These are the 12 “foreign,” or so-called transplant, producers making cars across America’s South and Midwest. Toyota, BMW, Kia and others now make 54% of the cars Americans buy. The internationals also employ some 113,000 Americans, compared with 239,000 at U.S.-owned carmakers, and several times that number indirectly.

I think that the unions need to realize that they have to work with the automakers to come to a fair deal; it’s better to have some form of auto industry in the US than none (at least for the workers). I also think it’s interesting to note that the US owned carmakers employ a little more than twice as many as foreign producers do; not the hundreds of thousands (or even millions) that pundits have been throwing around as of late.

However, it’s also important to realize that the US auto companies knew that they had higher labor prices due to union contracts which have been around forever, perhaps they should have looked into other avenues to lower costs and become more competitive? Maybe even spending more money on R&D and coming up with a fancy electric car (a la Tesla) or some sort of hybrid that consumers are willing to pay more for due to some sort of “I’m saving the planet” hysteria, which will allow them to exploit the so-called environmentalists and earn higher profits than they would otherwise.

So what’s the verdict? As the article explains:

There’s no natural law that America must have a Detroit automotive industry, any more than steel had to be made for all time in Bethlehem, Pennsylvania or textiles in New England. Britain sold off all its car plants to foreigners and was no less an advanced economy as a result, though it was a healthier one. Detroit may yet adjust to avoid destruction in the best spirit of American capitalism. The other American car industry is a model for how to do it.

I agree completely – if Detroit is going to be saved it must do so on its own, and not at the expense of the taxpayers. Giving the big automakers a bailout without a complete re-tooling of the way they do business would just result in another outstretched hand six months down the line. After that, maybe another industry or two would ask for the same thing. Government should try and stay out of the free market whenever possible, a lesson that has seemingly been unlearned over the past year or so.

The indictment also alleges the two men concealed the fact that one of the largest investors in the hedge funds wanted out and sought to withdraw some $57 million in April. Authorities say the pair repeatedly told investors to put more money into the fund and withheld information about redemption requests. Tannin allegedly told investors on more than occasion that he was putting more of his own money into the funds, even though he never did. On May 3, Tannin told one of the hedge funds’ bank lenders he doesn’t anticipate any large redemptions.

Ouch. Sounds pretty bad. Lied, manipulated people, all that jazz. Not a nice person – but then again I wonder if this sort of thing happens more than we’d think. I’ll leave you with this quote from the end of the article, which I often find contains the article writer’s true feelings about what happened (and in this case my feelings are mirrored with the authors)

Ross Intelisano, an attorney who represents a number of hedge fund investors, says: “These are the first criminal indictments related to the subprime debacle and it’s fitting that Cioffi and Tannin who helped trigger the crisis are the first ones indicted.”

On March 1, 2008, the Colombian state, under the leadership of Uribe, Vice-President Francisco Santos Calderón, and his cousin Defence Minister Juan Manuel Santos, illegally deployed a military campaign within Ecuador, which resulted in the deaths of Raúl Reyes, Julian Conrado, and fifteen other combatants associated with the FARC-EP. Such actions are a clear display of the US-backed-Colombian state’s open negation of international codes of conduct, law and social justice.

Now in analyzing a situation like this, one must be careful, because there are so many different forces at work here (aren’t there always). The key is understanding the dynamics of the United States and Colombian relationship. The United States government, in all its wisdom, has decided countless times since its inception to back a country whose political system is much less than a democracy, in order to further its own goals. In this case, the War on Drugs has resulted in the United States pouring military aid into Colombia’s government, in the hopes it will use the money to help capture some of the top drug dealers in the region. This is what led to the capture of Pablo Escobar, as documented in the book,Killing Pablo . Last year, the United States government gave Colombia $615.9 Billion in military aid and $756.5 Billion economic and social aid (Source). Now it appears that the American support includes maintaining the Colombian dictatorial regime through the elimination of any rebel groups, the biggest of which is the FARC (Revolutionary Armed Forces of Colombia).

Venezuelan president Hugo Chavez, in response to the March 1 attacks, actually went ahead and labeled Colombia the “Israel of Latin America” during his weekly Sunday talk show Aló Presidente. In response, Chavez has moved thousands of troops to the Venezuelan and Colombian border. While this could be saber-rattling, Chavez is certainly not taking this lightly. In economic terms, the two countries do around $6 billion in trade every year. Chavez is unlikely to risk that over something which did not take place on his soil, but who knows. Tracking some of the Latin American ETFs, such as ILF and GML, clearly shows a downward trend this week (Although ILF remains on a tear, up a remarkable 48.75% so far this year). For investors in Latin America, this issue cannot have demonstrated any more clearly the axiom, no risk, no reward. The market volatility is high and so are diplomatic tensions. Neither are good for the people of Latin America – I’ll keep a close eye on this one from here on out.

Yes, that’s right, the House, Senate, and President all managed to agree on one thing – that they didn’t want to look bad in an election year! So they worked out a nice pretty little economic stimulus package – how quaint! As discussed in the Times article,

The centerpiece of the plan is a rebate of as much as $1,200 per household — even more for families with children — that could be mailed to most taxpayers as soon as late spring. The package also includes temporary tax breaks to encourage businesses to expand and create more jobs this year.

Hmph. Sounds great. How much will it cost the government, you say?

The cost of the economic stimulus package, some details of which remain murky, would be roughly $140 billion — $100 billion for the rebates and $40 billion for the business tax incentives. Leaders have set a deadline of Feb. 15 for passing the legislation, although it remained to be seen whether the Senate would leave the deal intact.

Wow. $140 billion. Almost the cost of a year’s worth of the war in Iraq. I wonder how we intend to pay for all this, what with the ballooning federal deficit. Ah, that’s right, borrow some more. Or wait, even better, why not just print more money? That sounds like fun!!

As you can see I’m being entirely too cynical about the matter, but nonetheless I think we need serious reforms to our budget along with the tax code to really see any long term change. This “shot in the arm” stimulus package is entirely dependent upon.. drumroll please.. people irresponsibly spending the tax rebate checks they receive! If people just take the cash and stash it in a bank, why the economy won’t get much stimulus at all (except for the banks. lucky them.) If, on the other hand, people take that tax rebate check and spend it wildly, everybody wins! The corporations have more money to make their annual profits rise, and the people have.. more junk they don’t need. Hmph. And isn’t overconsumption and overextension of most people’s finances what really got us in this mess in the first place? Plus, with all this money printing/money borrowing and cutting interest rates, that tends to.. raise inflation! If the measures the government took this week don’t help, but hurt, we’ll even have a potential for some stagflation! Bottom line: if you get money back, save it for the rainy day which is sure to come. Try and keep your budget balanced, even if the government can’t do the same. You’ll be better off in the long run avoiding debt in general. Till next time meat popsicles, away!

The U.S. economy has entered into its first major recession in 16 years according to David Rosenberg, chief North American economist for Merrill Lynch, who declared the downturn in a research note to clients released on Monday.

Mr Rosenberg wrote: “According to our analysis, this [recession] isn’t even a forecast any more but is a present day reality.”

What a statement. As if the American financial markets weren’t shaken enough, this will really make people nervous. Rosenberg goes on to state:

At no time in the past sixty years has the unemployment rate risen 60 basis points (50 bps is the actual cutoff) from the cycle low without the economy slipping into recession, and here we now have the jobless rate hitting 5% in December versus the March/07 trough of 4.4%.

What, technically, is a recession? Glad you asked – according to the fabled Wikipedia entry on recession,

In macroeconomics, a recession is a decline in any country’s gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year.

the Bush administration hopes that it can help more than half of the two million homeowners who took out adjustable-rate subprime loans with payments due to move sharply higher soon by offering some of them a five-year mortgage-rate freeze.

How nice of the Bush administration to hope! The idea to freeze some of the rates before they reset is a good idea, so that should help those of you out there stuck with a loan about to reset to a much higher interest rate, and therefore a much higher monthly payment. The article further explains that some $367 Billion with a B worth of mortgages are set to reset within the next two years. That number is truly mind-boggling. Now when you read the next quote keep in mind Bush said he hoped to help more than half of the 2 million homeowners… in my mind when someone says more than half of 2 million it’s at least 1 million or more. So let’s listen to Mr. Zandi:

“In theory, the plan could help as many as 750,000 subprime homeowners,” said Mark Zandi, chief economist for Moody’s Economy.com. “In practice, my sense is that it will probably help at best about 250,000 homeowners.”

250,000?? Seems like a lot of people are going to be left out. I bet those living above the poverty line but still really having trouble paying the mortgage are going to be stuck. That means there’s still going to be hundreds of thousands of people making the choice between eating or paying the mortgage. Not a pleasant thought. I understand that some of these people shouldn’t have been thinking about homes, but when they walked in to sign the loans everybody around them was smiling and patting them on the back. As the Reuters article states, the devil is in the details. Those words of wisdom apply in many more situations than just home loans.

And, my favorite quote of the Reuters article:

Some on Wall Street worried they would be forced to accept mortgages rewritten in the borrowers’ favor.

No attribution, but let’s all collectively say “aww, poor Wall Street billionaires” in our most sarcastic tones. I mean seriously you guys.

UPDATE: Details of the plan are now out. Check out my man Mish’s most excellent post on the subject!

My favorite discussion about the cut was on John Stewart’s excellent Daily Show on the Comedy Central network. Stewart had the notorious former federal reserve chairman Alan Greenspan on. Alan was hitting all the big talk shows in the hopes of pushing up the sales numbers of his new book, but Stewart makes a wonderful point a few minutes into the interview, which was:

When you lower the interest rate and therefore drive up the price of stock, you then lower the rate of return received by people who have savings account. You could look at this interest rate cut as favoring those who have invested stocks and not favoring those who have invested their money in banks.”

Greenspan agreed that it certainly looked that way, and I thought that really said something important. Honestly this was somewhat of a breath of fresh air into a market unsure of itself. Now current Fed chairman Bernanke did what he thought was the right thing.. but for who? For those corporations facing hardship because the housing crisis? The everyday American citizen? The hedge funds who own most of the stock market? Since most Americans have trouble saving anything at all (see American Savings Lowest Since Depression), what they do save is put into banks so it can be easily taken out in case of a crisis. To me this represented a bailout of the major wall street players who needed to take a deep breath after losing so much money in the first part of this year. Of course I am invested in the stock market (through no load index funds) and I managed to benefit a little myself, but what’s the problem with that? A guy makes a little money and everyone starts to point the finger at him. Sheesh.

Again, just my opinion, but I feel like the Fed chairman did what so many other branches of government routinely do: give more assistance to the rich, well to-do, corporations, and the people who represent the power brokers while ignoring the needs of the impoverished American citizens. Our current system of government favors those who have money, can make campaign contributions, and otherwise exert their influence through their wealth. That’s a whole different blog post though. Till next time, remember that only you can put out forest fires. And start saving money today!

Northern Rock is Britain’s fifth biggest mortgage lender, but customers on both sides of the Irish Sea began to withdraw savings en masse after the Bank of England bailed out the bank. The level of withdrawals was high, with a reported £1 billion taken out.

The bank has been promised money by the Bank of England, but that still did not help calm nervous customers. The reason behind all of the mess? Yes, you guessed it, the collapse of the subprime mortgage market in the United States. Somehow, someway, the subprime debacle still manages to unsettle financial markets worldwide. In this case, the bank was unable to raise sufficient cash to cover all its positions after the credit market was tightened due to the subprimes.

Northern Rock relied on capital markets over customer deposits more than most banks for its financing, and that policy decision came back to bite the bank. (in a big way. ouch.)Estimates are running between 3 and 4 billion with a B dollars having been withdrawn from the bank within the past week alone. Not only that, but shares in Northern Rock’s stock dropped 40% and then spread fear over to other banks like Llyod’s of London.

The lessons I would draw from reading about this would be: never trust any one bank to “do the right thing”. Spread your cash across multiple institutions and therefore protect yourself from the failure of any one bank or agency. In the United States, your deposits are FDIC insured only up to $100,000. Beyond that and you should split the amount up anyway just for your own protection. (Think it can’t happen here… you’re wr-o-ng)

** UPDATE: Now, even the New York Times has run a story on the impending demise of the bank. Now that the mainstream media has picked up the story, just watch everyone scramble to their computers to look up what they just read through the Times or heard on T.V. I just wish sometimes it would be the other way around.

Second, we all knew this day had to come eventually. The labor department released the new jobs figures for August, and lo and behold, employers eliminated 4,000 jobs in August. The New York Times article also has some very alarming quotes, including the classic doomsday prediction:

“If the economy is not headed toward recession, it is very close to one,” said Mark Zandi, chief economist at Moody’s Economy.com.

Wow. Well, Mr. Zandi sure thinks the worst is around the bend. That quote doesn’t make any sense to me though – I hope the writer merely mistook some of Mr. Zandi’s words. How can the economy be very close to a recession but at the same not not be headed towards one? Is it just going to spring up and bite me in the behind when I’m not looking? Only time will tell, I suppose.

Want another choice quote? Coming right up:

Not only did today’s report show that there was no job growth last month, but it also found that the job market was significantly weaker in June and July than the government first reported. Revisions to earlier jobs reports showed that 81,000 fewer jobs were created than initially estimated.

So estimates are wrong? Who would have thought? Me, for one. But apparently the one-two punch of the end of uninterrupted job growth and the revisions to estimates showing far fewer jobs created in previous months than first assumed led to some blood shedding on Wall Street today. The Dow Jones is off more than 222 points, Nasdaq is off 50, and the S&P is off 22. All things considered, it could have been much worse. To be honest, I’m not afraid of a stock pullback. That may have something to do with the fact that I still have 30+ years until retirement, so cheaper stocks now is the equivalent of a fire-sale for me. I’m planning on holding my investments for a very long time. Those of you with retirement looming over the next few years may have more than your fair share of nail biting moments, but the last few years should have fattened up your retirement accounts enough to lessen the blow.

All this has led many to pontificate on where the Fed will be taking the interest rate:

Investors and economists are widely expecting the Fed to lower its benchmark interest rate by a quarter-point, to 5 percent, at its next meeting. Some economists said the August employment report raises the chances of a second rate cut this year, or a half-point reduction at the next meeting. And traders in the futures market are predicting that the Fed will cut the rate to 4.5 percent by the end of the year.

Will the Interest Rate move from 5.25% to a flat 5%? Will the economy move into a recession? Stay tuned, my friends, for another edition of “As the US Economy Turns”.

UPDATE: For an in-depth report of just how bad this job report was, check out this post over at the excellent blog Mish’s Global Economic Trend Analysis: Moonbats Active Again in Massive Jobs Disaster

In the article, Stein points out that hedge fund managers, who make millions upon millions of dollars each year, have found tax loopholes that enable them to tax their payments under a 15% capital gains tax rate, instead of the normal tax rate most Americans pay on their income. If you make between between 31,850 – 77,100, your 2007 tax rate is 25%. This means that the middle class is paying a disproportionate amount of their incomes to the, which Stein correctly points out we appear to be losing, while the rich pay a lower proportional tax on their income. Now, you can look at that and still say that the richer among us are still paying more in taxes overall, I believe that everyone should have to play by the same rules. As it stands now, those with more money to spend on higher priced accountants get rewarded by paying fewer taxes. That just doesn’t seem right to me. Does it to you?