Saturn sale to Penske falls through

Via Patterico. The Saturn plant is in Spring Hill, TN, not far from where I live in Knoxville/Maryville. This is sad, but not unpredictable. Saturn has been in business almost 20 years and has yet to turn a profit.

For a while GM was spawning new brands – Saturn and Hummer – and adding dealerships for those brands when they should have been shuttering  obsolete brands like Oldsmobile and Pontiac and closing excess dealerships. You can only thumb your nose to reality for so long.

GM undoes paycuts to white collar employees

Well isn’t that special?

Related: U.S. taxpayers are unlikely to recover their $81 billion investment in General Motors Co. and Chrysler Group LLC. Gee, can’t imagine why that would be.

Here’s a crazy idea. Let failed business go under so that good business can take their places. Let good crops expand into the fields of the failed crops. The alternative is to let everyone starve. Bonus – it doesn’t cost taxpayers anything.

NY Times Joe Nocera: no bailouts for homeowners

There’s a teensy-weensie little twist at the end.

Lost your job? Can’t pay your mortgage? Here’s a $15,000 credit card

Katie Grangu brings us this story. Guy loses his job, calls Citibank to find out how to get help with his mortgage under the Housing Recovery Act. The operator says the government hasn’t given them the information about HRA yet yet, so can’t help him there, but offers him a Citibank VISA with a $15,000 credit limit and no interest for a year. When he calls to activate the card they make him an offer he can’t refuse:

“We want to send you the entire $15,000 credit line today, in the form of a check. No interest for one entire year,” she chirped enthusiastically.

“Let me get this straight,” my friend inquired skeptically. “I called Citibank saying I’d lost my job, and to ask about whether I could get my mortgage interest payments lowered by federal subsidy, and instead, Citibank wants to loan me $15,000 at zero interest, with zero collateral, and with no questions asked?”

“Yes sir!” she replied.

In other news, Citi’s credit card division had a 9.33% default rate in February. Zeus knows why.

How are American’s investments in bailed-out banks performing?

In return for bailout money the government is getting shares in the bailed-out companies. How are American’s investments performing?

Answer: not too well. Since the bailout the stocks of the 10 companies receiving the most TARP money have lost more than 80% of their value.

Congress plans to give FDIC $500 billion for failed banks (UPDATED)

Wall Street JournalBill Seeks to Let FDIC Borrow up to $500 Billion:

Senate Banking Committee Chairman Christopher Dodd is moving to allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury Department.

The Connecticut Democrat’s effort — which comes in response to urging from FDIC Chairman Sheila Bair, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner — would give the FDIC access to more money to rebuild its fund that insures consumers’ deposits, which have been hard hit by a string of bank failures.

Last week, the FDIC proposed raising fees on banks in order to build up its deposit insurance fund, which had just $19 billion at the end of 2008. That idea provoked protests from banks, which said such a burden would worsen their already shaken condition. The Dodd bill, if it becomes law, would represent an alternative source of funding.

This $500 billion is in top of the $700 TARP bailout and the several trillion dollars the Fed is using to prop up banks. As Mish likes to say, “What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.”

Act accordingly. Spread your deposits around. Pull money out of the bank whenever you can do it safely (meaning, not just stuffing the money in your mattress where robbers and fire can take it). Pay off your outstanding bills. Pay extra on regular bills like your utilities, car payment, or mortgage. Put cash in safety deposit boxes. We could wind up with massive inflation, so it might not hurt to have some physical gold in the safety deposit box.

A full pantry never hurts, either. If nothing else you can save money buying in bulk, you’ll make fewer trips to the grocery store, and you’re less likely to find yourself without an ingredient when you’re cooking dinner on a Wednesday night.

Needless to say, you shouldn’t hold any banking stocks or insurance stocks (AIG was primarily an insurance company). More to the point: unload stocks now. The Dow is at 6,594 and the S&P is at 682. Notice how both numbers start with 6? They’ll start with 5 not long from now and I wouldn’t be surprised to see 4 eventually for the Dow.

P.S. While I think the banking system is largely insolvent, that isn’t the same thing as being 100% confident the banks will be wiped out or that you won’t get your money back. Take considered steps like the ones above, but don’t do anything foolish. (Putting money in your mattress is foolish.) The steps above have almost no risk. At worst, gold might go down some. The upside of gold is that it might double or triple from here if things get really bad. And if things don’t get really bad, you’ve still got gold.

UPDATE: CalculatedRisk notes that just six months ago the FDIC was disputing a Bloomberg story claiming the FDIC would need taxpayer money to cover bank losses:

Bloomberg reporter David Evans’ piece (“FDIC May Need $150 Billion Bailout as Local Bank Failures Mount,” Sept. 25) does a serious disservice to your organization and your readers by painting a skewed picture of the FDIC insurance fund. Let me be clear: The insurance fund is in a strong financial position to weather a significant upsurge in bank failures. The FDIC has all the tools and resources necessary to meet our commitment to insured depositors, which we view as sacred. I do not foresee – as Mr. Evans suggests – that taxpayers may have to foot the bill for a “bailout.”

So six months ago the FDIC was crying yellow journalism over a report they might need $150 billion in taxpayer money. Two days ago the FDIC said they might be insolvent this year without more money. Yesterday there were calls in Congress to give $500 billion in taxpayer money to the FDIC to cover failed banks. How things change. Nervous yet?


Warren Buffet’s annual letter to shareholders

ForbesBuffett Bloodied But Not Bowed:

“The economy will be in shambles throughout 2009–and for that matter, probably well beyond, ” Buffett writes.

The debilitating spiral of the credit crisis has “spurred our government to take massive action. In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation.

Buffett also warned that cities and states will follow American industries in becoming dependent on federal assistance. “Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.”

Despite all that, Buffett remained optimistic. “Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead.”

You can read the entire letter in PDF here. My favorite line is “As we view GEICO’s current opportunities, Tony and I feel like two hungry mosquitoes in a nudist camp. Juicy targets are everywhere.”