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Archive for May 1st, 2009

Chrysler Obamanation

Posted by WARREN MOSLER on 1st May 2009

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Chrysler Lenders Include Yale, Gates Foundation

by Katherine Burton, Sree Bhaktavatsalam and Pierre Paulden

May 1 (Bloomberg) — Chrysler LLC’s secured lenders include Yale University,Oaktree Capital Management and assets managed for the University of Kentucky, Halliburton Co., Kraft Foods Master Retirement and the Bill and Melinda Gates Foundation,, according to a court filing in the carmaker’s bankruptcy.


Chrysler, the nation’s third-largest carmaker, yesterday filed for Chapter 11 bankruptcy after a group of 20 Chrysler secured lenders calling itself the “Committee of Chrysler Non- Tarp Lenders” rejected an offer by the government that would have paid them $2.25 billion on $6.9 billion of debt, or 33 cents on the dollar. The government plans to ask the bankruptcy judge to let it pay the creditors in that group $2 billion, or 29 cents on the dollar to end their claims.

“A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout,” President Barack Obama said yesterday in Washington before Chrysler’s bankruptcy filing.

The list of more than 100 secured lenders, filed yesterday in the U.S. Bankruptcy Court in Manhattan, includes those that initially declined the government offer as well as others, including the U.S. Treasury.

First the Fed is the one who approved the AIG bonuses, and now the Treasury is trying to claw back some of the funds it’s giving Chrysler.

Some investors, including OppenheimerFunds Inc. and Perella Weinberg Capital Management LP’s Xerion hedge fund, bought the debt of the automaker before last July. On June 30, Chrysler auto loans were trading at about 49 cents on the dollar. Xerion, run by Daniel Arbess, OppenheimerFunds and Stairway Capital Advisors, were all part of the dissident group. Hedge funds including Elliott Management Corp. and York Capital Management LP, supported the government’s deal.

Perella Statement

Perella and Xerion issued a statement yesterday after the president’s comments saying it accepted the government offer and would attempt to persuade other lenders to do the same.

They probably bought it even cheaper.

“We believe that this is in the best interests of all Chrysler stakeholders, and our own investors and partners,” the Perella statement said. “We are working with other non-TARP Lenders to encourage broad participation in the settlement.”

Goldman Sachs Group Inc. sold off about $500 million of the loans they had underwritten in April 2008 at 63 cents on the dollar, telling clients they would get a yield 25 percent if they held the paper for four years.

Executives at the lenders declined to comment or didn’t return calls seeking a comment.

The Obamanation continues.

Chrysler is not a strategic business, the courts can handle it as needed, and government can sustain full employment in desperately needed services at will with fiscal adjustments.


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Obama’s Chrysler speech

Posted by WARREN MOSLER on 1st May 2009

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First impression: thoroughly depressing at all levels.

Particularly the public purpose aspect.

Less critical but also highly disturbing are issues like:

Looks like a nearly free call for Fiat because Obama believes their technology is critical.

Obama: Bankruptcy is ‘path to Chrysler’s revival’ in new partnership with Fiat

Apr 30 (Delaware Online) — “Fiat is getting its stake in Chrysler for giving the company access to its fuel-efficient technology, a move toward cleaner cars that the Obama administration thinks is critical to Chrysler’s future survival.”

“But Fiat, which the Obama administration hopes can jump start Chrysler with its fuel-efficient and lower-emission technology, could end up the majority stakeholder. Fiat would initially get 20 percent, a share that could rise to 35 percent if certain benchmarks are met.”

“Fiat said Thursday it could get an additional 16 percent by 2016 if Chrysler’s U.S. government loans are fully repaid. The company has committed to building Fiat cars in Chrysler factories, to be sold as Chryslers.”

And if Fiat gets paid for its cars and engines with US subsidy funds maybe no downside at all?

And somehow, and not that I personally care one way or the other, handing over a subsidized Chrysler to Fiat heralds the revival of an American company?

The same Fiat that has failed miserably each time its attempted to enter the American markets, and often over quality and reliability issues is going to save Chrysler?

Somehow Chrysler switching from Mercedes engines to Fiat cars and engines gives it some kind of advantage?

On to the public purpose issues.

Major emphasis on what the company has done for the workers- housed, fed, and clothed them, sent their kids to college, pay their bills.

Same can be said for industries building nuclear weapons, tobacco products, and dangerous toys.

It’s about the output. It’s not like there’s some kind of natural job shortage.

Every worker could have been doing something else for the same compensation.

Public purpose is about opportunity costs under full employment conditions.

Obama also defended this plan not on public purpose, but on the issue of whether there will be losses of ‘taxpayer money’.

He said ‘no company can be supported on an endless stream of taxpayer dollars’.

What about the defense industry, or other institutions of public purpose?

The difference is Chrysler’s output has no public purpose.

Obama says “this is about supporting tens of thousands of jobs”.

Yes, to create output that has no public purpose.

In fact, for years there has been substantial excess capacity in the automobile industry.

And then there was the vicious attack on the legally secured creditors who wouldn’t take less than the face amount of their debt, like those who received tarp money were apparently pressured to do.

Why would anyone even remotely expect or even desire that to happen?

Was there any consideration, for example, to what would happen to credit availability and interest rates for private borrowers if secured lenders expected to have to take discounts if the borrowers got in trouble? There would be no lending as we know it.

Yet the President of the US attempted to coerce these secured lenders to ‘sacrifice’ because unsecured creditors and employees were settling for less? How are those related?

And after a recent speech about how he’s going to help unions, Obama follows up with this:

“Along with the Fiat deal, the UAW ratified a cost-cutting pact Wednesday night.”

Can’t have it both ways.

Nor is there any discussion on how the government’s failure to sustain aggregate demand and let car sales fall in half resulted in substantial losses for all the world’s car companies.

And that only the restoration of aggregate demand is what ultimately supports profitability.

Instead, with full authority and the voice of intellectual superiority:

“For too long,” Obama said at the White House, “Chrysler moved too slowly to adapt to the future, designing and building cars that were less popular, less reliable and less fuel efficient than foreign competitors.”

Obama closes by saying he hopes we buy American cars, completely missing another economic fundamental of public purpose- imports are real benefits and exports real costs.

He fails to understand that the flood of net imports has made a major contribution to the American standard of living, to the detriment of the net exporters.

Yes, removing debt and reducing obligations to workers makes a company financially stronger and gives it a competitive advantage.

But done this way it’s also a transfer of nominal wealth previously subject to contract law.

And determining that Government can suspend contract law also has consequences on private investment and risk assessment.

To some degree it’s also a fallacy of composition- if you do it for all the car companies nothing is gained vs each other, and excess capacity persists.

This was a chilling speech on many levels, and does not bode well for the public purpose of our real standard of living.

And perhaps worst of all, the continuous, faulty logic was all delivered with an arrogant voice of authority, confidence, and intellectual and moral superiority.

Scared me into selling my stocks today. Continuing government attacks on shareholders can’t be ruled out. Markets are way off their lows and already seem to know the ‘good news’ of GDP maybe going flat. And I’m getting worried that Obama means what he says regarding ‘fiscal responsibility.’


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Gasoline demand holding steady year over year

Posted by WARREN MOSLER on 1st May 2009

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Crude Oil Little Changed as Inventories Gain, Equities Retreat

by Mark Shenk and Samantha Zee

Apr 30 (Bloomberg) — Total daily fuel demand in the U.S. averaged 18.4 million barrels in the four weeks ended April 24, down 6.8 percent from a year earlier, the department said. Consumption of gasoline was down 0.5 percent and distillate use was 11 percent lower.


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2009-05-01 USER

Posted by WARREN MOSLER on 1st May 2009

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U of Michigan Confidence (Apr F)

Survey 61.9
Actual 65.1
Prior 61.9
Revised n/a

Karim writes:

  • Final April rises to 65.1 from prelim 61.9
  • Inflation expectations edge down from 3.0% to 2.8% for 1yr fwd; edge up from 2.7% to 2.8% for 5yr fwd


U of Michigan Confidence TABLE Inflation Expectations (Apr F)


Factory Orders YoY (Mar)

Survey n/a
Actual -21.6%
Prior -19.7%
Revised n/a


Factory Orders MoM (Mar)

Survey -0.6%
Actual -0.9%
Prior 1.8%
Revised 0.7%


Factory Orders TABLE 1 (Mar)


Factory Orders TABLE 2 (Mar)


Factory Orders TABLE 3 (Mar)


ISM Manufacturing (Apr)

Survey 38.4
Actual 40.1
Prior 36.3
Revised n/a

Karim writes:

  • In line with signal provided by Chicago PMI yesterday. Improvement to a still contractionary level; orders boosted by some new found availability of cash/credit, though not all the way back (see anecdote below).
  • All sub-components up;16 or 17 industries still contracting.

Commodities Up in Price

Copper is the only commodity reported up in price.

Commodities Down in Price

Aluminum; Aluminum Based Products; Caustic Soda; Corrugated Containers; Fuel Surcharges; Natural Gas; Scrap Metal; Steel; and Steel Products.

Commodities in Short Supply

No commodities are reported in short supply.

  • “International customers are having trouble getting cash for new orders, even though they need/want the equipment.” (Computer & Electronic Products)
  • “Starting to see some signs of increased production and demand from some automotive customers.” (Fabricated Metal Products)
  • “Business conditions continue to be soft, but agriculture-related products are still quite bullish.” (Machinery)
  • “We are optimistic that things will change for the better in 3Q.” (Chemical Products)
  • “Starting to hear of slight upticks in orders from some sectors of our business but not all.” (Electrical Equipment, Appliances & Components)


ISM Prices Paid (Apr)

Survey 34.0
Actual 32.0
Prior 31.0
Revised n/a


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