Boring- But This Must Be Really Bad News.....
Discussion
it was expected for a while. I think share holders will get screwed, but bond holders will be protected. A huge amount of the freddie/fannie debt is held by japan and china, who also hold a huge amount of US treasuries. If they had let them go bust then it could have caused enormous knock on affects
Gazboy said:
Fittster said:
Rather bad news if you are a US taxpayer.
GM & Ford next in line for some government cash?
Tough one, on one hand why should taxpayers prop up a failing business but on the other hand they employ a hell of a lot of people all over the states.GM & Ford next in line for some government cash?
I can't find up-to-date figures for GM & Ford but from the article below:
"G.M. acknowledged in its most recent annual report that from 1993 to 2007 it spent $103 billion “to fund legacy pensions and retiree health care — an average of about $7 billion a year — a dramatic competitive and cash-flow disadvantage.” During those 15 years, G.M. paid only $13 billion or so in shareholder dividends. The company has been sending far more money to its retirees than to its owners.
After falling $20 billion behind on its pension earlier this decade, G.M. doggedly put money into its plan to catch up. It has also agreed to invest more than $30 billion in a fund to cover future health-care expenses. But these efforts have starved its business."
http://www.nytimes.com/2008/07/10/opinion/10lowens...
Can you see the US letting its car industry fail? So in will step the taxpayer to look after pensions and healthcare commitments, while grants to produces environmentally friendly cars are sure to be seen.
"G.M. acknowledged in its most recent annual report that from 1993 to 2007 it spent $103 billion “to fund legacy pensions and retiree health care — an average of about $7 billion a year — a dramatic competitive and cash-flow disadvantage.” During those 15 years, G.M. paid only $13 billion or so in shareholder dividends. The company has been sending far more money to its retirees than to its owners.
After falling $20 billion behind on its pension earlier this decade, G.M. doggedly put money into its plan to catch up. It has also agreed to invest more than $30 billion in a fund to cover future health-care expenses. But these efforts have starved its business."
http://www.nytimes.com/2008/07/10/opinion/10lowens...
Can you see the US letting its car industry fail? So in will step the taxpayer to look after pensions and healthcare commitments, while grants to produces environmentally friendly cars are sure to be seen.
With Ford and GM, its the US market which is killing them as i understand it. The European and Asian operations aren't in as bad a shape, both in terms of product and workforce liabilities. Ch.11 may be of use to get out of some of the Union obligations of both companies. If I had to money on one entering Ch.11, it would be GM, simply becasue they have done it in the past with Delphi.
bobthemonkey said:
With Ford and GM, its the US market which is killing them as i understand it. The European and Asian operations aren't in as bad a shape, both in terms of product and workforce liabilities. Ch.11 may be of use to get out of some of the Union obligations of both companies. If I had to money on one entering Ch.11, it would be GM, simply becasue they have done it in the past with Delphi.
And the companies survive but who picks up the cost of the pensions and healthcare? I guess a lot of workers will need state welfare which dumps the cost to the taxpayer.
tty, but do-able under Ch.11 I believe. It may well be the lesser of two evils for the taxpayer, compared to the company going under, leading to a massive increase in social security payments arising from unprecedented unemployment. As recently as February of this year, Russian officials cleared the way for two of its sovereign wealth funds, the Reserve Fund and National Wellbeing Fund, to invest in various foreign bonds, including those issued by the twin towers of American residential finance, Fannie and Freddie.
“The prospect for every GSE bond clearly states that it is not backed by the United States government,” says Matt Kibbe, president of FreedomWorks. “That’s why investors holding agency bonds already receive a significant risk premium over Treasuries.”
The Russians ignored the warnings and grabbed the risk premium. Today, fully 21% of Russia’s monetary reserves are invested in the obligations of Fannie, Freddie and the Home Loan Banks. And the largest holder of Fannie and Freddie debt is another friendly foreigner, China. The middle kingdom, according to the FreedomWorks organization, owns $376 billion worth of U.S. agency bonds. Altogether, foreigners hold $1.3 trillion of them."
So why not wipe out the bond holders? Surely the US would be better off protecting its taxpayers than the investments of foriegn governments. If people wanted the protection of the US government they should have bought treasury securities.
“The prospect for every GSE bond clearly states that it is not backed by the United States government,” says Matt Kibbe, president of FreedomWorks. “That’s why investors holding agency bonds already receive a significant risk premium over Treasuries.”
The Russians ignored the warnings and grabbed the risk premium. Today, fully 21% of Russia’s monetary reserves are invested in the obligations of Fannie, Freddie and the Home Loan Banks. And the largest holder of Fannie and Freddie debt is another friendly foreigner, China. The middle kingdom, according to the FreedomWorks organization, owns $376 billion worth of U.S. agency bonds. Altogether, foreigners hold $1.3 trillion of them."
So why not wipe out the bond holders? Surely the US would be better off protecting its taxpayers than the investments of foriegn governments. If people wanted the protection of the US government they should have bought treasury securities.
Edited by Fittster on Sunday 7th September 18:58
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