Money to Come from U.S. Rescue Program
Russ Dallen Latin American Herald Tribune November 21, 2008
General Motors plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker.
According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to “complete the renovation of the line of products up to 2012.”
“It wouldn’t be logical to withdraw the investment from where we’re growing, and our goal is to protect investments in emerging markets,” he said in a statement published by the business daily Gazeta Mercantil.
Meanwhile, he cut the company’s revenue forecast for this year by 14% to $9.5 billion from $11 billion, as the economic crisis began to cause rapid slowdowns in sales.
GM already announced three programs of paid leave, and Ardila added that GM Brazil “is going to wait and see how the market behaves in order to know what decision to take” with regard to possible layoffs.
For Ardila, the injection in Brazil’s automobile sector of 8 billion reais ($3.51 billion) recently announced by the federal and state governments of Sao Paulo “has already begun to revive sales,” which fell by 12% in October.
The executive said that the company will operate a “conservative” scenario in 2009 with an estimated production of 2.6 million units, and another more “optimistic” that contemplates sales of 2.9 million.
This year sales will reach 2.85 million vehicles, which represents a growth of 15% over last year.
http://www.laht.com/article.asp?ArticleId=320909&CategoryId=12396
Showing posts with label THE BAIL-OUT. Show all posts
Showing posts with label THE BAIL-OUT. Show all posts
Monday, November 24, 2008
Wednesday, November 19, 2008
SHERROD BROWN ON OHIO UNEMPLOYMENT
November 18, 2008
Dear Faye,
2008 has been a challenging year for the middle class in Ohio and throughout the country. Since August, workers at more than 50 Ohio companies have received notices of layoffs or plant closings, according to the Ohio Department of Jobs and Family Services. Beyond the devastating effects on workers and their families, these job losses can take a tremendous toll on small businesses that rely on local consumer spending.
Communities across the state are facing job loss—from DHL's layoffs in Wilmington, GM's cutbacks in Moraine and Lordstown, or the Archway Cookie closure in Ashland no Ohio community is immune to the employment squeeze. Coupled with an economic slowdown that makes new jobs hard to come by, more Ohioans are in need of unemployment insurance for longer periods of time. These critical funds help displaced workers feed their families and keep their homes as they look for new work.
And that is why I am calling on Congress to pass legislation - this week - that would extend unemployment insurance benefits to those who need it most.
Since October, more than 50,000 Ohioans have exhausted their emergency federal funds. With an Ohio unemployment rate of 7.2 percent and a national unemployment rate of 6.5 percent, workers and their families need unemployment insurance to make ends meet. Extending unemployment insurance helps families on the brink. It is also one of the best ways to stimulate the economy.
When Americans lose jobs, their families suffer, the economy suffers, and our nation suffers. Unemployment insurance allows Americans looking for jobs to care for their families and keep their financial commitments. Unemployment insurance is used for food; it is used to pay the rent. It is used to pay utility bills; it is used for transportation to job interviews. These are dollars that stay in the community, dollars that help the local hardware store, the local grocery store, dollars that provide other jobs in the community. There is no better stimulus than that.
To ensure your voice is heard in Washington, I invite you to email me your stories about unemployment insurance and why it matters to you. CLICK HERE TO SHARE YOUR STORY. It is important that Congress hears directly from you.
Sincerely,Sherrod Brown
Local jobs threatened by auto industry woes
November 15, 2008 - 11:46 PM
Sean Gaffney
The Monitor, McAllen, Texas
The crumbling of the U.S. auto industry is threatening hundreds of jobs in the border region as lawmakers ponder rescuing Detroit's Big Three.
Thousands of jobs - from laborers at maquiladoras that produce car parts to the sales reps and mechanics at the area's dealerships - are tied to the industry, reflecting just how deeply enmeshed U.S. automakers are in the nation's workforce.
Sales have dropped at area dealerships, and hundreds of workers in the Rio Grande Valley have lost jobs as the economic crisis and waning demand for domestic vehicles has brought U.S. automakers to their knees. While once unthinkable, many in the industry are watching aghast as the sun sets on Michigan.
"I never thought I would see this in my lifetime," said Bob Vackar, owner of Bert Ogden dealerships, the area's largest domestic car seller. "It's unimaginable, it really is."
Vackar has shed close to 100 positions at his dealerships already this year by not replacing workers who have left as his sales have fallen close to 40 percent - a decline almost entirely attributed to domestic cars.
Sales of U.S. autos declined when gas prices spiked earlier this year and have continued falling, but foreign and luxury car sales have risen, partly offsetting the 50 percent loss in domestic car sales, he said. Still, Vackar has recently expanded his dealerships with new locations in Edinburg.
"Nissan is doing well. BMW is doing well. Everything else is real sluggish," Vackar said. "(General Motors) has slowed down quite a bit."
THE MAQUILAS
So far, at least 316 people in the Valley have lost their jobs as a clear result of slumping U.S. auto sales. Two automotive plastics suppliers, Fortis Plastics LLC and Progressive Molded Products Inc., announced they were shutting down Valley plants this year and more closures could follow.
Close to 30 percent of maquiladoras across the Rio Grande produce parts for some segment of the auto industry. About 15 percent of those factories are solely automotive suppliers, said Keith Patridge, president of the McAllen Economic Development Corp.
"What impacts us more than anything is if the automotive market is down like it is now," Patridge said. "That definitely has an impact, particularly for those that are exclusive or almost exclusively automotive suppliers."
But not all of those maquilas manufacture parts for the Big Three. Many are suppliers for foreign manufacturers, so if the U.S. firms failed, it's not clear how many jobs could be lost, Patridge said.
Mexico also stopped keeping separate data on maquila employment in 2007, making the impact of the auto market downturn on the maquilas difficult to gauge.
Of those maquilas that produce auto parts, 15 percent also make a diverse array of products for other industries, which could cushion the blow of a loss in sales to U.S. car makers, Patridge said.
"I don't think ‘scared' is the right word," he said. "What we're looking at is what the impact is to our local supply base here as far as volume."
WRITING ON THE WALL
For Dan Ramirez, owner of the Ramirez Family dealerships, his biggest problem has been the credit crisis.
"You've got customers that come in, wealthy, very good credit, and yet for whatever reason, the banks will come back and say they're not (financing.)"
Still, the lots that are focused on expensive luxury cars drove sales in October to record highs, he said. It's still easier for the rich to find financing.
His sales of domestic and non-luxury cars are down, however. And like most in the local car industry, he's not surprised by what's happened.
"You could almost see the writing on the wall," Ramirez said, "because of the inability of the Big Three to compete internationally."
Other dealers said they, too, had prepared for the inevitable. Vackar, the Bert Ogden owner, said he began reducing his inventory earlier this year, prepping for a downturn in sales of domestic autos.
THE BAILOUT
As General Motors Corp. considers bankruptcy and Chrysler LLC and Ford Motor Co. burn through millions of dollars in cash each month, lawmakers in Washington, D.C., are weighing another bailout package to save the ailing U.S. auto industry.
If the Big Three collapse, nearly 3 million U.S. jobs could be lost, according to the Center for Automotive Research, a nonprofit group based in Ann Arbor, Mich., that tracks trends and changes in the auto industry.
It's unclear if the proposed bailout resolution has enough support in the lame-duck Congress to pass, and it's also not entirely certain the Big Three would fail without such a rescue.
Senate Majority Leader Harry Reid, D-Nev., plans a vote on the package this week, but it hasn't been scheduled yet. Persuading more than a dozen Senate Republicans to support the measure is the key to passing the bill.
Republicans and President George W. Bush have indicated they are reluctant to support the measure, saying Congress should expedite the release of $25 billion in loans to the auto industry approved earlier this year for the development of fuel-efficient vehicles.
Sen. John Cornyn, R-Texas, criticized Senate Democrats on Friday, saying the measure would be just the latest example of poorly conceived spending that is swelling the budget deficit.
"This is bad public policy and an affront to taxpayers who are demanding fiscal responsibility," he said in a statement.
U.S. Reps. Henry Cuellar, D-Laredo, Solomon Ortiz, D-Corpus Christi, and Rubén Hinojosa, D-Mercedes, declined to comment for this article or did not return calls seeking comment.
Sean Gaffney covers business, the economy and general assignments for The Monitor. He can be reached at (956) 683-4434.
http://www.themonitor.com/articles/sales_19919___article.html/dealerships_vackar.html
____
Sean Gaffney
The Monitor, McAllen, Texas
The crumbling of the U.S. auto industry is threatening hundreds of jobs in the border region as lawmakers ponder rescuing Detroit's Big Three.
Thousands of jobs - from laborers at maquiladoras that produce car parts to the sales reps and mechanics at the area's dealerships - are tied to the industry, reflecting just how deeply enmeshed U.S. automakers are in the nation's workforce.
Sales have dropped at area dealerships, and hundreds of workers in the Rio Grande Valley have lost jobs as the economic crisis and waning demand for domestic vehicles has brought U.S. automakers to their knees. While once unthinkable, many in the industry are watching aghast as the sun sets on Michigan.
"I never thought I would see this in my lifetime," said Bob Vackar, owner of Bert Ogden dealerships, the area's largest domestic car seller. "It's unimaginable, it really is."
Vackar has shed close to 100 positions at his dealerships already this year by not replacing workers who have left as his sales have fallen close to 40 percent - a decline almost entirely attributed to domestic cars.
Sales of U.S. autos declined when gas prices spiked earlier this year and have continued falling, but foreign and luxury car sales have risen, partly offsetting the 50 percent loss in domestic car sales, he said. Still, Vackar has recently expanded his dealerships with new locations in Edinburg.
"Nissan is doing well. BMW is doing well. Everything else is real sluggish," Vackar said. "(General Motors) has slowed down quite a bit."
THE MAQUILAS
So far, at least 316 people in the Valley have lost their jobs as a clear result of slumping U.S. auto sales. Two automotive plastics suppliers, Fortis Plastics LLC and Progressive Molded Products Inc., announced they were shutting down Valley plants this year and more closures could follow.
Close to 30 percent of maquiladoras across the Rio Grande produce parts for some segment of the auto industry. About 15 percent of those factories are solely automotive suppliers, said Keith Patridge, president of the McAllen Economic Development Corp.
"What impacts us more than anything is if the automotive market is down like it is now," Patridge said. "That definitely has an impact, particularly for those that are exclusive or almost exclusively automotive suppliers."
But not all of those maquilas manufacture parts for the Big Three. Many are suppliers for foreign manufacturers, so if the U.S. firms failed, it's not clear how many jobs could be lost, Patridge said.
Mexico also stopped keeping separate data on maquila employment in 2007, making the impact of the auto market downturn on the maquilas difficult to gauge.
Of those maquilas that produce auto parts, 15 percent also make a diverse array of products for other industries, which could cushion the blow of a loss in sales to U.S. car makers, Patridge said.
"I don't think ‘scared' is the right word," he said. "What we're looking at is what the impact is to our local supply base here as far as volume."
WRITING ON THE WALL
For Dan Ramirez, owner of the Ramirez Family dealerships, his biggest problem has been the credit crisis.
"You've got customers that come in, wealthy, very good credit, and yet for whatever reason, the banks will come back and say they're not (financing.)"
Still, the lots that are focused on expensive luxury cars drove sales in October to record highs, he said. It's still easier for the rich to find financing.
His sales of domestic and non-luxury cars are down, however. And like most in the local car industry, he's not surprised by what's happened.
"You could almost see the writing on the wall," Ramirez said, "because of the inability of the Big Three to compete internationally."
Other dealers said they, too, had prepared for the inevitable. Vackar, the Bert Ogden owner, said he began reducing his inventory earlier this year, prepping for a downturn in sales of domestic autos.
THE BAILOUT
As General Motors Corp. considers bankruptcy and Chrysler LLC and Ford Motor Co. burn through millions of dollars in cash each month, lawmakers in Washington, D.C., are weighing another bailout package to save the ailing U.S. auto industry.
If the Big Three collapse, nearly 3 million U.S. jobs could be lost, according to the Center for Automotive Research, a nonprofit group based in Ann Arbor, Mich., that tracks trends and changes in the auto industry.
It's unclear if the proposed bailout resolution has enough support in the lame-duck Congress to pass, and it's also not entirely certain the Big Three would fail without such a rescue.
Senate Majority Leader Harry Reid, D-Nev., plans a vote on the package this week, but it hasn't been scheduled yet. Persuading more than a dozen Senate Republicans to support the measure is the key to passing the bill.
Republicans and President George W. Bush have indicated they are reluctant to support the measure, saying Congress should expedite the release of $25 billion in loans to the auto industry approved earlier this year for the development of fuel-efficient vehicles.
Sen. John Cornyn, R-Texas, criticized Senate Democrats on Friday, saying the measure would be just the latest example of poorly conceived spending that is swelling the budget deficit.
"This is bad public policy and an affront to taxpayers who are demanding fiscal responsibility," he said in a statement.
U.S. Reps. Henry Cuellar, D-Laredo, Solomon Ortiz, D-Corpus Christi, and Rubén Hinojosa, D-Mercedes, declined to comment for this article or did not return calls seeking comment.
Sean Gaffney covers business, the economy and general assignments for The Monitor. He can be reached at (956) 683-4434.
http://www.themonitor.com/articles/sales_19919___article.html/dealerships_vackar.html
____
Tuesday, November 18, 2008
PAULSON, BERNANKE DEFEND $700 BAILOUT
Nov 18, 9:37 AM EST
By JEANNINE AVERSA
AP Economics Writer
WASHINGTON (AP) -- Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke waged a stout defense on Capitol Hill Tuesday of their management of a $700 billion financial bailout just one week after the administration abandoned the original strategy behind the rescue.
Focusing the program on infusing billions into banks - and possibly other types of companies - to pump up their capital and bolster lending to customers was deemed a faster and more effective approach to stabilizing the financial system than buying rotten assets from financial institutions, the centerpiece of the original plan, Paulson said.
Buying those toxic debts would have required a "massive commitment" of the bailout money, Paulson said in testimony before the House Financial Services Committee. As economic and financial conditions quickly worsened, it became clear that the first installment of the money - $350 billion - for that purpose "simply isn't enough firepower," he said.
It is vital that the administration be nimble in assessing changing conditions and adapting the bailout strategy accordingly. "If we have learned anything throughout this year, we have learned that this financial crisis is unpredictable and difficult to counteract," Paulson said.
By JEANNINE AVERSA
AP Economics Writer
WASHINGTON (AP) -- Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke waged a stout defense on Capitol Hill Tuesday of their management of a $700 billion financial bailout just one week after the administration abandoned the original strategy behind the rescue.
Focusing the program on infusing billions into banks - and possibly other types of companies - to pump up their capital and bolster lending to customers was deemed a faster and more effective approach to stabilizing the financial system than buying rotten assets from financial institutions, the centerpiece of the original plan, Paulson said.
Buying those toxic debts would have required a "massive commitment" of the bailout money, Paulson said in testimony before the House Financial Services Committee. As economic and financial conditions quickly worsened, it became clear that the first installment of the money - $350 billion - for that purpose "simply isn't enough firepower," he said.
It is vital that the administration be nimble in assessing changing conditions and adapting the bailout strategy accordingly. "If we have learned anything throughout this year, we have learned that this financial crisis is unpredictable and difficult to counteract," Paulson said.
Monday, November 17, 2008
Wednesday, October 29, 2008
U.S. Housing Market Boom and Crash Engineered by the Government
Politics / US Housing Oct 23, 2008 - 11:40 AM
By: Richard_C_Cook
Politics
They Did It On Purpose: The Housing Bubble and Its Crash Were Engineered from the Highest Levels of the U.S. Government, the Federal Reserve, and the Financial Industry
During the Clinton administration, the government required the financial industry to start expanding the frequency of mortgage loans to consumers who might not have qualified in the past.
When George W. Bush was named president by the Supreme Court in December 2000, the stock market had begun to decline with the bursting of the dot.com bubble.
In 2001 the frequency of White House visits by Alan Greenspan increased.
Greenspan endorsed President Bush's March 2001 tax cuts for the rich. More such cuts took place in May 2003.
Signs of recession had begun to show in early 2001. The stock market crashed after 9/11. The U.S. invaded Afghanistan in October 2001 and Iraq in March 2003.
The Federal Reserve began cutting interest rates, and by 2002 a home-buying frenzy was underway. Fannie Mae and Freddie Mac went along by guaranteeing the increasing number of mortgage loans.
According to a mortgage broker this writer interviewed, word began to come down through the mortgage banks to begin falsifying mortgage applications to show more borrower income than borrowers actually possessed
Banks that wrote mortgages began to offload them when Wall Street packaged them into mortgage-backed securities that were sold around the world as bonds to investors.
Risk-analysts at the leading credit-rating agencies, such as Standard and Poor's, Moody's, and Fitch, gave their highest ratings to mortgage-backed securities whose risks were later acknowledged to be grossly underestimated.
Mortgage companies, with Alan Greenspan's endorsement, began to offer more Adjustable Rate Mortgages (ARMs), loans that would reset at much higher rates in future years.
Mortgage brokers fed the growing bubble by telling people they should buy now because housing prices would keep going up and they could resell at a profit before their ARMs escalated.
Huge amounts of money began to flow into the economy from mortgages and home equity loans and from capital gains on resale of inflating property.
Meanwhile, in the world of investment securities, the Securities and Exchange Commission greatly reduced the amount of their own capital investors were required to bring to the table, resulting in a huge increase in bank leveraging of speculative trading.
George W. Bush was reelected in 2004 at the height of the housing and investment bubbles. By 2005 the housing bubble was accounting for half of all U.S. economic growth and yielding huge tax revenues to all levels of government.
Despite the tax revenues from the bubbles the Bush administration was running huge budget deficits from expenditures on the wars in Afghanistan and Iraq.
ABC News reports that during this time risk analysts at Washington Mutual, one of the nation's largest banks, were told to ignore high risk loans because lending had to be maximized. Those who objected were disciplined or fired.
State attorneys-general moved to investigate mortgage fraud but were blocked from doing so by orders of the Treasury Department's Comptroller of the Currency. There was no federal agency that was charged with regulating mortgage fraud.
In February 2006, Ben Bernanke replaced Alan Greenspan as Federal Reserve Chairman and held interest rates steady. Homeowners began to default as ARMs reset.
The housing bubble began to collapse in 2006-2007, with the economy showing early signs of a recession and the stock market starting to decline by August 2007. Home prices began to plummet in most markets, with millions of homeowners owing more on their homes than their new appraisals.
Homeowners began to default, with over four million homes going to foreclosure from 2006-2008. In many cases, homeowners simply walked away, dropping off the keys to their houses at the bank.
The U.S. economy shed 60,000 jobs in August 2008. In a year, Wall Street had cut 200,000 jobs. State and local governments began to cut budgets and jobs.
The “toxic debt” from the collapse of the housing bubble brought about a full-scale crash of the U.S. financial system by September 2008. The stock market immediately fell, with 40 percent of its value—$8 trillion—now having been lost in a year. $2 million of the losses were in retirement savings.
The crash of the U.S. economy began to reverberate around the world with bankers and the IMF warning of an onrushing global recession.
Massive bailouts by the U.S. Treasury Department and the Federal Reserve failed to stem the tide of the crashing markets. By late October 2008 the recession has begun to hit in force.
As the situation worsened, big banks like J.P. Morgan Chase received government capitalization even as they were buying up banks that were failing. J.P. Morgan Chase paid $1.9 billion for Washington Mutual with assets of over $300 billion.
The U.S. government joined with the nations of Europe in planning a series of economic summits to explore global financial solutions. President Bush will host the first summit in Washington, D.C., on November 15, after the U.S. presidential election.
The U.S. military shifted combat troops from Iraq to the U.S. to contain possible civil unrest.
Most major retail chains began to close stores and lay off employees even as the Christmas season approached.
The Washington Post reported on October 23, 2008: “Employers are moving to aggressively cut jobs and reduce costs in the fact of the nation's economic crisis, preparing for what many fear will be a long and painful recession.”
By Richard C. Cook
http:// http://www.richardccook.com/
http://www.marketoracle.co.uk/Article6936.html
By: Richard_C_Cook
Politics
They Did It On Purpose: The Housing Bubble and Its Crash Were Engineered from the Highest Levels of the U.S. Government, the Federal Reserve, and the Financial Industry
During the Clinton administration, the government required the financial industry to start expanding the frequency of mortgage loans to consumers who might not have qualified in the past.
When George W. Bush was named president by the Supreme Court in December 2000, the stock market had begun to decline with the bursting of the dot.com bubble.
In 2001 the frequency of White House visits by Alan Greenspan increased.
Greenspan endorsed President Bush's March 2001 tax cuts for the rich. More such cuts took place in May 2003.
Signs of recession had begun to show in early 2001. The stock market crashed after 9/11. The U.S. invaded Afghanistan in October 2001 and Iraq in March 2003.
The Federal Reserve began cutting interest rates, and by 2002 a home-buying frenzy was underway. Fannie Mae and Freddie Mac went along by guaranteeing the increasing number of mortgage loans.
According to a mortgage broker this writer interviewed, word began to come down through the mortgage banks to begin falsifying mortgage applications to show more borrower income than borrowers actually possessed
Banks that wrote mortgages began to offload them when Wall Street packaged them into mortgage-backed securities that were sold around the world as bonds to investors.
Risk-analysts at the leading credit-rating agencies, such as Standard and Poor's, Moody's, and Fitch, gave their highest ratings to mortgage-backed securities whose risks were later acknowledged to be grossly underestimated.
Mortgage companies, with Alan Greenspan's endorsement, began to offer more Adjustable Rate Mortgages (ARMs), loans that would reset at much higher rates in future years.
Mortgage brokers fed the growing bubble by telling people they should buy now because housing prices would keep going up and they could resell at a profit before their ARMs escalated.
Huge amounts of money began to flow into the economy from mortgages and home equity loans and from capital gains on resale of inflating property.
Meanwhile, in the world of investment securities, the Securities and Exchange Commission greatly reduced the amount of their own capital investors were required to bring to the table, resulting in a huge increase in bank leveraging of speculative trading.
George W. Bush was reelected in 2004 at the height of the housing and investment bubbles. By 2005 the housing bubble was accounting for half of all U.S. economic growth and yielding huge tax revenues to all levels of government.
Despite the tax revenues from the bubbles the Bush administration was running huge budget deficits from expenditures on the wars in Afghanistan and Iraq.
ABC News reports that during this time risk analysts at Washington Mutual, one of the nation's largest banks, were told to ignore high risk loans because lending had to be maximized. Those who objected were disciplined or fired.
State attorneys-general moved to investigate mortgage fraud but were blocked from doing so by orders of the Treasury Department's Comptroller of the Currency. There was no federal agency that was charged with regulating mortgage fraud.
In February 2006, Ben Bernanke replaced Alan Greenspan as Federal Reserve Chairman and held interest rates steady. Homeowners began to default as ARMs reset.
The housing bubble began to collapse in 2006-2007, with the economy showing early signs of a recession and the stock market starting to decline by August 2007. Home prices began to plummet in most markets, with millions of homeowners owing more on their homes than their new appraisals.
Homeowners began to default, with over four million homes going to foreclosure from 2006-2008. In many cases, homeowners simply walked away, dropping off the keys to their houses at the bank.
The U.S. economy shed 60,000 jobs in August 2008. In a year, Wall Street had cut 200,000 jobs. State and local governments began to cut budgets and jobs.
The “toxic debt” from the collapse of the housing bubble brought about a full-scale crash of the U.S. financial system by September 2008. The stock market immediately fell, with 40 percent of its value—$8 trillion—now having been lost in a year. $2 million of the losses were in retirement savings.
The crash of the U.S. economy began to reverberate around the world with bankers and the IMF warning of an onrushing global recession.
Massive bailouts by the U.S. Treasury Department and the Federal Reserve failed to stem the tide of the crashing markets. By late October 2008 the recession has begun to hit in force.
As the situation worsened, big banks like J.P. Morgan Chase received government capitalization even as they were buying up banks that were failing. J.P. Morgan Chase paid $1.9 billion for Washington Mutual with assets of over $300 billion.
The U.S. government joined with the nations of Europe in planning a series of economic summits to explore global financial solutions. President Bush will host the first summit in Washington, D.C., on November 15, after the U.S. presidential election.
The U.S. military shifted combat troops from Iraq to the U.S. to contain possible civil unrest.
Most major retail chains began to close stores and lay off employees even as the Christmas season approached.
The Washington Post reported on October 23, 2008: “Employers are moving to aggressively cut jobs and reduce costs in the fact of the nation's economic crisis, preparing for what many fear will be a long and painful recession.”
By Richard C. Cook
http:// http://www.richardccook.com/
http://www.marketoracle.co.uk/Article6936.html
Sunday, October 12, 2008
Mexico feels our fiscal pain
By Chris Hawley, USA TODAY
NUEVO LAREDO, Mexico — Economists have their numbers, and taco vendor Jorge Flores has his.
From a half-empty parking lot at an industrial park, Flores measures Mexico's economic health in terms of steaming hot tacos, orange sodas and scoops of fiery green salsa. And the taco index is looking shaky.
"I used to come here with 300 tacos and sell them all before noon. Now I sell 180 in the same time," he says, pointing out factories that have cut hours, stopped overtime and frozen hiring. "I don't even come here on weekends anymore."
Like many Mexicans, Flores fears that the U.S. economic crisis is beginning to spill over to Mexico, the United States' biggest trading partner after Canada and China. Migrants are sending home less money, banks are tightening their lending, and U.S. consumers are buying fewer cars, televisions and other Mexican-made products.
"It would be a delusion to say we won't suffer some consequences of this great crisis," Mexican Treasury Secretary Agustín Carstens said in a speech last week. "Exports, tourism and (migrant) remittances are all going to feel the effects of this phenomenon."
Signs of trouble:
• Manufacturing exports to the United States dropped 3.8% in August, compared with the previous year, and that was before the U.S. stock market took a nose dive in September. Automakers were hardest hit, reporting a 13% decline in exports to the United States, according to Mexico's National Institute of Statistics, Geography and Information Processing.
• Consumer confidence since July is the lowest in at least six years, according to the Bank of Mexico's monthly survey.
• Mexico's IPC stock index declined almost 28% since May.
• Migrants sent home 12% less money in August compared with a year ago, the largest drop on record, the Bank of Mexico says. These remittances are Mexico's second-biggest source of foreign income, after oil sales, and totaled $1.9 billion in August.
Playing it safe
In Nuevo Laredo, on the border with Texas and the crossing point for 40% of all U.S.-Mexican trade, everybody from shipping agents to machinery makers are getting ready for a slowdown.
Trucks rolling into Mexico with U.S. goods or raw materials for factories are down to 4,000 a day from 5,000, says Fabian González, a Mexican customs supervisor.
Nuevo Laredo Mayor Ramón Garza says the decline is costing his city millions of dollars in customs duties that the Mexican Treasury Department shares with local governments.
At Herrajes Méxicanos, a metalworking company that supplies parts for factories, manager Ramón Baez says he cut his staff to 25 from 40 because of a recent 40% drop in sales.
One of his best customers is an electronics maker that buys metal weights to put inside telephone handsets. The client used to buy 70,000 weights a week, but now purchases only 10,000.
"All of my regular clients have lowered their orders," Baez says. "Everyone's waiting for the market to calm down."
In many ways, Mexico is still better off than the United States.
"Usually the people say that when the United States catches a cold, Mexico gets pneumonia. But this is not exactly the case today," President Felipe Calderón told a group of New York financiers last month. "Our country is now better prepared to mitigate the negative effects."
The government says Mexico is safe from a credit meltdown like that plaguing U.S. markets because of careful lending and tight banking rules put into place after Mexico's financial crash in the mid-1990s.
Bad mortgages are less of a problem, too, the International Monetary Fund said in an April study. Millions of Mexicans still build their homes one room at a time, buying blocks and mortar whenever they save the cash. Others buy houses through government mortgages guaranteed by contributions deducted from workers' paychecks. Private lenders, like banks, account for only one-third of mortgages.
The peso has remained strong between 10 and 11 to the dollar. The government is less dependent on foreign lenders, after reducing its foreign debt to 5% of gross domestic product over the last decade, from 40%.
What really worries business leaders is not a financial implosion, but less consumption — as average Americans and Mexicans get nervous about spending money, says Miguel Marón Manzur, president of Mexico's National Chamber of Manufacturers. "That is something that is going to be reflected in the entire exporting sector," he says.
That's bad news for border cities, which are already wrestling with a drop in cross-border tourism because of crime.
Silver lining
Still, Garza, the Nuevo Laredo mayor, and others say there may be a silver lining to the economic crisis, at least for Mexico.
A prolonged U.S. slump could eventually prompt American companies to move more work to Mexico to save costs, says Jaime Loera, president of the Nuevo Laredo Manufacturers Association. High fuel costs make it more expensive to ship goods from China, making Mexico more competitive, he says.
Much depends on how quickly the U.S. economy bounces back, says Carlos Montoya, managing director of another industrial park here. So far, no companies in his park have closed factories or canceled deals.
"There could be a drop, but I think we wouldn't see it until next year or so," he says. "It all depends on the duration of this situation we're living through."
Hawley is Latin America correspondent for USA TODAY and The Arizona Republic
Submitted by: dallas647
Sunday, October 5, 2008
Out of the Shadows and Into the Harsh Light
By FLOYD NORRIS
Published: September 26, 2008
THE credit default swaps market — a market that for years was kept out of view and away from any regulation — has suddenly turned into a political hot potato in Washington.
The chairman of the Securities and Exchange Commission said this week that regulation was needed immediately, while the secretary of the Treasury said efforts were already under way to get things under control, and urged caution.
Such swaps, which enable lenders to a company to purchase what amounts to insurance that will protect them if the company defaults on its debts, have grown exponentially in recent years, with the nominal amount of debt guaranteed rising to more than $62 trillion at the end of last year from $631 billion in mid-2001.
The sudden interest in the market stems from two separate but related developments. The collapse of a major firm in the market could set off a chain of problems, a fact that has scared the Treasury Department this year.
In addition, speculators who think a financial firm will fail can buy credit-default swaps. They will profit if they are right. But even if the firm is not in trouble, an increase in the price of those swaps may scare other investors, and send the company’s stock down. That prospect has alarmed the S.E.C. As the political debate was growing, the International Swaps and Derivatives Association, a trade group, reported that the amount of outstanding credit-default swaps declined in the first half of 2008, something that had never happened before.
The 12 percent decline, to $54.6 trillion, still left the market vastly larger than the total amount of debt that can be insured. The huge total reflects the way the market is structured, as well as the fact that someone does not need to actually be owed money by a company to be able to buy a credit-default swap. In that case, the buyer is betting that the company will go broke.
Within that huge market, many contracts offset one another — assuming that all parties honor their commitments. But if one major firm goes broke, the effect could snowball as others are unable to meet their commitments.
In regulated futures markets, contracts are centrally cleared. If you buy an oil futures contract on Monday, and sell it on Wednesday, you have made your profit (or taken your loss) and you no longer have any stake in whether oil prices rise or fall. But if you buy a credit-default swap on Monday from one firm, and sell an identical swap on Wednesday to another firm, you still face the potential of risk if the party that sold the swap to you is unable to pay when a default occurs, perhaps years later.
“One of the major reasons that the government helped out in the Bear Stearns situation,” Treasury Secretary Henry M. Paulson Jr. testified at a Senate hearing this week, “was to avoid throwing it into bankruptcy with all the credit-default swaps.”
Mr. Paulson said the Federal Reserve Bank of New York was working to develop protocols for that market to deal with a failure of a big player, and indicated that he did not see a need for legislation.
But Christopher Cox, the S.E.C. chairman, said Congress should act. “Neither the S.E.C. nor any regulator has authority over the C.D.S. market, even to require minimum disclosure to the market,” he testified. “The market is ripe for fraud and manipulation,” he added.
The S.E.C. is investigating possible fraud, although no charges have been brought, and is looking for cases where someone may have purchased credit-default swaps to drive up their price and persuade others that a company was in trouble.
The swaps market has been exempt from regulation since it began to grow, thanks to legislation the industry sought. The industry argued that regulation would drive business overseas, and that no regulation was needed because ordinary investors did not trade in the market.
In announcing the decline in the amount of swaps outstanding, Robert Pickel, the chief executive of the trade group, said it reflected industry efforts “to reduce risk by tearing up economically offsetting transactions, and demonstrates the industry’s ongoing commitment to reduce risk and enhance operational efficiency.”
The accompanying charts show the growth of the amount of credit-default swaps outstanding, and show how those totals compare with the total amount of outstanding loans from banks and others to corporations and foreign governments. Even with the decline, the swaps volume is more than three times the debt total.
Floyd Norris comments on finance and economics in his blog at norris.blogs.nytimes.com.
http://www.nytimes.com/2008/09/27/business/27charts.html?_r=1&fta=y&oref=slogin
Published: September 26, 2008
THE credit default swaps market — a market that for years was kept out of view and away from any regulation — has suddenly turned into a political hot potato in Washington.
The chairman of the Securities and Exchange Commission said this week that regulation was needed immediately, while the secretary of the Treasury said efforts were already under way to get things under control, and urged caution.
Such swaps, which enable lenders to a company to purchase what amounts to insurance that will protect them if the company defaults on its debts, have grown exponentially in recent years, with the nominal amount of debt guaranteed rising to more than $62 trillion at the end of last year from $631 billion in mid-2001.
The sudden interest in the market stems from two separate but related developments. The collapse of a major firm in the market could set off a chain of problems, a fact that has scared the Treasury Department this year.
In addition, speculators who think a financial firm will fail can buy credit-default swaps. They will profit if they are right. But even if the firm is not in trouble, an increase in the price of those swaps may scare other investors, and send the company’s stock down. That prospect has alarmed the S.E.C. As the political debate was growing, the International Swaps and Derivatives Association, a trade group, reported that the amount of outstanding credit-default swaps declined in the first half of 2008, something that had never happened before.
The 12 percent decline, to $54.6 trillion, still left the market vastly larger than the total amount of debt that can be insured. The huge total reflects the way the market is structured, as well as the fact that someone does not need to actually be owed money by a company to be able to buy a credit-default swap. In that case, the buyer is betting that the company will go broke.
Within that huge market, many contracts offset one another — assuming that all parties honor their commitments. But if one major firm goes broke, the effect could snowball as others are unable to meet their commitments.
In regulated futures markets, contracts are centrally cleared. If you buy an oil futures contract on Monday, and sell it on Wednesday, you have made your profit (or taken your loss) and you no longer have any stake in whether oil prices rise or fall. But if you buy a credit-default swap on Monday from one firm, and sell an identical swap on Wednesday to another firm, you still face the potential of risk if the party that sold the swap to you is unable to pay when a default occurs, perhaps years later.
“One of the major reasons that the government helped out in the Bear Stearns situation,” Treasury Secretary Henry M. Paulson Jr. testified at a Senate hearing this week, “was to avoid throwing it into bankruptcy with all the credit-default swaps.”
Mr. Paulson said the Federal Reserve Bank of New York was working to develop protocols for that market to deal with a failure of a big player, and indicated that he did not see a need for legislation.
But Christopher Cox, the S.E.C. chairman, said Congress should act. “Neither the S.E.C. nor any regulator has authority over the C.D.S. market, even to require minimum disclosure to the market,” he testified. “The market is ripe for fraud and manipulation,” he added.
The S.E.C. is investigating possible fraud, although no charges have been brought, and is looking for cases where someone may have purchased credit-default swaps to drive up their price and persuade others that a company was in trouble.
The swaps market has been exempt from regulation since it began to grow, thanks to legislation the industry sought. The industry argued that regulation would drive business overseas, and that no regulation was needed because ordinary investors did not trade in the market.
In announcing the decline in the amount of swaps outstanding, Robert Pickel, the chief executive of the trade group, said it reflected industry efforts “to reduce risk by tearing up economically offsetting transactions, and demonstrates the industry’s ongoing commitment to reduce risk and enhance operational efficiency.”
The accompanying charts show the growth of the amount of credit-default swaps outstanding, and show how those totals compare with the total amount of outstanding loans from banks and others to corporations and foreign governments. Even with the decline, the swaps volume is more than three times the debt total.
Floyd Norris comments on finance and economics in his blog at norris.blogs.nytimes.com.
http://www.nytimes.com/2008/09/27/business/27charts.html?_r=1&fta=y&oref=slogin
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