Saturday, March 21. 2009
Screwing the Taxpayers on the Other Side of the Atlantic?
Posted by Joerg Wolf in International Economics on Saturday, March 21. 2009
Welcome to the strange new world of the global financial crisis! Are US taxpayers now bailing out German companies like Deutsche Bank for their bad investments, while German taxpayers will have to pay the price for US companies hollowing out their German subsidiaries?
David Vickrey, who used to be a banker in Frankfurt and New York, writes about The Real Outrage: AIG Bailout Funds went to Deutsche Bank and quotes TV talk show host Jay Leno:
Now it turns out they gave $35 billion -- not million -- $35 billion of our money to bail out European banks. See, this is how a global economy works. Our hard earned tax dollars are used to bail out German banks for making bad investments.
David also wrote about the outrage on this side of the Atlantic. Germany has been discussing a bailout of car maker Opel for weeks, amid big concerns that the money would end up at Opel's parent company General Motors in the US. David translates in his blog post How GM Destroyed Opel a
pretty damning indictment in today's Die Welt by an 'anonymous insider' about how parent company General Motors hollowed out it's successful German subsidiary. According to this account, GM confiscated Opel's valuable patents and designs and then forced the German company to pay outrageous 'licensing fees' back to Detroit.
It now seems that some of those patents belong to the US government these days. Chancellor Merkel intends to talk to President Obama about General Motors and Opel during the NATO summit on April 3-4, 2009. That will be an interesting grand bargain with Afghanistan in the middle of it...
Imagine the chaos if intranational and international contracts are broken simply because of popular outrage? That seems to be what is at risk here with all this faux hyperventilating. BTW, doesn't GMC have the right and fiduciary responsibility to treat Opel as a cash cow if it is necessary? Especially since the reinvestment of millions in its Opel subsidiary after World War II does not make the company anything other than a part of the whole company not some stand alone division with only local liabilities.
Quoting from Jay Leno?
I hope Obama will not forget his teleprompter, cuz he only knows about hollywood movies, er ummm, I was told that he cancelled the forecasted visit to Omaha beaches with Sarkozy, because he finally preferred to meet the mayor of Dijon, Dijon mustard is his favorite
I don't know where we go, but we go straight into it
Depends on whether you prefer wine or cider, Marie-Claude.
If it were me I'd head for Dijon first thing if I were Obama. Actually a little south of Dijon, and screw the mustard. I'd be sampling the best agricultural products from the Cotes around there, then a side trip to the choicer parts of the Bordeaux area.
Good Calvados you can afford to buy for yourself, but the best French wine can cost anything. So better to let Nikko and the French State pay for a real luau! ;)
Not quite as Pres Sarkozy leaked a item that Pres Obama would meet him privately at some site near Normandy not at Omaha. The test will come this summer on the 55th Anniversary of D-Day.
yes, right,
seems he doesn't really like the war facts
Pat, are you kidding ? he doesn't like army, each time he can avoid to visit soldiers he finds an escuse, he is cutting down the vets budget, I bet he doesn'know what happened in WW2
Ok, aside from your impression I can only ask, based on what? Switching insurance systems doesn't mean a hostility to veterans and so far the only time Pres Obama has not visited soldiers was during his visit to Europe last summer when he didn't make a scheduled stop at Ramstein.
His first budget for Veteran's Affairs is a $15 billion increase and an extension of benefits to 500,000 vets that had been ineligible before. While the defense budget is increasing by 4% from FY 2009. Defense and veteran's affairs are separate items in the overall budget even though they work closely together sharing facilities and staff.
By all means pile on when Pres Obama actually does something stupid or wrong but not when its based on hunches.
a comment on PJM that I find accurate
"Obama’s real goal is not making veterans pay for healthcare. His target are the future officers and soldiers. Who would enlist knowing that in case you are injured you and your family will starve while paying the healthcare for injuries contracted on duty? Who would volunteer for Special Force or for learning the skills whose knowledge makes you likelier to be deployed in a war zone? Obama’s real goal is to cause a drastic reduction in numbers and quality of the US Armed Forces. His goal is to gut them and make America a paper tiger unable to oppose agression. That is his fianl goal."
Again that is an opinion piece, and a strikingly ignorant one considering how strong the veteran's groups are in the US, coupled with the fact that the idea of switiching to private coverage, which would have been paid for by the VA, has been dropped. Pres Obama may indeed be all things to all people but you still have not produced one piece of evidence to back up your original comment concerning budget cuts or visiting the troops.
Mr. Wolf also claims that Pres Obama is "gutting" the defense budget, offers no proof, and simply didn't even bother to check to see what the numbers were. An increase in funding is certainly not gutting anything and has actually only angered the left because they truly do want cuts.
sorry my teleprompteur doesn't work actually
http://www.youtube.com/watch?v=3hSnEMV58F8&eurl=http%3A%2F%2Fwww%2Eamericanthinker%2Ecom%2Fblog%2F2009%2F03%2Fhey%5Fbarack%5Fthe%5Fteleprompters%5Fd%2Ehtml&feature=player_embedded
So a request for a factual response ends up with a link to Youtube? Does that mean you were wrong on your original claim or are simply to embarassed to respond factually? I suspect both.
Pat,
Of course, we all want to encourage facts and links. But I happen to agree with Marie-Claude on this one, I think she has made a correct "read" of Obama's anti-military instincts.
Or, Obama's ignorance of military affairs. He seems to think that our anti-missile systems (SDI, Patriot, etc) were frozen in amber in 1991 (when they didn't work). But in 2004 they were very effective, against Iraq's improved (Chinese-inspired) Silkworm missiles. Also, Obama seemed to sincerely believe the "General Betrayus" (Petraeus) propaganda, to the point of accusing McCain, of all people, of all manner of deceit.
But the claim was he was anti-military and had cut the budget. Nothing was offered to support the former and the latter was simply untrue. As much as I may have an instinct I will not advance that opinion unless the president has actually done something to confirm that opinion. How can someone read and be taken seriously if the facts support a different view. As much as I think Pres Obama will be a disaster for the US so far he has done nothing to warrant the claim that he is anti-military. Being clueless to the capabilities of the weaponry we have is unfortunately not unusual in countries with civilian leadership.
Chineses innovating LMAO
http://online.wsj.com/article/BT-CO-20090320-715157.html
I sympathize with David's sentiment, but the probelm is that contractual obligation are obligations. If AIG had something outstanding with Deutsche Bank, I don't see a way around it.
Same goes for Opel. It might be owned by GM, but it's a German company and a German employer, and selling their product largely in the German market, so it's no more American than all of the individual German investors that will benefit secondarily from the bailouts in the US, or German-owned, US-based companies would.
pat's right. The rage over AIG(U) having to pay out on a call raises a risk of progressively decoupling the markets in the world economy from one another to the detriment of all.
Think about it: the reason Cuba and North Korea are doing so badly even in good times isn't the embargoes, it's the fact that they frequently don't pay or make good on credit. When term suddenly change, people don't do business with you, and it takes decades to get that good faith back.
Opel has been a sinkhole for GM for years. It appears now that they need $4.2 billion dollars to survive. But the real problem is that, even if we take at face value their claim of technically superior, they originally refused to make diesels for small cars and lost market share. They may now appear to make quality cars, at least according to the German press but not others, but they have lost market share steadily since the 70's and most damning is that their costs are 30% higher than France and almost 60% higher than other GM plants in Poland and Czechoslovakia. Which is more realistic, keeping the expensive plant running and making cars that people are not buying or using the low cost plants to make cars that people are buying?
The problem GM faced is that Opel cannot survive as a small car company because its costs are too high. And it can't compete against Mercedes and BMW in larger cars because it still has a bad reputation for quality throughout Europe and it is still, as in this day, making more cars than it can sell. GM has been losing money on Opel for years and now it appears they may be able to unload this turkey on the German government and get paid to do so.
Sorry, that should have read the Czech Republic. And a link to a 2005 article which points out that Opel's problems predate this recession and a lot of them are self-induced.
http://www.atlantic-times.com/archive_detail.php?recordID=122
Pat, the article actually states the opposite of what you claim he says :-)
Apart from the usual bullcrap about high labor costs and a rigid labor market, (yeah, yeah, no other country on this planet sells more to other people than us, but we're still not competitive, just cannot be competitive)
the article says that Opel did not participate in many of the big consumer-driven technical waves, like diesel engines. Truth is, it was not the Opel management in Germany not seeing it, it was the Yanks in Detroit who could not imagine that somebody would buy a cheap, fuel-efficient engine for a car. I must admit though, they did offer, as long as I can remember, butt-ugly cars:-)
I'm not too sure what article you are referring to but the Sigrid de Vries doesn't even use the word diesel in his article. Rather he points out that as early as 2005 Opel was already on the ropes, even with one good car the Astra, and that unless GM and the German government ponied up more money Opel would never catch up. The recession makes that hope moot.
While another article from last year, by Klau Justen, makes mention of GMs plans to rebadge the Astra as the Buick Regal but now the rumours are that Buick and Saturn, may go the way of Oldsmobile. Opel was selling some 40,000 of these rebadged cars in the US but losing over $3,000 on each sale. That is simply not the way to sell cars in the US as Renault and Peugeot found out when they aggressively cut prices before departing. The second article also makes no mention of diesels but does address one plan to build Opels in the US and then export them back to Germany. Which goes to show that executives in both countries were and are living in Cloud KooKooland. One further mention considering how long GM essentially adopted a hands off approach and Opel frittered away its brand name yet GM gets the blame for exercising its fiduciary duty to revamp the company so it was profitable, on paper, that one year before the sky fell.
http://www.atlantic-times.com/archive_detail.php?recordID=1150
"Oh those clueless yanks!" It's clear you aren't taking away the actualy gist of David's article, or the issue of how hands-off GM is about Opel. It looks like you're resorting to "old saw no. 127" about Detroit. The subject of Opel trying to extract monies out of the US government is the issue. Nice job avoiding it, Solipsist.
Now what is the gist of David's article? I can't see it, help me. Is it, that it is an outrage, that the US-regulated US-subsidiary of a European bank has bought US-Dollar denominated CDO's insuring it against the bets of US-hedge funds concerning US-mortgages, from a US insurance company, which is regulated by US-authorities? And now demanding that the insurance company is making due on their contractual obligations? Is that the gist? If it is, then I am sorry, I did not get it :-)
The article is a populist one, riding on the wave of some populist comments from a talk show host. The issue has happened thousands of times all over the world, over the last 2 years. Some clueless financial institution making a bet on something, then having to be bailed out by the taxpayer, with that money going somewhere into the coffers of another bank.
This is capitalism man, this is how it works:-)
Regarding Opel, you don't really believe that a US corporation (or any large corporation) does have a hands off approach with its largest subsidiary? Have you ever worked for, or dealt with global corporations? I did, and I have never, ever met one who did not. And GM was famous for messing with their European operations.
Now where can I find information about Opel wanting to have US-federal funds? This is news to me.
Pat, if you could read German you would know that Opel has been profitable since 2007. The big news in the German press is that it came out that Opel's profits were transferred to Detroit, while the company recorded a loss in Germany for tax purposes.
The Opel Insignia has been chosen the 2009 Euopean Car of the Year.
Also, if you could read the "insider report" I cited from Die Welt, you would know that many of Opel's bad management decisions were forced upon it from GM against the wishes of the German management.
I don't have any strong feelings one way or another about GM or Opel, but let's get the facts straight.
Well, the problem is that without the subsidy that Opel got during those "profitable" years Opel would have been shuttered years ago. In 2008 Opel reported a pre-tax profit of $198 million but at the same time GM had given them $1.8 billion of the then promised 5 year $9 billion subsidy to upgrade plants, keep Russelheim open and pay the further costs of Opel trying to catch up in clean diesels(yes, I realized the last is an oxymoron).
Awards are like that proverbial orifice everyone has one! Motor Trend named the new Ford Thunderbird as a Car of the Year just recently, as well as the Ford Probe GT, the AMC Renault/Alliance and believe it or not the Citroen SM. All cars that hit the market with a clank and disappeared from view hopefully taking the executives that approved them safely locked in the trunk.
Just in case anyone accuses me of Buy American or else I would like to point out that there are three vehicles in my garage. A 1985 Porsche Carerra, a 2000 Ducati 748(bought from the father of an 19-year old who crashed his birthday present into the back of the family garage) and a 1960 Ford F-150 truck up on blocks with a gun rack and a "God, Guts and Guns Built This Country" bumpersticker. No, no gun rack or sticker. The German car and the Italian motorcycle go like the blazes and the Ford fills the garage with smoke.
I don't see why AIG counterparties should be made whole with US taxpayers funds. By all rights, AIG should be bankrupt, so Deutsche Bank and its hedge fund clients miscalculated their counterparty risk. They should take a substantial discount off the stated value of their contracts.
Another outrage is the "Hedge Fund Loophole" in the US tax code, where hedge fund managers make their money in "performance fees" which are taxed as capital gains, currently 15%. The average household head in the US pays a marginal tax rate of 25%. So millionaire hedge fund managers are taxed the same as low income Americans.
On Deutsche Bank, German taxpayers should investigate the activities of Rhineland Funding - the securitization arm of IKB Bank. IKB collapsed and had to be bailed out by German taxpayers thanks to the activities of Rhineland Funding. Rhineland was set up primarily for the benefit of buying toxic securities packaged by DB in the US. DB hasn't had to pay back one Euro of the profits it generated through Rhineland. Evidently, the political will is not there to go after Germany's biggest bank on behalf of the German taxpayers.
The short and long term rates apply to small investors too. Will we need to start means-testing every taxpayer?
The larger question is how you differentiate an ugly big investor from a admirable and adventurous venture capital type that innovation needs? The outcome of any elevation of the long and short term capital gains tates are that they will disincentivise investment on the part of individuals. That would do us all no favors.
Otherwise look at Belgium, which has no capital gains tax at all, and doesn't treat the gains as income. It did quite a but to keep their banks from becoming the sole receptor of people's savings (at least diminishing the larger risk to the public), and kept capital flight down.
It's worth thinking about.
What do you think an insurance company is going to be seen to be if it chooses to selectively not underwrite some of it's subscribers? Come on now.
The bonusses you're whipped up about have nothing to do with the other notion you're linking it with that AIG shouldn't make good on its' contracts.
If you are comparing hedge fund managers to venture capitalists, you are sadly mistaken. One arbitrages the markets for short-term gain and the other helps create lasting value with an uncertain payout years down the road.
On the AIG counterparty payments to Deutsche and Goldman, I am pleased to see that some in the US Congress are asking the same questions I have:
“We would like to know if assessments were made of the health and total exposure risks of counterparties, such as Goldman Sachs,” they wrote, pointing out that Goldman Sachs had claimed it had no material exposure to A.I.G., but turned out to have received almost $13 billion during the rescue. “If such assessments were made, by whom were they made and what were the criteria guiding the assessments? Further, was any attempt made to renegotiate and close out these contracts with ‘haircuts?’ If not, why not?”
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