easing the credit crunch and in the process make hundreds of billions of profit in offshore centers in just under 60 days. It may be noted that Citi is also headed by Rupert Rubin, former Treasury Secretary and ex Vice President of Goldman Sachs, Paulson is also from Goldman Sachs. Many of CNBC staff are also from GS. it is all orchestrated.

    And the President Bush is sitting atop like an Idiot watching all the games and loots right under his nose and before his eyes. The persons like Paulson and Bernanke should be indicted for the crime against the state.

    It is highly probable that USA is going USSR way – it will not exist after a few years. Perhaps, Obama could be the last ruling President of a nation called United States once upon a time.

    Bhavesh

    November 26, 2008 at 4:23 pm

  13. Sir,
    Some days back i read in the newspaper that Jet Airways has reduced the pay package for its employees. Do you think this sort of measure will help to get the required liquidity in the automotive sector also? I was working for General motors last year and often i found that the pay package and extra benefit of the senior executives were too high however i did not find any measure from the company to reduce at least the extra benefit so that they reduce the overall cost. I could find many such unnecessary expenses happening in the company.I often wondered why someone cannot see the open truth.
    I am wondering why cannot comapnies and worker union can come some sort of agreement so that overall cost is reduced by reducing the salary, extra benefits till the company recover.

    By your experience can you please provide us some insight about what really stops the comapny and worker union to think in this direction?

    Regards
    Vijay
    Bangalore,India

    Vijay

    November 26, 2008 at 11:11 pm

  14. Dear Bhavesh
    I disagree with U about avg 35 year US person’s IQ=10 year Indian boy IQ There are many intelligent persons in USA and that’s why they are developed country

    Right now FEW top level persons has created this disastor but cann’t blame all USA citizen
    I am staying abroad and find people are not very intelligent but their attitude towards work
    are far better then indian professionally qualified person
    Bill Gates has donated 95% of his whealth .Has Tata
    Birla ,Ambani or anyone donated is 95% of whealth
    being an indian we should come out of this misconception that we are most intelligent person on this earth

    Ketan Hongkong

    ketan

    November 26, 2008 at 11:28 pm


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