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    Daily Digest – May 19

    by Davos

    Tuesday, May 19, 2009, 3:00 PM

  • Debunking The Notion Of Too Big To Fail (Video)
  • Nixon Video, Ending Bretton Woods (Video From Nathan’s Economic Edge)
  • One Journey (Video)
  • How Is Chrysler Closing Dealerships? Not Nicely, And Maybe Not Well, Either
  • YoY CPI Drops Most Since 1955 (Chart)
  • Marc Faber on passing the baton to emerging economies (Video on page 2:20 point)
  • CRIMINAL: Hedge Fund Managers Bankrupt Companies, SEC allows it (Video)
  • Tanta’s Bench and Charity Update
  • Chasing The Shadow Of Money
  • Report: Smaller U.S. Banks need $24 Billion in Capital
  • The Worst Is Yet to Come
  •  A few A(H1N1) Links Dr. Henry Niman’s Map 6,094 U.S. Cases as of this wrtitng, A(H1N1) Current Timeline, CDC Cases


Debunking The Notion Of Too Big To Fail (Video)

Nixon Video, Ending Bretton Woods (Video From Nathan’s Economic Edge)


One Journey (Video)

How Is Chrysler Closing Dealerships? Not Nicely, And Maybe Not Well, Either

Readers are probably well aware that Chrysler and GM have started the process of closing dealerships. Chrysler is shedding 789 of its 3200 dealers, and GM is excising 2600 of its 6246, with 1100 notified last week. UBS estimates that the total job losses could reach 160,000, although some dealers may be able to operate at a lower level of activity as service operations and/or used car dealers, and may be able sign up with another brand.

GM is trying to make the best of a bad situation for the ditched dealers:
GM Chief Executive Fritz Henderson said Monday that GM would work with the dealerships being cut to ensure an orderly wind down.

"As I look at it, it is work that will take place through ’09, and then we would wind down and handle the distribution of cars and make sure the customers are taken care of … make sure that dealers are reimbursed for warranties and that sort of thing," Henderson said. "This is not a several week process."

While many of the dealerships identified for closure could exit the business this year, [GM Spokeswoman] Garontakos said they can also stay active through September 2010.

By contrast, Chrysler is shutting the dealers abruptly, leaving them stranded with inventory bur no right to perform warranty work on the unsold cars. And while most dealers presumably believe they should have survived the cut, the story forwarded by reader Milton L also raises doubts about the quality of thinking behind the selection process.

Chrysler was heavily over-represented in some areas. Milton reports that he determined that there were 15 dealers in a 25 mile radius of his home. The message from his friend Rob E, a soon-to-be former Chrysler dealer (which we have been authorized to reproduce), suggests an unnecessarily destructive and ill-thought out process:
Thanks for your concern. Things are really tough right now. Chrysler cancelled both our dealerships. Our 2 dealerships were in first and second place in the northeast zone for customer retention, out of a total 350 dealers. We are the largest parts dealer in the tri-state area, and exceed our sales and service targets as well. It is a huge financial blow to us. All my savings is tied up in the business, as well as my mother’s. (87 years old) They are not allowing us to even return vehicles or parts. My brother and I are running around trying to find legal representation in bankruptcy court, as well as join a class action suit.

The value of the properties is far below what we owe on the mortgage. At Chrysler’s request, we had improved both dealerships by putting up new buildings. At their request, we also leased a separate warehouse for 3 years for parts storage.

To come out of bankruptcy successfully, they will need a strong distribution network. Cancelling dealers will not help them. For those dealers that were very much underperforming, they should cancel them in a humane way by
giving them a year to sell their property, sell down their inventory and allow the employees time to find another job. Instead, they gave us until June 9th!

I will be sending all my customers a letter with some talking points, telling them that we intend to stay in business to service their vehicles, and sell used vehicles. Without being able to perform warranty work, this won’t be easy. I will send you a copy of the letter when it is done.

YoY CPI Drops Most Since 1955 (Chart)

All in transportation, but disconcerting regardless. Bloomberg reports:

“Demand simply remains too weak for most businesses to find any success in pushing through price hikes at this point, Russell Price, a senior economist at Ameriprise Advisor Services in Detroit, said before the report. “Widespread price cuts however, are also unlikely especially given the recent evidence that the economy may be stabilizing.”

From a year ago, consumer prices fell 0.7 percent, the biggest decline since 1955. Excluding food and energy, prices climbed 1.9 percent from April 2008.

Marc Faber on passing the baton to emerging economies (Video on page Faber starts at the 2:20 point, )

CRIMINAL: Hedge Fund Managers Bankrupt Companies, SEC allows it (Video)

Tanta’s Bench and Charity Update

Here is a photo of the Doris "Tanta" Dungey memorial bench on the campus of Illinois State University (another photo below).

This bench was paid for by your donations to The Doris "Tanta" Dungey Endowed Scholarship Fund setup by our very own Bacon Dreamz.

The scholarship received over $26,000 in donations and is fully endowed, although more contributions are welcome (see above link).

Tanta’s niece Kate spoke at the dedication of the bench (Kate is a junior journalism student at ISU), and Tanta’s parents also attended. Note: "Tanta" was a family nickname for Doris, and means "Aunt" in several languages. Tanta also has a nephew Erik who helped with the Mortgage Pig Wear charity.

For those visiting the campus, here is a map (from Cathy) showing the location of the bench.

This was one of Tanta’s favorite spots – just outside Milner Library.

There were many donations to other charities in Tanta’s name. OSU has received about $4,000, and the Normal Community High School’s Drama Club about $1,800. Thanks to all!

The Mortgage Pig wear for Charity raised over $3,500 for charity (I’m wearing a Mortgage Pig sweat shirt as I type!). Note: the Mortgage Pig Wear is closed for now.

And here is an excerpt from an email from the University of Maryland Medical System (to Cathy):

My name is Nichole Barbuzanes and I work in the UMMS Foundation office …[and I wanted to] touch base with you regarding donations that have been made in your sisters memory. I am very sorry to hear about her passing but from the numerous … contributions it is clear that she was loved by all.

So far we have received 45 contributions in her memory, including … a $40,000 gift from the Denver Foundation from an anonymous contributor. The total is therefore $44,775. WOW!


Chasing The Shadow Of Money

For readers who have the time and interest to follow up on the topic Zero Hedge commenced yesterday discussing money liquidity and the shadow banking system, the best place to start is with Friedrich Hayek’s seminal Prices and Production, published in the depression days of 1935. Curiously Hayek discerned the critical role of the shadow banking system long before the advent of securitization, derivatives and other products that today have caused the monetary supply problem to reach a screaming crescendo. A very salient sample is presented below:

"There can be no doubt that besides the regular types of the circulating medium, such as coin, notes and bank deposits, which are generally recognised to be money or currency, and the quantity of which is regulated by some central authority or can at least be imagined to be so regulated, there exist still other forms of media of exchange which occasionally or permanently do the service of money. Now while for certain practical purposes we are accustomed to distinguish these forms of media of exchange from money proper as being mere substitutes for money, it is clear that, other things equal, any increase or decrease of these money substitutes will have exactly the same effects as an increase or decrease of the quantity of money proper, and should therefore, for the purposes of theoretical analysis, be counted as money.

In particular, it is necessary to take account of certain forms of credit not connected with banks which help, as is commonly said, to economize money, or to do the work for which, if they did not exist, money in the narrower sense of the word would be required. The criterion by which we may distinguish these circulating credits from other forms of credit which do not act as substitutes for money is that they give to somebody the means of purchasing goods without at the same time diminishing the money-spending power of somebody else. This is most obviously the case when the creditor receives a bill of exchange which he may pass on in payment for other goods. It applies also to a number of other forms of commercial credit, as, for example, when book credit is simultaneously introduced in a number of successive stages of production in the place of cash payments, and so on. The characteristic peculiarity of these forms of credit is that they spring up without being subject to any central control, but once they have come into existence their convertibility into other forms of money must be possible if a collapse of credit is to be avoided."

Report: Smaller U.S. Banks need $24 Billion in Capital

From the Financial Times: Smaller US banks need additional $24bn

Small and medium-sized US banks must raise some $24bn to meet the capital standards set by the government in its stress tests of large institutions, research for the Financial Times shows.

News of the potential capital shortfall could increase pressure on many of the 7,900 US banks that form the backbone of the US financial system.

As many as 500 more banks could close, according to investment bank Sandler O’Neill … The government’s stress-case would result in capital shortfalls for 38 per cent of the 200 banks below the 19 largest financial institutions …
Unlike the large banks, it appears these banks will be forced to merge or allowed to fail (and taken over by the FDIC).

The Worst Is Yet to Come

There are few things from my childhood that I remember more vividly than grandmother’s comments regarding this false recovery. "If we knew what was coming, we would have killed ourselves." This from as strong a person as I have ever encountered, with a faith that would break rocks. The Great Depression left an indelible mark, or more accurately scar, on her entire family, and my father’s as well.

And I never heard the name "Franklin Roosevelt" from her lips without it being preceded by "God bless" followed by "he saved my family." Not all of her children unfortunately. She said she cried so much and so often that she was never able to cry again. And she did not, even at the end.

A few A(H1N1) Links Dr. Henry Niman’s Map 6,094 U.S. Cases as of this wrtitng, A(H1N1) Current TimelineCDC Cases

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