When a promise is just words....

President Obama is talking tough on the auto industry issues. According to the NYT report,
"President Obama delivered an ultimatum to General Motors and Chrysler on Monday, telling them to adopt radical changes in short order or face bankruptcy — a move that came after a series of somber discussions in which he concluded that a controlled bankruptcy might be the best way to reorganize the two ailing auto giants. In the end, the president decided to throw the companies a short lifeline. He gave G.M. 60 days and Chrysler one month to avert bankruptcy and restructure on their own. But during that period, Mr. Obama warned on Monday, the automakers will have to drastically reshape their businesses in a way that experts say will severely shrink them. For G.M., the president’s decision means not only the loss of its chief executive, Rick Wagoner, who was forced out as part of the deal, but also some tough negotiations with the United Automobile Workers and bondholders, who have thus far balked at the company’s demands. Now the union will be asked to make even bigger concessions on a new wage and benefits contract and health benefits for retirees. The bondholders will most likely be forced to accept a deep discount on the price of their debt as well as agree to take G.M. stock in lieu of debt repayments."

One can understand bond holders taking a bath. After all, bond holders risk their principal for a return. Suppliers also take a risk when selling and receiving IOUs. But the retirees who worked at GM were promised pensions and/or health insurance. While Rick Wagoner and other management personnel shovel away millions (Rick is getting $23 million in payments after getting fired) the retirees are asked to take on a burden when they are no longer working. Obama is in fact encouraging this breach of promise, saying that the automakers have to be lean. He has not said that management needs to be hacked and paid a lot less, but has said that, in effect, the workers have to agree to lower wages.
The moral fabric of the country is being ripped apart. More frustration, and violent reactions, are to be anticipated.

Some stuff doesn't change

Obama is making a big deal out of the announcement that Rick Wagoner of GM is stepping own. Mr. Wagoner will not receive a severance payment but instead will get a pension and other benefits worth about $23 million, to be paid in installments over the rest of his life, according to Equilar, a compensation consulting firm. (NYT).
The government is going to assume the warranty expenditures...
And people keep claiming that the government is broken!.

Turkish Delight - Optimism

Reflecting on my trip to Turkey, I was struck by the optimism in the country. The businesspeople feel that there were not too many excesses, so they expect the downturn to be mild. Further, the older generation seems to be very positive on the younger generation, and the efforts being put into education. Education, of the kind that produces thinkers, scientists and engineers, will certainly help the country progress and prosper. I did not come across anyone who wanted to major in finance.

A great trip to a great city and great country. I am looking forward to another trip to Istanbul.

It's called Gambling in Las Vegas, Investing on Wall Street

Betting, Investing or Gambling?

The words used to describe different activities (often with the same underlying principles) to make some appear more scientific or valid or legitimate than others is fascinating.
One example is to classify the financial activities as "Investing" and bets in Las Vegas as gambling.
As people have seen their retirement accounts shrink dramatically the question being is asked is about investing, and the advisors are recommending "long-term" investing. At its core, investing and gambling are not different, they are the same. One plays the game for entertainment. It should not be assumed that investing, short or long-term, guarantees principal, let alone return on principal.

Stocks: Is It Time to Start Betting on a Recovery?

Companies of all sizes, under financial pressure, are "retrenching on the 401(k) front," says Alicia Munnell, director of the Center for Retirement Research at Boston College. GroupGeneral Motors, (GM) Eastman Kodak, (EK) FedEx (FDX) and Sears Holdings (SHLD) are among the companies that have suspended their 401(k) contributions, according to the center.A survey released Wednesday by research and consulting company Spectrem Group says 29% of employers intend to reduce or eliminate contributions to "defined-contribution retirement plans" in the next 12 months.While the survey has a large +/- 8 percentage point margin of error, other surveys back up the dire forecast.A mid-February study by employment consulting company Watson Wyatt Worldwide found that 12% of 245 large companies have already cut their 401(k)/403(b) matches — and another 12% plan to do so in the next 12 months.Most workers are unprepared to fund retirement.Using data from the Federal Reserve's 2007 Survey of Consumer Finances, which was published before the financial crisis, Munnell pegged the median 401(k) balance for those approaching retirement at $60,000.Given the stock market turmoil, those retirement funds are likely only worth about $40,000 now, she says.