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New York (HedgeCo.Net) – Auto executives stood before Congress yesterday and requested a $25 billion rescue package, pleading that their industry was going under fast. After allocating billions to bailouts in recent months, the auto industry was met with quite a bit of reluctance from many of the same individuals who were all for the $700 billion in handouts to financial firms.
"Detroit’s basic problem is that they created a business model that doesn’t have a snowball’s chance in hell of surviving in a global economy," said Republican Senator Lindsey Graham from South Carolina.
Alabama Republican Senator Richard Shelby agreed, saying that the automakers, aka “failed models,” should just file for bankruptcy.
The hearing was held a day after Senate Democrats proposed the $25 billion in rescue loans. However, the auto industry just happens to be at the end of the line after the government handed out funds to AIG, Bear Stearns and mortgage lenders Fannie Mae and Freddie Mac.
“This is about much more than just Detroit,” Rick Wagoner, head of General Motors, said in his testimony. It’s about saving the U.S. economy from a catastrophic collapse.”
General Motors is seeking approximately $10 billion from Uncle Sam while Ford and Chrysler are asking for about $8 billion and $7 billion respectively.
"While the domestic auto industry has made mistakes in the past, the current problems have been exacerbated by one of the worst economies in nearly three decades," Alan Mulally, CEO of Ford Motor Corp. said in his testimony.
Mulally and Wagoner, along with head of Chrysler Robert Nardelli and Ron Gettelfinger, head of United Auto Workers Union were all part of the team that testified before Congress.
Gettelfinger added, "If one of these companies was to go into bankruptcy, I would almost bet it would take two of them or possibly all three."
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
Bloomberg – If Sherlock Holmes were analyzing the credit crunch, he would be drawing our attention to the dog that didn’t bark, just as he did in “The Hound of the Baskervilles.”
The dog, of course, would be hedge and private-equity funds.
Anyone tracking markets in recent years will remember the prediction that the unregulated, feverish trading of hedge funds, and the massive debts and complex financial engineering of buyout firms, would cause the next crash.
The crash happened, but it was started by what appeared to be safer institutions. It was the relatively dull mortgage lenders, and the investment banks that supplied their funding through the wholesale money markets, that sparked the collapse.
Forbes – In an op-ed in the Financial Times on Monday , I described the unraveling and demise of the shadow banking system that started with non-bank mortgage lenders, structured investment vehicles (SIVs) and conduits, major independent monoline broker dealers and money market funds. I then argued that the next leg of this unraveling would be hedge funds and private equity firms and their reckless leveraged buyouts (LBOs).
Let me now discuss in more detail this unraveling of parts of the hedge fund industry.
First, note that too much of the shadow banking system was about "Schmalpha" rather than "Alpha" (i.e. the returns that fund managers and asset managers–with their ridiculously high management fees of 2% or more–were getting by parting investors from a good chunk of their assets, rather than by superior absolute returns). In fact, the hedge-fund math of "2/20" was, most of the time, 2% for the fund managers and not 20% (sometimes single digit returns and, this year, actual negative ones) for investors. This scam is now unraveling.
Globe and Mail- Hedge funds may post their worst month in at least five years after bets on financial stocks falling and on crude oil rising backfired.
Hedge Fund Research Inc.’s Global Hedge Fund Index of more than 55 funds slid 3.2 per cent through July 24, heading for the biggest monthly drop since the measure started in 2003.
Wagers on a drop in financial stocks and home builders soured after shares of U.S. mortgage lenders Fannie Mae and Freddie Mac more than doubled during the six trading days to July 23.
Bullish bets on crude oil turned to a loss as oil slid 15 per cent from a record $145.29 (U.S.) a barrel on July 3 after doubling in a year.
New York (HedgeCo.Net) – Mortgage lenders Fannie Mae and Freddie Mac may get some help from the Fed in hopes of staving off a market implosion following a crippling credit crunch and a period of great stress in the financial markets.
"Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owner companies," Treasury Secretary Hank Paulson said.
The Federal Reserve of New York has been authorized to provide funding should it prove necessary, in which case the loans will be dispersed with a 2.25 percent interest rate. Meanwhile, the U.S. Treasury is seeking to expand their credit line and make an equity investment if approved by Congress. The Treasury is currently allowed to extend $2.25 billion to each company.
"This affirmation of the important role [of both companies] – and that we should continue to operate as shareholder-owned companies – should go a long way toward reassuring world markets," said Freddie Mac head Richard Syron.
The two companies back about $5.3 trillion in mortgages, about half of the total mortgage debt in the U.S. Freddie Mac is scheduled to sell about $3 billion in short-term notes today.
Shares of Fannie Mae and Freddie Mac plummeted last week amidst investor scares, but saw a sharp rise before the bell today. Fannie shares rose 22 percent to $12.50 while Freddie shares climbed 27.1 percent to $9.85.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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