My faves for the day (11-13-08)
“What happens if the Big 3 go into Chapter 11?
Consumers will be even more hesitant to buy Big 3 autos, due to warranty concerns.
Hundreds of part suppliers will likely go into Chapter 11 within 60 days (this could even hurt the transplants, who sometimes use the same suppliers) as their pre-filing accounts receivable will be frozen. There will be a chain reaction across numerous sectors of the economy (steel, tires, electronics).
Massive job cuts will occur, following the major job cuts that have already occurred. Whole communities would quickly become waste lands. Ohio and Michigan will take an incredible beating, after a decade of beatings. Ugh.”
RW: And then…. The Bankruptcy of GM
“We don’t like to let financial firms go bankrupt because bankruptcy shuts down their business. Buying and selling financial assets is what they do, and bankruptcy requires that financial claims be largely frozen while the court sorts it out.
By contrast, there is no good reason not to let non-financial businesses go into chapter 11. They keep running–as businesses–and emerge from bankruptcy or do not.”
“Outside of a 401(k) or 403(b), one disadvantage of stock index funds is that you’re taxed on realized capital gains as they arrive, whereas if you buy and hold individual stocks, you can postpone the capital gains tax. Because of compound interest, this can make a big difference. For example, if you face a 50% tax rate assessed every year on the gains from your 6% return, after tax you’re re-investing 3% for a 20-year cumulative return of [(1.03)^20 -1] or an 81% total return. On the other hand, if you can hold that 6% as unrealized capital gains and only pay the 50% tax when you sell, you’ve got 0.5[(1.06)^20 – 1] = 110% total return.”
A: (MIT Sloan School of Management professor and former IMF chief economist Simon Johnson) The big mistake made in the U.S., was to create a crisis of confidence by not saving Lehman and saving A.I.G. Now you have to focus of restoring confidence. In Western Europe they didn’t understand the vulnerability (of) the banking system. Owning up to those mistakes and coming up with coordinated responses — which include emerging markets – is important.”
Originally published on November 13, 2008 at News N Economics and reproduced here with the author’s permission.
One Response to “My faves for the day (11-13-08)”
I love your faves of the day. They are very interesting