Repercussions for Republicans?

Will there be any repercussions for Senate Republicans who blocked passage of the interim auto bailout bill two weeks before Christmas?  They basically said to America, we don't like you; so, we are going to put coal in your stocking for Christmas.  The White House, Treasury and the Fed may save the day for average Americans, or maybe not.  The Republicans apparently don't care if GM goes bankrupt on Christmas Eve.  Scrooge would be proud!  Mitch McConnell, Richard Shelby, and company plan to take Tiny Tim's crutch and beat him over the head with it.  Merry Christmas!

Auto Bankruptcy

The auto bankruptcy is too big just to use the regular bankruptcy law. These are not just any companies. The auto industry is the foundation of American industry. So why shouldn't Congress pass an industry specific bailout law that would contain many provisions of ordinary bankruptcy, which could also have specific requirements for executives' and workers' salaries, hybrid mileage requirements, etc. In addition, some people say the credit crisis will prevent normal bankruptcy from functioning as it should because there will not be sufficient credit available to allow the companies to operate under Chapter 11.

Idiots on Wall Street

The Financial Times reports that the price of credit default swaps, insurance for corporate debt, has been going up again.  The FT interprets this as meaning that the credit crisis is worsening.  I interpret it as meaning that Wall Street, London's City, and the other financial markets are finally learning what they are doing when they make credit default swaps.  They are insuring that a company will pay its debts, and they are saying, "If that company doesn't pay, we will."  For years they have been blithely issuing these swaps as if they were just cheap ways to make money with no consequences.  The horrendous failure of AIG due to the issuance of these CDS's shows that they do have consequences.  Finally, after years of failing to understand the business model for CDS's, Wall Street is learning.  As a result, CDS's are becoming more expensive as they should have been for the last decade, or however long they have been around.  The markets may be bad, but for years the CDS's were priced incorrectly by idiots who did not know what they were doing.  The whole credit crisis was created not so much by the sub-prime mortgages, but by the ridiculously under priced CDS's sold to cover them, which now have the issuing institutions on the hook for trillions of dollars.  The banks don't have enough capital to stand behind these promises; so, the Federal Government has had to step in to prop them up.  

More Housing Pain to Come?

The stock market is now down about 50% from its recent highs. The stock market decline is supposed to be an effect of the housing market bust. Meanwhile, the prices of houses, which are much less liquid and slower to adjust, are only down about 25% from their highs.

This would indicate to me, even allowing for the fact that panic enters the stock market much more quickly than the less liquid housing market, that the worst is yet to come for housing.

I'm not pleased about a big 3 auto bailout, but if they go under, I think it might the tipping point that takes the US into something like a depression, certainly a serious, long recession. The old Mel Gibson Mad Max movies will in actuality take place in post-depression Michigan and Ohio, rather than in post-war Australia. But Congress says, we don't care; Honda, Toyota, BMW, VW and Mercedes will take good care of us. World War II is finally over, and the Axis won. Alabama's Sen. Richard Shelby is waving the white flag as hard has he can to help all those Japanese and German auto plants in Alabama.