How to Cover Wall Street

The American auto industry is like a lame horse: The only way to fix it is to let it die.

GM announced on Friday that the company will close 20 of its North American plants and is considering filing for Chapter 11. Chrysler LLC is slated to close 29 plants and lay off 53,000 workers effective immediately. And, though Ford Motor Company CEO Allan Mullaly told a Congressional committee that his company does not face what he called “near-term liquidity issues” which have slammed GM and Chrysler, he still has his cap in hand for $9 billion of Treasury-sponsored credit, should the industry worsen.

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Ponzi schemes and defrauded Manhattan hedge funds can be lots of fun, and are guaranteed to create ample water cooler chit chat for days. But to give the Bernie Madoff super-scandal a little bit of context – and help you really impress over cocktails during the holiday party season – here’s a handy-dandy chart I created that chronicles some of the more outrageous of single-handed Wall-Street money losers, stealers or swindlers over the past couple of decades. Let’s see how they stand up to Madoff:

Clearly, Wall Street ripoffs are only getting more outrageous, and Madoff’s crimes have had the farthest reach of all.

Billions Lost in Former Nasdaq Chairman's Pyramid Scheme

At the end of last week, former Nasdaq chairman and money manager Bernard L. Madoff was arrested for running a firm that lost billions of dollars through a pyramid scheme.  Although such scandal is not new to Wall Street, Madoff might hold the dubious honor of committing the largest fraud in financial history.  And the details are emerging rapidly this weekend.

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Today I learned a new phrase: Moral Suasion.

From Investopedia:

A persuasion tactic used by an authority (i.e. Federal Reserve Board) to influence and pressure, but not force, banks into adhering to policy. Tactics used are closed-door meetings with bank directors, increased severity of inspections, appeals to community spirit, or vague threats.

It would be nice if it worked. Consider these three news events from the week:

• Ecuador defaults on its foreign debts, leaves investors in the lurch.

• Despite a Freedom of Information request, the Fed still refuses to say which banks they loaned $2 trillion to, and what kind of tricky collateral they  accepted in return.
• The Bush Adminstration retreats from its old position on the auto bailout, and is now considering using TARP funds.

In each case, the persuasion tactic didn’t matter because actors are unpredictable.

Sure, the The Dark Knight is a near definite Oscar winner. But it also may be a key to boosting Time Warner’s earnings and future stock performance.

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Provided by ABC News

The next bubble: bonds.  This week, investors parked their money in an investment with absolutely no return. They poured $30 billion into four week T-bills at zero percent.  (At this rate, the government will have plenty of cheap cash to build all the bridges, roads, tunnels, highways and roads it wants—too bad fewer Americas will be able to afford cars to take advantage of all the new infrastructure). Now back to the original point: the demand for bonds has also ballooned in the secondary market, which has pushed yields down to 1929 lows.

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What could Barack Obama’s plan to save or create 2.5 million jobs by investing in green buildings, schools, and transportation mean for Wall Street? Deals, deals, deals.

Check it:

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There seems to be a myth that bankruptcy for the (former) Big Three would spell Armageddon. Not true.

It is getting harder lately for companies to reemerge from Chapter 11, true. For example, this year Circuit City and Linen N’ Things were forced to liquidate when they couldn’t find a white knight.  Such a Chapter 11-is-the-new-9-scenario could be especially disastrous if the autos went under, and would drag their suppliers under the bus too. We can and should avoid this.

But giving a company like GM a blank check just because its CEO Rick Wagoner has ditched his jet and gone to Quiznos, well that’s a recipe for disaster as well.

There is another way. The government could sponsor the automaker’s bankruptcy. This way they win more concessions than with a bailout. Andrew Ross Sorkin lays out the plan.

“Taxpayers shouldn’t fork over a cent until shareholders are wiped out, management is tossed out and the industry is completely reorganized,” he wrote.

What say you all?

John Meriwether has had an eventful post-Liar’s Poker career.

Actually it’s been spectacular.

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Enough, already.

At first, I thought the bailouts were necessary. But, I really never want to hear the “word of the year” again. Especially not for the auto industry.

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