South Africa’s Unemployment Rate Increases to 23.5%


[Skip to the end]

Good place for the federal government to fund minimum wage jobs for anyone willing and able to work and turn the nation into a model of prosperity overnight.

South Africa’s Unemployment Rate Increases to 23.5%

by Nasreen Seria and Mike Cohen

May 5 (Bloomberg) — South Africa’s unemployment rate, the highest of 62 countries tracked by Bloomberg, rose in the first quarter as the economy probably entered a recession for the first time in 17 years.

The jobless rate increased to 23.5 percent from 21.9 percent in the previous three months, Statistics South Africa said in a report released in Pretoria today. The number of people out of work rose to 4.18 million from 3.87 million.

“Manufacturing and mining are under strain, and we can expect these numbers to worsen,” said Fanie Joubert, an economist at Efficient Group in Pretoria. “We’re unlikely to see a recovery until the fourth quarter.”

The ruling African National Congress, which won a fourth consecutive five-year mandate in April 22 elections, has pledged to make “decent work opportunities” the focus of its economic policy. The government is aiming to cut the unemployment rate to 14 percent by 2014.


[top]

Latest on Obama and Chrysler


[Skip to the end]

Not to bore you with this, but it’s a no win situation in that if the secured creditors lose, the entire credit structure becomes uncertain, and if the secured creditors win, the deal breaks down and Obama, an all star law graduate, loses credibility and political power as the deal falls apart and Chrysler folds unless there is additional public funding.

And with GM next, there’s no telling what might happen to both the automakers and the entire supply chain and distribution network.

Chrysler Non-TARP Lenders Object to Auction Plan

by Christopher Scinta and Tiffany Kary

May 4 (Bloomberg) — A group of Chrysler LLC’s secured lenders is seeking to block the bankrupt company’s plan to sell its business at auction this month, arguing that the U.S. government is violating federal law to preserve the automaker.

The group, calling itself Chrysler’s non-TARP lenders, in reference to the Troubled Assets Relief Program, seeks to block the proposed sale to an alliance led by Fiat SpA, as well as a request by the U.S. automaker for approval of a $4.5 billion Treasury loan to finance the reorganization.

Secured lenders that agreed to the Fiat deal, including JPMorgan Chase & Co.,Citigroup Inc. and Goldman Sachs Group Inc., had conflicts of interest because they had also accepted TARP funds, the group said.

The process is “tainted” because it was dominated by the government, the lenders argued in papers filed today in U.S. Bankruptcy Court in Manhattan. The group also said the short period of time given to evaluate the sale was improper and the hearing on bid procedures that began today should be delayed. The judge delayed the hearing until 2:30 p.m. tomorrow, ordering the members of the lender group to reveal their identities.

‘Improperly Attempts’

The sale “improperly attempts to extinguish their property rights without their comment,” attorneys for the objecting lenders wrote in court papers.

“The sale motion should be denied because it seeks approval of a sale that cannot be approved under the bankruptcy code,” they argued. “The court should not permit a patently illegal sales process to go forward.”

Chrysler’s planned alliance with Turin, Italy-based Fiat, would create the world’s sixth-largest carmaker. Chrysler, based in Auburn Hills, Michigan, wasn’t able to pursue the merger outside bankruptcy because of opposition by the objecting lenders.

Under bankruptcy law, offers for bankrupt companies or their assets are generally subject to the possibility of higher bids at a court-supervised auction.

The Fiat offer, to be made from an as-yet unnamed entity formed by the Italian automaker, Chrysler employees and other parties, will be the lead bid in an auction, which is typically required for assets sold in bankruptcy. Chrysler is asking U.S. Bankruptcy Judge Arthur Gonzalez to approve bidding rules for an auction that would require creditor objections to the sale be submitted by May 11, followed by a May 15 deadline for competing bids. The bankrupt company seeks a May 21 hearing to approve the winning bid, according to the court filing.

Listed Assets

Chrysler, in its April 30 filings, listed assets of $39.3 billion and liabilities of $55.2 billion, making it the fifth-largest bankruptcy in U.S. history, according to data compiled by Bloomberg News.

Chrysler’s proposed sale favors junior creditors over senior creditors and would improperly channel the proceeds to specific creditor groups, the objecting lender group said in the court filing.
In court today, Thomas Lauria, a lawyer for the secured lender group, said some of its members have received death threats. In response to the judge’s demand that the members of his group be revealed, Lauria said the identities of more lenders would be revealed “promptly.”


[top]

Redefining full employment


[Skip to the end]

Not good.

As suspected way back on this website:

‘Great Recession’ Will Redefine Full Employment as Jobs Vanish

by Matthew Benjamin and Rich Miller

May 4 (Bloomberg) — Post-recession America may be saddled with high unemployment even after good times finally return.

Hundreds of thousands of jobs have vanished forever in industries such as auto manufacturing and financial services. Millions of people who were fired or laid off will find it harder to get hired again and for years may have to accept lower earnings than they enjoyed before the slump.

This restructuring — in what former Federal Reserve Chairman Paul Volckercalls “the Great Recession” — is causing some economists to reconsider what might be the “natural” rate of unemployment: a level that neither accelerates nor decelerates inflation. This state of equilibrium is often described as “full” employment.

Fallout from the recession implies a “markedly higher” natural rate of unemployment, says Edmund Phelps, a professor at Columbia University in New York and winner of the 2006 Nobel Prize in economics. “It was 5.5 percent; maybe it will be 6.5 percent, maybe 7 percent.”


[top]

Follow up to the radio interview


[Skip to the end]

Thanks!

This supplements the tape previously emailed.

White House Claims Head of White&Case Restructuring Group Lied

by Tyler Durden

May 3 (ZeroHedge) — In a story becoming more bizarre by the minute, ABCNews has now picked up on the Perella Weinberg scent with some new twists. According to ABC, White House deputy press secretary Bill Burton claims that the allegations by Tom Lauria, global head of the Financial Restructuring and Insolvency at White & Case are “completely untrue”. As Zero Hedge already disclosed, Perella Weinberg was previously a client of White & Case, however, the firm run by former head of M&A at Morgan Stanley Joe Perella (where incidentally Steve Rattner was head of the Communications group until 1989), decided to fire the law firm after developments unknown, and in a radio show, Tom Lauria had this to say about the White House’s alleged strongarming tactics:

“One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight…That was Perella Weinberg.”

The White House has now stepped in and claims that this story is patently false:

“The charge is completely untrue,” said White House deputy press secretary Bill Burton, “and there’s obviously no evidence to suggest that this happened in any way.”


What is more strange is that now Perella Weinberg itself is claiming Lauria’s story misrepresented the facts:

“A Perella Weinberg Partners spokesperson told ABC News on Sunday that “The firm denies Mr. Lauria’s account of events.” The spokesperson would not elaborate.”

What is strangest is that Lauria would stake his career and reputation on the line by stating on the record the facts previously disclosed. As such his downside is much bigger than that of Mr. Burton or of the PW’s spokesperson, as they effectively side with the Obama’s side of the story.

Granted there could be even more to this story than meets the eye, thanks to some keen observations by our friends at Finem Respice.

Ultimately, this will be a very interesting development, because without factual backing, Tom Lauria’s career is now on the line, as he has taken on not just the administration but his very own, former client. The bottom line here is that someone is lying, and if any further facts emerge to substantiate White & Case’s position, it could prove to be a massive PR blow to both the White House and the FDIC’s advisor, Perella Weinberg.

The full statement by Perella Weinberg is presented below:

Suggestions have been made that the Perella Weinberg Partners Xerion Fund changed its stance on the Chrysler restructuring due to pressure from White House officials. This is incorrect. The decision to accept and support the proposed deal was made by the Xerion Fund after reflecting carefully on the statement of the President when announcing Chrysler’s bankruptcy filing. In considering the President’s words and exercising our best investment judgment, we concluded that the risks of potentially severe capital loss that could arise from fighting this in bankruptcy court far outweighed any realistic potential upside.

We have a very specific mandate from our investors, and that is to carefully weigh investment risks and rewards. It is not our investment mandate to pursue political or risky legal campaigns with our investors’ money. This was our assessment of investment risk and reward, nothing else.



While we did and still do believe that the lenders would be justified in pressing their objections under conventional bankruptcy law principles, we believe a settlement would now be in the best interests of all parties in the context of avoiding a drawn out contested bankruptcy litigation proceeding, and we encourage our colleagues in the loan syndicate to pursue this immediately.”


[top]

Chrysler related comments


[Skip to the end]

The point remains that the job of the executive branch is to enforce the laws as enacted by Congress.

This is not a time of war, Chrysler is not a national security or strategic issue, nor is the US automobile industry.

In fact, Chrysler was already largely a foreign entity, and even GM is now probably larger overseas than in the US, and the national origin of its shareholders are of no consequence.

This has turned into a simple, unwarranted, unnecessary, and counterproductive show of force between the President and a few lesser Wall St. players.

In the absence of supporting law, the administration, driven by anger, instead used all its bully powers to avoid a Chrysler bankruptcy (for reasons not yet fully disclosed) and, in this instance, lost that (minor?) battle.

The separation of power between executive, legislative, and judicial branches and the rule of law bent but did not yet break.

This is what happens with a President who doesn’t understand the monetary system, and doesn’t understand the US has unlimited ‘financial resources’ to sustain full employment and social equity with or without Chrysler or any other private employer.

Instead, the President sees an inevitable rise in unemployment and the risk of systemic failure should the automobile industry ‘rescue’ fail.

Just as:

  • The errant belief that we need China and others to be able to deficit spend is driving foreign policy ‘concessions.’
  • The errant belief that we can’t ‘go it alone’ with fiscal policy is squandering a golden opportunity to enhance our standard of living.
  • The errant belief that we are economically better off with a balanced federal budget is risking the sustainability of our domestic economy.
  • The errant belief that bank lending is a prerequisite to economic well being is shifting wealth upward away from lower income working people.
  • The errant belief that ‘monetary policy’ can support GDP delays and limits fiscal response.
  • The errant belief that exports are more desirable than domestic consumption depresses our standard of living.
  • The failure to understand the difference between the purchase of financial assets and the purchase of real goods and services continues to prolong our massive output gap and the unrecoverable real losses of high unemployment.
  • All of this can be traced to a world wide failure to recognize the fundamental difference between the gold based monetary systems of the past and today’s non convertible currency regimes.

The Lenders Obama Decided to Blame

by Zachary Kouwe

May 1 (NYT)


[top]

2009-05-04 USER


[Skip to the end]


Construction Spending MoM (Mar)

Survey -1.6%
Actual 0.3%
Prior -0.9%
Revised -1.0%

[top][end]

Construction Spending YoY (Mar)

Survey n/a
Actual -11.1%
Prior -10.1%
Revised n/a

[top][end]

Pending Home Sales MoM (Mar)

Survey 0.0%
Actual 3.2%
Prior 2.1%
Revised 2.0%

[top][end]

Pending Home Sales YoY (Mar)

Survey n/a
Actual 3.2%
Prior -6.3%
Revised n/a


[top]

Chrysler Obamanation


[Skip to the end]

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.

Demons!!!

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.


[top]

Obama’s Chrysler speech


[Skip to the end]

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.’


[top]