Speaking Personally

Friday news of Tim Geithner's appointment to Treasury seemed to reassure the markets...again. Testimony in congress by the CEO's of Chrysler, GM, and Ford earlier in the week set off this week's downward market trend. Volatility continues with huge moves, on average over time, two dollars down for every one dollar up -- a classic proportion. Its notable that Citibank shares lost ground during that late market rally. At some point the markets will settle on a low and await signs of a recovery. On Face The Nation Austan Goolsbee, Obama's apostle to Wall Street, spoke of getting things off with a bang in the first days of Obama's presidency and target recovery within two years. So after a five year market up trend followed by a one and one half year decline which equaled all of the gain we are looking at a minimum 18 month market trough.

Many commentators point to Fiat as a big industrial concern, 5% of Italy's GNP, which successfully restructured and recovered in the period 2000-2006. During the same period Rover in the UK disappeared and its carcass was sold off mostly to Chinese companies. Naturally business commentators give the lions share of credit to the company's CEO. However the recovery he orchestrated involved subsidies and "shock absorbers" from the Italian government and many concessions from Italian labor unions. See: The European Industrial Relations Observatory's (EIRO) database searching on terms like Fiat,restructure, and social shock absorbers. It should be noted that despite successful recovery Fiat like most other auto companies is now seeking assistance from its government in a time of world wide over capacity in auto plants combined with the likelihood or rather possibility of world wide deflation.

Three

Important Stories

Le Citi Toujours Dormer...

Dr Peter Morici: US Senate Testimony on US auto industry bailout

U.S. intel panel warns of coming national decline

Quotes and Pointers

'Should Citi's management have planned for and guarded against this explosion in the risk premium? I certainly did not expect it--I did not think we could see this big a rise in the risk premium outside of a real cousin of the Great Depression, and I thought that modern tools of macroeconomic management would keep such a thing from happening. I never expected to see the unemployment rate hit 15% in my lifetime. I still don't.

It's in the nature of a bank to get into trouble and be on (or over) the edge of failure in a financial crisis. Banks exist to provide liquidity and safety: to turn the long-term highly-risky investments in plant, equipment, and infrastructure that are our social capital into the short-term liquid largely-safe assets that savers largely want. This means that banks are--if they are doing there job--long duration and long risk, and their values crater whenever there is a financial crisis because a financial crisis is a sharp fall in the value of long-duration and high-risk assets.'

J. Bradford DeLong

'Without a new labor agreement that brings wages, benefits and work rules in line with those at the most competitive transplant factories, and without reduced debt and other liabilities, the Detroit Three will continue to lag in product innovation and field too few attractive new vehicles, because their higher costs, debt and other liabilities require them to spend less on new productive development than they should. Also, they are inclined to field products with less desirable content to compensate for higher costs. As consumers find vehicles made by Japanese and other transplants more attractive, like those imported from Korea and eventually from China, the Detroit Three will cede market share of one or a few percentage points each year.

If Chapter 11 is put off, the successors to GM, Ford and Chrysler that emerge from a bankruptcy reorganization process will be smaller and support fewer jobs than if these companies endure this difficult transition in 2009.

More jobs can be saved among GM, Ford and Chrysler and their suppliers if bankruptcy reorganization is endured now than in the future.'
Peter Morici

'The report is also an indirect but very explicit repudiation of the grand strategy of outgoing President George W. Bush, Vice President Dick Cheney, former Defense Secretary Donald Rumsfeld and the neo-conservative intellectuals who served them.

It clearly rejects their assumption that a new century of U.S. global supremacy, leadership and even control more total than any the United States enjoyed in the past is likely or even achievable.

Instead, the NIC report warns of an increasingly uncontrollable, fragmented world with strategic, military and economic power increasingly diffused -- and with the danger of local and wider wars, especially over scarce resources, greater than ever before.'

MARTIN SIEFF