The Next Financial Bombshell
Stocks fell dramatically on the GM news out of DC. Bonds moved sideways.
The Dollar gained against most currencies and gold fell a little after opening up.
Oil and gasoline were the big movers, falling below $50/barrel and being concerned about the fall in confidence caused by the GM actions.
In the news today…..
President Obama’s taskforce for the auto industry has spoken, and GM Chairman Wagoner has been fired. Don’t believe all the rhetoric about how great a job he’s done over the past years. He was clearly viewed as a problem in the restructuring of the US auto industry. So, he was summarily pushed aside. And, don’t forget that Wagoner presided over the demise of GM as we knew it.
So, the government is stepping in and is wanting concessions from the GM bond holders and the unions. The government is threatening bankruptcy to get these concessions. Under Wagoner’s plan, the bond holders would take a 15% loss on their bonds, but the government is saying “that’s not enough!”
My conclusion is that the government is playing TOUGH, and in my opinion, that’s GREAT. GM needed a swift kick in the pants, and just got it.
As an aside, why didn’t the government play TOUGH with AIG??? I suspect it was because then Senator Obama was the largest recipient of AIG money for his campaign. The complete difference in approach makes you ask these hard questions. Not only were the Wall St financial organizations given a pass, there was no special financial industry panel created like there was for the auto industry. I wonder why???
Dinner Conversation Tonight…..
Could there be another financial bombshell coming down the road??? Let’s look at Commercial Real Estate mortgages. This is a multi-Trillion Dollar market, and a lot of loans come up to payment in the next two years. So, what’s the problem? Well, the problem is that in our current environment, these loans won’t be able to be refinanced – as was the original business plan when the loans were first taken out.
What does that mean?? It means an ever increasing default rate on Commercial Mortgages. The trickle of bad commercial loans is already starting, but what happens if it melts down like the home mortgage market did?
It will bring another batch of bad debts being held by our big banks, and that will mean another crisis in our credit market.
So, the question for you tonight is “Will the government have enough money to bail out the commercial real estate market too?”
Here are the last numbers for today:
Dow Jones 30 Industrial – 7522 (down 254 points)
10 Year Treasury Bond – 2.71% (down 0.05%)
Euro – $1.3189
Gold – $918 (down $8)
Oil – $48.41 (down $3.97)
Gasoline – $1.38 (down $0.11)
