Markets crash on auto blowout
Posted
Dec 12 2008, 06:12 AM
by
Bernhard Warner and Matthew Yeomans
Rating:
This post comes from partner site The Big Money.
So much for a speedy bailout. The $14 billion emergency financing deal for General Motors and Chrysler ran out of gas on the floor of the Senate Thursday night, raising, as the New York Times writes, "a specter of financial collapse" for the troubled automakers.
The deal's derailment, continues Business Week, creates "the real possibility that General Motors and Chrysler will face bankruptcy in a matter of weeks, unless the Treasury Dept. acts to prevent it." In any event, lawmakers will likely not take up the matter of an auto bailout again until January, and who knows then what shape two of the Big 3 will be in. "It's over with," Senate Majority Leader Harry Reid told the Wall Street Journal. The automakers, though, are still holding out hope that the White House will relent and hive off some of the $700 billion TARP fund to keep them afloat for the time being, the newspaper adds.
Why did the deal fail? It came down to pay cuts, Business Week says. United Auto Workers, headed by Ron Gettelfinger, would not budge on a deal to lower union wages and benefits to the level paid to workers at Toyota and Honda by next year. That was the deal-killer, the magazine writes. Amid the finger-pointing, Reid was looking ahead, reluctantly. "I dread looking at Wall Street tomorrow. It's not going to be a pleasant sight," he commented.
Reid's words are ringing true -- cue the sell-off in the Asian markets. According to the WSJ, Japan's Nikkei, Hong Kong's Hang Seng Index, China's Shanghai Composite, plus markets in South Korea, Australia and Singapore all took a nose dive on the news this morning. Europe also plunged in early trading. The dollar fell, tumbling to a 13-year low against the yen, Bloomberg reports. Asian market analysts were seething.
"Investors have been betrayed again by U.S. politicians," growled Yasuhiro Miyata, who helps manage about $109 billion at DIAM Co. in Tokyo.
Back to the banking beat, where Bank of America is plotting to slash 35,000 positions over the next three years as it prepares for the merger with Merrill Lynch. The job cuts would amount to 10% to 11% of the companies' combined work forces, the WSJ writes, and they would come from all areas of the business. The staggering job cuts figure puts BofA in good company. According to the Guardian, Bank of America "joined Citigroup, Credit Suisse and UBS in preparing to axe thousands from its payroll, citing the economic downturn and a $50bn merger with Merrill Lynch as reasons for the move."
Wall Street will be further rocked this morning by details of the fall of the trading house of Madoff. In what the WSJ calls a "giant Ponzi scheme," legendary trader Bernard L. Madoff, a former chairman of Nasdaq, was arrested for running an securities advisory business that duped investors out of $50 billion.
Andrew M. Calamari, associate director of enforcement in the SEC's New York office described Madoff's alleged swindle as "a stunning fraud that appears to be of epic proportions." Still on the white-collar crime beat, the WSJ also reports on the case of a Florida mortgage securities executive who "used little more than a pen to alter credit scores and reclassify mobile homes as single-family houses, inflating the value of thousands of mortgages that were [then] repackaged and sold to investors." Steven Gordon allegedly made more than $2.8 million in additional commissions by upgrading the value of 2,800 loans over a five-year period. With federal investigators beginning to delve deeper into the murky world of mortgage securities, this case "offers a snapshot of the ease with which some mortgage-backed securities became tainted," writes the WSJ.
A bit of good news for businesses already struggling to meet the bottom line. The NYT writes that "companies whose pension funds suffered big losses this year will not have to replenish the money quickly under a relief measure that flew through the Senate Thursday." Ordinarily the companies would be forced to make up the shortfall -- something they haven't had to budget for in recent years because of strong market performances. The measure, which is expected to be quickly signed into law by the White House, also "offers relief to people over the age of 70 who would normally be required to withdraw money from their 401(k) plans and individual retirement accounts or face big penalties," writes the NYT.
With the markets already tanking in Asia and Europe, today no doubt will be a good day for stock-market watchers to play a new kind of numbers game: what BusinessWeek calls "going to zero," or predicting which equities will fall below a penny. According to BusinessWeek, "zero" ratings by Wall Street analysts are proliferating. They include companies big and small including General Motors, Nortel Networks, RBC Capital Markets, and Sirius XM. And the number of "zeroes" is growing. "Analysts at Morningstar say the shares of 32 of the 2,000 companies they cover are likely to become worthless," BusinessWeek writes.
Related in The Big Money: Oil Sand Castles: Canada's elusive quest for energy wealth; iPhone Speed Demons: Is the iPhone as fast as its ad suggests?; Bailout Watch: An interactive cheat sheet on the trillions of dollars in federal rescue packages.
