"The bondage of fifteenth century serfdom has become the catalyst for causing the middle-class to grovel for survival. They mistakenly assumed that the business and political leaders would maintain a minimum concern for those whom they serve or lead." Warren B. Eller, 1931
“This country is governed for the richest, for the corporations, the bankers, the land speculators, and for the exploiters of labor.” Helen Keller
Without banking reforms and an equitable median hourly wage, the development of new variations of debt creation for the people to support the corporate status quo is futile, if not cruel.
Bloomberg
Treasury to Buy $5 Billion GMAC Stake, Expand GM Loan
By Rebecca Christie and Hugh Son
Dec. 29 (Bloomberg) -- The U.S. Treasury said it will purchase a $5 billion stake in GMAC LLC, the financing arm of General Motors Corp.
Treasury will also lend an additional $1 billion to GM so the automaker can participate in a rights offering at GMAC to support the lender’s reorganization as a bank holding company, the Treasury announced today. The loan is in addition to $13.4 billion the Treasury agreed earlier this month to lend to GM and Chrysler LLC.
Separately, GMAC said it has accepted all bonds tendered in a debt swap designed to reduce its debt load.
“Once the offers are settled, which we expect to do promptly, results will be disclosed,” said spokeswoman Gina Proia in an e-mail.
“The company intends to act quickly to resume automotive lending to a broader spectrum of customers to support the availability of credit to consumers and businesses for the purchase of automobiles,” GMAC said in statement.
GMAC had limited loans to buyers with the best credit ratings, cutting into GM’s sales.
The credit from the Treasury is under its Troubled Asset Relief Program and comes after the Federal Reserve last week approved GMAC’s application to become a bank holding company.
“This is part of our strategy to position GMAC for long term stability,’’ said Toni Simonetti, a spokeswoman for GMAC. “The reason we’re doing this is so we can provide credit to consumers; we’ll put these funds to use right away.’’
FDIC Guaranty
GMAC will “continue to pursue’’ other ways to boost liquidity, including applying for an Federal Deposit Insurance Corp. guaranty program and attracting retail deposits from consumers, Simonetti said. (We are all banks now - Jesse)
Becoming a bank makes it easier for GMAC to get federal aid and eases the threat of a collapse, which threatened to dry up credit for purchases of GM cars. Dealers depend on GMAC to finance about three-quarters of their inventory. Analysts have said the lender’s survival is a crucial step toward saving GM, which has said it may run out of cash.
GMAC joins more than 190 regional banks, commercial lenders, insurers and credit-card issuers seeking funds from the Treasury’s bailout program for financial firms. American Express Co., the biggest U.S. card company by sales, and CIT Group Inc., the biggest independent commercial lender last year, won capital infusions last week after converting into banks.
Slow Sales
With GM selling cars at the slowest pace in 26 years and the country in its worst housing crisis since the Great Depression, GMAC and its Residential Capital LLC unit have no way to revive their own revenue and have been shut out of credit markets. GMAC has $540 million of bonds due this month and another $11.6 billion that mature in 2009 and previously said it would cancel plans to become a bank if the debt swap failed.
The Fed has since granted approval before the swap was finished....
29 December 2008
GMAC: Its Good to Be a Bank
Japanese Economist Urges Selective Default on US Treasury Debt
Here is an intriguing proposal for a 'selective default' of US Treasury debt to head off a massive devaluation of the dollar, and to promote the US recovery from the ravages of its self-inflicted financial damage.
No matter how one wishes to describe it, the US will have to default on its sovereign debt, most likely on a selective basis, writing down the rest through an inflated dollar. The Japanese recognize this and are volunteering a tentative plan to accomplish it to support their industrial policy.
Although there is a potential for a voluntary debt forgiveness from Japan as a loyal client state, we wonder if the rest of the world will be inclined to accept an unreformed dollar hegemony.
Can the economic world so woefully lack the will, knowledge, and the imagination to develop a more equitable mechanism for international trade?
Financial reforms, although not even on the table yet, are certain to come with any sustained recovery. There has been nothing even seriously proposed yet as Bernanke and Paulson rush to supply fresh capital to prop up the status quo and aid their cronies on Wall Street.
We can surely do better than this.
Bloomberg
Japan Should Scrap U.S. Debt; Dollar May Plummet, Mikuni Says
By Stanley White and Shigeki Nozawa
Dec. 24 (Bloomberg) -- Japan should write-off its holdings of Treasuries because the U.S. government will struggle to finance increasing debt levels needed to dig the economy out of recession, said Akio Mikuni, president of credit ratings agency Mikuni & Co.
The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes “drastic measures” to help bail out the U.S. economy, Mikuni said. Treasury yields, which are near record lows, may fall further without debt relief, making it difficult for the U.S. to borrow elsewhere, Mikuni said. (We struggle a bit with the notion of Treasury yields falling without a substantial debt relief. One would think they would be increasing to uncomfortable levels as the risk of an involuntary default increases, unless the Fed plans to aggressively monetize them to peg the yield curve, trashing the Dollar in the process. - Jesse)
“It’s difficult for the U.S. to borrow its way out of this problem,” Mikuni, 69, said in an interview with Bloomberg Television broadcast today. “Japan can help by extending debt cancellations.” (We seem to have surpassed the Ponzi viability boundary. - Jesse)
The U.S. budget deficit may swell to at least $1 trillion this fiscal year as policy makers flood the country with $8.5 trillion through 23 different programs to combat the worst recession since the Great Depression. Japan is the world’s second-biggest foreign holder of Treasuries after China.
The U.S. government needs to spend on infrastructure to maintain job creation as it will take a long time for banks to recover from $1 trillion in credit-market losses worldwide, Mikuni said. The U.S. also needs to launch public works projects as the Federal Reserve’s interest rate cut to a range of zero to 0.25 percent on Dec. 16. won’t stimulate consumer spending because households are paying down debt, he said. (One would look for policies to increase the median hourly wage to facilitate this. So far we are seeing nothing, if not the opposite, to support this. - Jesse)
U.S. President-elect Barack Obama wants to create 3 million jobs over the next two years, more than the 2.5 million jobs originally planned, an aide said on Dec. 20. Obama takes office on Jan. 20.
Marshall Plan
Japan should also invest in U.S. roads and bridges to support personal spending and secure demand for its goods as a global recession crimps trade, Mikuni said.
Japan’s exports fell 26.7 percent in November from a year earlier, the Finance Ministry said on Dec. 22. That was the biggest decline on record as shipments of cars and electronics collapsed.
Combining debt waivers with infrastructure spending would be similar to the Marshall Plan that helped Europe rebuild after the destruction of World War II, Mikuni said.
“U.S. households simply won’t have the same access to credit that they’ve enjoyed in the past,” he said. “Their demand for all products, including imports, will suffer unless something is done.”
The plan was named after George Marshall, the U.S. secretary of state at the time, and provided more than $13 billion in grants and loans to European countries to support their import of U.S. goods and the rebuilding of their industries
Currency Reserves
The Japanese government could use a new Marshall Plan as a chance to shrink its $976.9 billion in foreign-exchange reserves, the world’s second-largest after China’s, and help reduce global economic imbalances, Mikuni said.
The amount of foreign assets held by the Japanese government and the private sector total around $7 trillion, Mikuni said.
Japan will also have to accept that a stronger yen is good for the country in order to reduce excessive trade surpluses and deficits, he said. The yen has appreciated 23 percent versus the dollar this year, the most since 1987, as the credit crisis prompted investors to flee riskier assets and repay loans in the Japanese currency.
“Japan’s economic model has been dependent on external demand since the Meiji Period” that began in 1868, Mikuni said. “The model where the U.S. relies on overseas borrowing to fuel its property market is over. A strong yen will spur Japanese domestic spending and reduce import prices, thereby increasing purchasing power.”
