It's no secret to anyone who has read this blog on a regular basis that I've been pushing for GM to declare bankruptcy for months now. The reason being that I felt that the bailout and restructuring efforts were just prolonging the inevitable, and because I believed that it was the fastest way to separate the good parts of GM from the bad. While some may see this as a dark chapter in GM's history, I personally feel that it's really just the first step towards the company's rebirth.

However now that the bankruptcy is moving forward the question offered is: will GM be used to service the interests of the various stakeholders in the company, or will they instead work together and focus on what needs to be done to make the company profitable again?

Just think about it: GM's problem as a company was never it's ability to sell cars, as for nearly all of its history prior to the bankruptcy it always sold more cars than anyone else in the U.S. if not the world. Instead their problem was that their overall operating and capital structures prevented them from being able to sell cars efficiently, due to having service a myriad number of liabilities, labor costs, excess dealer capacity, costs related to unneeded manufacturing capacity, etc. The problem was never cars that people didn't want, fuel efficiency, reliability, styling, etc, instead it was always efficiency. This is not to say that fixing those problems wouldn't help, but to say that the company would've been profitable in spite of them if it had been structured properly.

Money can hide a multitude of sins and the problems that destroyed GM were problems that always existed, but were simply being hidden/subsidized by the company's hey day when it had a multiple of its current market share, SUV sales were higher, the economy was stronger, etc.

In other words the Obama Administration and the UAW have to make profitability their ONLY objective, not green cars, saving jobs or any other socio-political goals. Because only when the company is profitable will it have the muscle to focus it's efforts on green cars, higher fuel efficiency and job creation. Otherwise GM will turn into a de facto GSE that is used to service a myriad number of social-political interests, and the end result will not be pretty.

After all just look at what happened with the mortgage GSEs.

When tackling the problem of fixing GM the Obama Administration and the UAW need to ask themselves the following: companies like Honda, VW, Subaru and others have run profitable automaker operations in the U.S. despite selling a fraction of the number of cars as GM, so how do we structure GM in such a way that it doesn't need to have 40% market share to be profitable, and could instead be profitable with say 7-10%?

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

Much has been made over the sweeping changes being forced on the credit card industry by the Obama administration, with the overriding feeling that the changes will make things easier on consumers. While I don't dispute the fact that the new laws will have some positive effects, I contend that the real problem is that consumers simply don't understand how credit cards (or any of kind of consumer debt for that matter) truly work.

The problem isn't really how the credit card companies treat their customers, it's the lack of education on the part of consumers. No bank can take advantage of an educated consumer, and the consumers who "fell victim" under the old laws will continue to face issues under the new ones.

A classic example of this is an article that came out a few years ago where a Harvard Law Professor discussed how none of her students could find the APR on numerous credit card offers, with the implication being that if her Harvard Law students couldn’t find the APR then how could the average person? Here is the rub: credit card offers don't often provide the actual rate, instead they provide you with information on how to calculate the rate. They often give you a "margin amount" that you add to the prime rate to figure out the actual APR, ditto for situations where you miss a payment or commit other infractions that would cause your APR to go up. E.g. if the prime rate is 6.0% and the margin is 8.2%, the APR is 14.2%.

The same article claimed that credit card companies trick their customers by moving around the date that the payment is due, when the real truth is that the payment is usually just due after a fixed interval of a certain number of dates, and the date changes due to the fact that not all months have the same number of days. Either way the customer wouldn't have to worry about the date "moving" if they simply read their credit card statement every month, the real problem is that they assumed the payment was always due on the same date.

In other words while you can legislate changes that will make things easier on the customers, the fact remains that without education you're not truly solving the problem. Credit card agreements are always going to contain quite a few gotchas, and if people don't read and/or

understand the agreements they have with the card issuers they're going to run into problems

It's analogous to trying to fix the problem of fatal car accidents with an increased number of safety devices, when the real problem is bad drivers who don't wear their seat belts.

So while the efforts of the Obama administration will help things a bit, they won't solve the core problem.

Toyota's profitability issues seem to be a classic case of "money hiding a multitude of sins", as their success caused them to abandon some of the company's key values with respect to efficiency, keeping things simple, etc. A WSJ article I blogged about a few months ago covered some of these issues, especially with regards to various aspects of the manufacturing process that  were really instances of "engineers at play", more so than adding value and efficiency. All of this leads me to believe that the economic downturn will actually benefit Toyota in the long-run, as it's forcing them to confront various internal issues before they become even bigger problems down the road.

Overall Toyota's problems seem to be more of a case of needing to remove some bad apples from the system, as opposed to widespread systemic problems that require a re-visioning of how they company does business. In short: I view Toyota's problems as nothing more than short-term hiccups, which will probably benefit the company by forcing them to adopt a more disciplined decision making process moving forward. As a result I think that they should be able to return to profitability relatively quickly.

Toyota may very well be a classic case of a company's short-term problems allowing investors to pick-up their stock on the cheap.

Disclosure: while the author didn't own a position in any of the companies mentioned in this article at the time of publishing, he is considering investing in the companies or sectors mentioned in this article. In keeping with the typical rules around investment timing and disclosure, any potential investments would occur 10 trading days after the original publishing date and the position would be disclosed in future articles discussing the relevant companies. The ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

This is an old WSJ graphic but it's still interesting and worth discussing, as it depicts the historical savings rate going back to the early 80s:

Graphic courtesy of the WSJ

So one of the constant refrain during this downturn has been that "we need to get people spending again", in spite of the fact that a lot of consumers are overleveraged and aren't saving enough. The basic idea being that in order for the economy to grow people need to "spend like it's "2006 ". It goes back to the theory of "the paradox of thrift", which puts forth the idea that while saving may be good for individuals it's not good for the economy overall.

However when we look at the historical savings rate we see that people can save a lot more than they do now and the economy can still be strong. This suggests that what we really need is to reduce unemployment and get more people spending, as opposed to getting people to spend more at an individual level. The solution is increasing the number of participants in the economy, as opposed to the majority of individuals spending all of their disposable income.

Unfortunately becoming a nation of savers is easier said then done because our economy is (for all intents and purposes) structured in a way that it depends on us being a nation of wild spenders as opposed to rational savers. Several industries ranging from automotive, real estate, retail, etc, have been generating their growth over the last 20+ years from people overspending, as opposed to spending within their means.

The adjustment won't be easy, but it's a necessary part of creating a sustainable economy, as an economy based on being a nation of spenders isn't sustainable.

IF the Obama administration really wants to stimulate the economy in a sustainable fashion, they really need to put some thought around how to incent savings and other smart financial decisions. As opposed to the usual pattern of trying to incent people to spend money.

The graphic comes from a WSJ article that discusses the potential for the beginning of a trend where the savings rate continues to increase even after the economy recovers, which you can read in full here.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

All that being said: while the bankers and MBAs deserve a lot of the anger that is being directed at them, let's not forget that this crisis is truly a perfect storm of bad decision making on the part of corporations, bankers, politicians AND consumers. One of the things that continues to concern me is that so many people view this crisis as something that the bankers "did to the country", and are ignoring the role that other actors played in the crisis.

I say this because we're not going to prevent future crises if we only focus on one aspect of it.

I took a brief hiatus from blogging to recharge and focus on some other things for a bit,  and I'm now "back on the scene" as the saying goes. I'm going to post a few things today, and return to the usual posting frequency after the holiday.

William K. Black was one of the chief banking regulators during the S & L crisis, and in a recent interview with Bill Moyers on PBS he makes a very strong case that our financial system has become a de facto Ponzi scheme. A Ponzi scheme that was enabled by deregulation, and that is currently being propped up by the rescue efforts of the Bush and Obama administrations.

Needless to say he pulls no punches when it comes to his opinion on how the government is handling things.

While the interview is both disturbing and arguably inflammatory it's hard to argue with the man's logic, my suggestion is to either read the transcript and/or watch the video and decide for yourself.

You can also read more about Mr. Black here.

As for my opinion? A long time ago I had a independent mortgage lender as a client, a company in the vein of companies like New Century or Accredited Home Lenders. About two weeks after starting with the client the CFO was walking me through how their business worked, in terms of originating mortgages, securitizing them to raise cash for more loans, etc. About five minutes into his presentation I realized that the company was running cash negative and was only profitable on paper, but those paper profits were largely hypothetical and may never be realized in a tangible sense. About ten minutes I remarked: "So wait, your business works like a Ponzi scheme?". *Note: this was when I was very young and had a habit of saying exactly what I was thinking in business situations. It's really not a good idea to accuse your clients of running Ponzi schemes.

The CFO's response? "Um, well, I wouldn't exactly characterize it like that, we're running a legitimate business here that provides real value to its customers."

Do I need to say anything more than that? 

Kudos to my friend "Jest" for bringing this one to my attention.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

Courtesy of Economist.com here is a graphical look at unemployment rates around the globe:

Graphic courtesy of the Economist.com

(From Economist.com): "U NEMPLOYMENT is accelerating in many countries as companies shed jobs in an attempt to survive the global recession. On Tuesday April 14th, Russia's president Dmitry Medvedev said he was “deeply alarmed” that unemployment levels were rising more rapidly than forecast, to reach 8.5% in February. This week Greece announced that unemployment had risen from 8.9% in December to 9.4% in January. Spain's economy has crashed since its housing and construction boom ended. In four months unemployment rose nearly three percentage points to stand at 15.5% in February. Countries in severe financial trouble, such as Latvia, Iceland and Estonia have also seen rates rise rapidly."

One the things that concerns me most about rising unemployment in the U.S is that many of the people who've lost their jobs are going to find themselves underemployed in the future. Many high-paying manufacturing jobs are gone for good, white collar workers may find themselves dealing with a lower pay scale on an on-going basis, and many employers aren't going to "give back" the mandatory pay cuts imposed on many workers. As a result I anticipate lower consumer spending, consumer confidence, etc, even after the official unemployment rate returns to pre-crisis levels.

To be sure we saw some of this after the last recession and it was one of the factors that led to the increased use of consumer credit, as more and more consumers used credit as an income supplement. In a post credit bubble world credit will be harder to come by even after the financial sector recovers, which should only serve to exasperate the declines in consumer spending the pain felt by the retail sector.

Either way the true pain caused by rising employment will continue to be felt even after the economy recovers.

Sources:

Economist.com: "How the recession hurts" -- April 15, 2009

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.  

I figured that this comic was apropos to some of the recent discussion topics around business failure:

Tying it in more directly to the current economic crisis: I think that one of our biggest problems is that few people at the "controls" (politicians, executives, policy wonks, etc) are willing to accept that the world has changed, and that many of their usual assumptions are wrong. What else can be said when many of the "rescue" efforts seem more aimed at rolling back the clock to '06, than they are at forging (or helping people adjust to) a new economic reality?

In yesterday's blog post around business failures I discussed how failing companies often get into patterns where they become more interested in "defending the religion of their business model", instead of making the changes they need to make in order to survive. One of the consequences of this is that the company begins to punish those who try to innovate and change the company, while rewarding those who celebrate the status quo. This dubious business practice creates a double edged sword that destroys the company by encouraging the very business practices that are destroying the company, while simultaneously chasing away the agents of change who can save it.

So as one of my readers asked this morning: "How do you reward innovation and punish stagnation?"

One of the answers to this question resides in a situation that practically anyone who has worked in an organization has been exposed to: you're trying to accomplish a particular goal/objective/etc, and are unable to because of some sort of impedance that is intrinsic to the way the organization operates. Maybe it's the way your distribution network is set-up, the way the sales force operates, etc. Everyone in the room knows what the real problem is, but you also know that speaking up about is a bad idea from a political perspective, or that perhaps management won't support you in removing the impedance, etc.

I.e. the organization's top level leadership s too busy defending the religion of their business model to do their real job, removing the barriers to success standing in the way of the people below them.

So what does everyone do? They think of ways to mitigate or work around the part of your organization that is holding them back, because removing the impedance is a non-starter. I've had first hand experience with this, because I once worked in a marketing organization whose sole mission it was to mitigate the aspects of the company that led to sub par products, an ill-prepared sales force, the wrong approach to selling particular products, etc. 

So how do you combat this problem within an organization?

The easy answer is that you have to send the message that nothing is sacred, and that the goal of the organization is to perform at the highest level possible, not to defend, perpetuate or preserve the current way of doing business. Continuous improvement should be one of the organization's key missions, and all managers should be incented for regularly thinking of ways to refine, tweak and evolve the company's business model forward.

Finally management has to send the message that one of their key missions is to enable the people below them to be successful. In other words: if there is something about the way the company is currently doing business that is making it hard for people to successful, they should have no fear about speaking up about it, and they should feel that if they will be taken seriously if they present valid alternatives to the current way of doing business.

Of course it goes without saying that all of these things are easier said than done.

I could easily write a book about this topic as I have many ideas on it and well, thinking about these sorts of issues is basically what I do all day. SO, I plan to write an on-going series of blog posts on this topic. Once a week I'll either post a real world example of something I've done to encourage innovation, or some general ideas on same.

Next time I'm going to discuss the issue of trust and how to get your managers on your side when you're trying to incent innovation, the idea is simple: the mere offering of carrots doesn't necessarily mean that will people will eat them.

I recently discovered a blog on the Financial Times' web site written by Don Sull, a former  management consultant who is now a professor at the London Business School. In a recent blog post he discusses five myths about business failure in a downturn:

(From the Financial Times): "Many companies are suffering in the current recession, and their leaders blame their struggles on the financial crisis.  Many of these explanations are too simplistic. Below are five myths about business failure in a downturn to watch out for.

Myth 1: The downturn caused our problems. For most industries facing serious problems right now, including big losers like automobiles and print media, the recession is not the ultimate cause of their suffering. Instead the downturn reveals (and aggravates) fundamental flaws in their business model. When the tide goes out, as Warren Buffett famously observed, you find out who has been swimming naked….

Myth 2: Companies fail quickly. Companies make the news when they abruptly file for bankruptcy. While firms file quickly, they fail slowly. As a junior consultant at McKinsey twenty years ago, I remember a presentation to a Detroit automaker highlighting many of the problems that plague the industry today, including poor product quality, high cost structure, and slow response to shifting consumer trends. The executives did not respond with indignation or denial, but indifference. One manager dismissed the report by saying “there is nothing new here.” That was in 1988….

Myth 3: No one saw it coming. If by “it” people mean the current recession, this is true. But the downturn is the proximate rather than the ultimate cause of most business failures...

Myth 4: Things will return to normal after the downturn. Successive cohorts of executives in the automobile and airline industries, among others, have consoled themselves and appeased their investors with this myth. In many realities, the situation is likely to be worse, and stay worse after the downturn. Consumers and corporations do not stop spending altogether in a recession, but they do seek out value for money. As a result, they are more likely to move away from companies that offer poor value for money and experiment with alternatives….

Myth 5: It couldn’t happen to us. Some executives resort to Schadenfreude to lift their spirits in a downturn. To feel better about the woes in their industry, book publishers snicker at newspapers, and even print executives can look down on their unfortunate counterparts in the music industry. In reality, leading companies in many industries, including law firms, pharmaceuticals, fast moving consumer goods, and executive education among others, are persisting in very flawed business models, even if the severity of their problems are not yet apparent to everyone…"

You can read more here.

The other day I was speaking to a former direct report of mine who is still working at a company I left back in '07, a company that is slowing dying due to not addressing a multitude of issues I first brought to the CEO and COO's attention over three years ago. The response I got was similar to what Don's colleagues received along with: "But that's how we do business", "well that's never going to change", etc. Even when facing the negative consequences predicted by a presentation I put together the company's approach was to try and find a way to maintain the current business model, as opposed to scrapping it, implementing the changes I suggested and creating a business model that would enable success.

Even now as the company is facing its potential demise, the company is only begrudgingly starting to do "some" of the things that myself and many other talented managers suggested during our tenure at the firm.

I've encountered these situations many times over the course of my career and often chalked them up to stupidity, being short-sighted, laziness, etc. But after reading Don's blog post I'm beginning to wonder if it's really a case of "defending the religion of the current business model" .  In other words Sr. Management is more interested in defending the current business model, company practices, etc, than they are in making the wholesale changes that would save the business.

It's as simple as not having the intestinal fortitude to say: "everything we're doing is wrong, the way I know how to run this business is wrong and I now must learn a new way in order for the company to survive". Many struggling companies know what their true problems are, have been presented with all the advice it needs to survive, etc, they're just unable to act on it due to the inability of management to admit that they're wrong. It's a case of a company not being able (or being unwilling) to turn the microscope inwards, recognize it's faults and engage in a process of continuous internal improvement. In other words: the problem is mostly psychological as opposed to being a function of their ability to innovate, recognize problems with their business, etc.

How else can you explain the fact that many troubled companies put the blame on everyone but themselves, are slow to change the way they do business even in the face of bankruptcy, and seem primarily more interested in finding a way to prolong the old ways as opposed to forging a new one? It seems like that once a struggling company gets to a certain point in its failure arc, it's ability to turn things around more a function of psychology than anything else.

Finally: I think the other issue (in my experience at least) is that in some cases managers who are actively trying to implement changes are punished, while those who celebrate the broken business model are rewarded. Thus creating an environment where change can't happen because people are being incented to prevent it.

As the saying goes: "you can't make a change/get better until you admit you have a problem".

Sources:

The Financial Times: "Five myths about business failure in a downturn" -- Don Sull, April 15, 2009

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

For various reasons I've never been too keen on writing one of the ubiquitous "10 reasons why stock ABC is going to $50.00" articles, primarily because I like to provide unbiased information in terms of not having an interest in the companies I'm writing about. Hence the reason my articles tend to revolve around the companies I don't want to invest in, as opposed to the companies I actually trust with my money.

Still, there is something to be said for sharing the areas that I'm currently researching and at least pointing my readers towards the companies I like. So I'm going to start posting "Investment Ideas" in terms of discussing broad sectors or groups of companies I'm interested in, and briefly discussing the reasons why I'm considering investing in a particular sector, company, etc. I think it's a happy medium from writing explicit celebrations of the companies in my portfolio, and sharing some good ideas as well.

For the first go round I figured I'd look towards our northern neighbors for some investment ideas:

Canadian Banks: to be sure it's getting to the point in the financial sector where you could argue that any bank that isn't losing money and/or isn't in need of cash infusions from the government, private investors, etc, is a potentially good investment. It's a simple case of placing your money with the people who made the fewest mistakes during the credit bubble, because chances are they're going to be the ones to recover first/the fastest.

The banks of our Canadian neighbors are a good example of this as they have quietly fared considerably well during the recent crisis, as was discussed in a recent Bloomberg article:

(From Bloomberg.com): "Canadian banks have remained profitable, outperforming their peers, because of tighter government restrictions on lending and capital requirements. The country’s six biggest lenders reported less than C$20 billion ($15.7 billion) in debt-related writedowns since the credit crisis began in 2007, about 2 percent of the $887.1 billion recorded by banks and brokerages worldwide...

...While New York-based Citigroup Inc. lost $17.3 billion in the fourth quarter, San Francisco-based Wells Fargo & Co. had a net loss of $2.55 billion and Bank of America Corp., the biggest by assets, lost $1.79 billion, Canada’s six largest banks were profitable in the quarter ended Jan. 31, and each beat analyst estimates. "

To put those numbers into greater perspectives Citibank's wrote down about $18 billion around Q3 of '07, or $3 billion more than Canada's six biggest banks have over the past 2+ years. If that's not a clue to start looking into Canadian Banks as potential investments I don't know what is.

Especially when you consider that their recent earnings performance is legit, and not the result of bailouts and other chicanery.

But it's not just their overall performance that attracts me to the Canadian Banks, it's the fact that the regulatory environment and Canadian approach to banking have protected them from a crisis that is eviscerating the rest of the world's banks. As a result even though the weakening economy will have an impact on them, they're much better positioned to weather the storm and come out strong on the other side.

As always do your research first and look out for the same warning signs you would with any other banks, still the fact that the Canadian banking sector has held up so well suggests that there are probably some good financial investments north of the border.

Finally the performance of the Canadian banks really needs to be considered as our own nation looks at changing the way we regulate the financial sector. Namely: regulation shouldn't be seen as an impedance to innovation or growth, but as a way protecting our economy and financial systems. It's a simple choice: do we want to have moderate growth and a financial system that is able to easily weather a crisis, or do we want strong growth and a financial system that falls into disarray when major shocks hit it?

If you ask me the obvious choice is the former because the current crisis has easily destroyed much of the growth fostered by the lax regulation and so called "innovation" of the credit boom.

Sources:

Bloomberg.com: "Royal Bank, Scotiabank Climb Ranks as U.S. Banks Fall" -- Sean B. Pasternak, Doug Alexander, March 16, 2009.

Disclosure: while the author didn't own a position in any of the companies mentioned in this article at the time of publishing, he is considering investing in the companies or sectors mentioned in the future. In keeping with the typical rules around investment timing and disclosure, any potential investments would occur 10 trading days after the original publishing date and the position would be disclosed in future articles discussing the relevant companies. The ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

The recent earnings trend for the big banks has been big earnings surprises, with the obvious suggestion that the financial sector is recovering, the economy is coming back and the government's intervention efforts are working.

Right?

Not Quite

(From Barons): "The question naturally arises: How did the banks, so many of which seemed to be slouching toward extinction, get their act together to the point where they were in the black in January and February?

In search of an answer, we turned up an intriguing explanation for this magical metamorphosis by Zero Hedge, a savvy and punchy blog focusing on things financial. Not to keep you in suspense, Zero Hedge fingers AIG , that repository of financial ills and insatiable consumer of taxpayer pittances, as the agent of the banks' miraculous recovery.

But not quite the way you might think. As Zero Hedge explains, AIG, desperate to hit up the Treasury for more moola, decided to throw in the towel and unwind its considerable portfolio of default-credit protection. In the process, the badly impaired insurer, unwittingly or not, "gifted the major bank counterparties with trades which were egregiously profitable to the banks."

This would largely explain, according to Zero Hedge, why a number of major banks actually, as they claimed, were profitable in January and February. But the profits, it is quick to point out, are of the one-shot variety, and, ultimately, they entailed a transfer of money from taxpayers to banks, with AIG acting as intermediary."

Now am I saying each and every bank reporting an earnings surprise is really just the beneficiary of the AIG bailout, or is just reporting a tax payer funded single quarter earnings anomaly? Not necessarily, just saying that you should scrutinize the bank's earnings VERY carefully and that you should wait to see a multi-quarter trend before celebrating or hopping on the "the recession is almost over" bandwagon. Better yet, it's a perfect example of the need to always heavily scrutinize earnings reports.

A virtual "fist-bump" to Barry Ritholtz's Big Picture Blog for bringing this one to my attention; you can read more from Barry on this topic here and the original Barron's article here.

Barrons.com: "Don't Bank on It" -- Saturday April 18, 2009.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

NPR's "This American Life" ran a fascinating episode a few weeks ago that discussed the ways  that the recession is impacting real life people, ranging from people who own condos in a building that is unfinished and abandoned by the developer, a look inside a FDIC bank take over and the experiences of Circuit City employees during the company's final days.

Too often we view the recession (or the economy) in broad Macro terms, and these micro looks are useful as they show us how the recession is actually impacting every day real life people.

You can listen to the program online here.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

The usual mixture of news stories and other tidbits I think you may find interesting, today's edition is primarily composed of item from last week with only a couple of items from this one. 

Let's start off today's mix with some humor, namely Stanley Bing's offer to sell some of his toxic Assets to the Treasury. In keeping with this theme I would like to sell the treasury some of my used cassette tapes from the 80s that I feel are simply undervalued in the current economy, for I am confident my Bon Jovi, Def Leopard, and White Snake tapes will all be worth billions some day. At least that's what my valuation models tell me.

Here is a look at the news that the Treasury is instructing GM to prepare for a "surgical bankruptcy". I won't say much about this one since nothing is official yet, except to say that the old model is dead, the Government can't support GM indefinitely and the company would be wildly profitable if it could free itself from its myriad liabilities. At this juncture bankruptcy is the only option that will allow the company to make this happen, and while it may be unpleasant it's better than keeping the company on life support while waiting for their ill fated restructuring plans to work.

Despite a law that was designed to curb bankruptcies, filings have been surging in recent months. I suspect that the reason for this is that creators of the law didn't quite understand why people file in the first place, in terms of it being more driven by unfortunate life events than irresponsibility with debt per se. The other issue is that some people are so overburdened with debt that they are probably able to file in spite of the law, even if the primary cause is in fact the very irresponsibility the law was designed to prevent.

Here is a look at the some of the changes Chase is going to make to their WAMU branches , in particular they're removing the "customer friendly" elements of the branches and implementing a more traditional branch layout.

As a WAMU customer I can't say I support this move, as the customer orientated layout and the overall emphasis on customer service was something I liked about WAMU. When a Chase executive claims that the traditional layout is superior in every way, I think he's missing the point as far as what WAMU a leader in customer service. In an era where people generally hate banks, I think it would be wise for Chase to find a happy medium between WAMU's friendlier branch layout and the more efficient traditional layout.

In general the banking industry needs to stop acting as if it's doing its customers a favor, and start acting as if they truly want our business.

Looking at car sales woes across the pond: there is a recent trend in Britain where used cars sometimes cost more than new ones, due to the amount of incentives that are being used to sell new cars. I know I keep harping on this but the Auto Industry needs to step back for a minute an ask itself a fairly simple question: "Has any other industry gotten itself out of trouble by selling its products for deep losses, especially during a time of economic difficulty?"

Here is a look at a NY Times sector snapshot for the Insurance Industry.  

A NYC lawyer has committed fraud that while a fraction of the size of Madoff's, was undoubtedly several times more "Brazen" according to Fortune Magazine. It's definitely an interesting read, particularly as we enter an era where more and more of these types of frauds are going to be discovered.

Here is a link to a section of the Financial Times web site that is dedicated to the situation in Detroit. I don't have much more to say on the subject for now I just hope that the Chapter 11 plans move forward, and that everyone involves recognizes the fact that GM & Chrysler can be very profitable if you are able to separate the good parts of the company from the liabilities that are dragging them down.

Speaking of Detroit: here is a look at the real life economics around the proposed government plan to pay bonuses to people who trade in their gas guzzlers/clunkers/older cars, for newer more fuel efficient American cars. It turns out that in many cases it's cheaper for the person to keep their current car, either due to the bonus being less than the trade-in value and/or it being cheaper to keep the old car than to take on the debt from a new car purchase.

In the end I think that this program's success will hinge on people buying into it more from a psychological perspective than a mathematical one. Still, I have to say that it's a bit disturbing to see a government program that is basically trying to incent people to make bad financial decisions.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.