Wednesday, October 01, 2008

Congress chats, markets take off

Not the credit markets, though.

On Monday, the Dow Jones index plunged 778 points but yesterday it soared 485 points even though nothing changed. One of the fundamental concepts of economic theory is that markets accurately reflect the actual value of the item being traded. But it is hard to believe that the true value of companies as solid as Boeing, Disney, Pfizer, and Wal-Mart can change by nearly 10% in a few hours.

The Senate is likely to vote on a revised bailout bill today. It will probably have sweeteners for various groups, such as an expanded FDIC limit to protect depositors and make them less likely to cause a run on a bank. Such a bill, however, may draw new opposition in the House. Didn't Abraham Lincoln say something like: "You can please some of the people all of the time and all of the people some of the time but you can't please all of the people all of the time"? This bill is definitely not going to please all of the people. It is being microscopically crafted to please 51 senators (or 50 senators plus Dick Cheney) and 218 representatives. But other plans are being circulated. For example, billionaire George Soros is floating a plan in which the treasury would recapitalize the failing banks by having them issue new stock that the government would buy at the market price. This scheme means that the stockholders of failing banks would have their stock watered down but the stockholders in banks that don't need assistance would be unaffected. Various alternative plans are also being suggested and opposition to it is still strong among conservatives.

A pretty fair assessment by The Votemaster there. While Congress dithers, the economy burns. Here's an observation from one sector, automobile sales: people with good credit scores are being offered car loans at 9 and 10 percent, while nearly no one else is getting financed at all:

“It frankly has become a nightmare for dealers and consumers who need a vehicle,” said Art Spinella, CNW’s president. “This is the worst we have seen it since we’ve been tracking it since 1984.” ...

But Mark LaNeve, head of North American sales for General Motors, estimates that G.M. is losing 10,000 to 12,000 sales a month because of tighter lending practices.

“It’s a bigger problem than $4-a-gallon gas,” said James Press, a Chrysler vice chairman. “We have buyers coming in, but they can’t get a loan.”

Detroit is bracing for particularly bad sales numbers for September. According to estimates from, Chrysler sales may be down as much as 36 percent, G.M.’s may drop 23 percent, and Ford Motor Company sales could be down 25 percent.

Even Japanese automakers, which specialize in fuel-efficient smaller cars, are expected to record a rough month, with Toyota projected to be down by 17 percent and Nissan by 11 percent.

Last week the largest association of Chevrolet dealers in the country, Bill Heard Enterprises, shuttered its dealerships including its 7th-largest-in-the-nation Landmark Chevrolet in Houston.

And we all look forward to what October -- one of the historically worst months for the markets, and business overall -- will bring.

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