Should G.M. Be Allowed To Go Bankrupt.

There is a continuous debate as to whether General Motors should be allowed to go bankrupt or not.In fact the American public is being mentally prepared to accept the possibility of a 'structured bankruptcy' for G.M.,whatever that means.

Much has already been said about why G.M. finds itself in the present mess.So let us see what we stand to lose if G.M. is allowed to go bust.

Coming at a time when the entire economy is in a mess the impact of G.M. going bankrupt would be very large indeed.The immediate impact would be that sales would fall sharply as customers fret about everything from financing to warranties. Car rental companies who account for almost 15% of the vehicles sold by G.M. and have complex financing and buy back arrangements with it may be the first ones to rethink their relationship with it. As it is G.M. accounts for more than 1% of American G.D.P. Add to it the contribution of various industries dependent on the auto sector from glass and rubber to consumer electronics and the figure would be larger.Big auto parts makers rely on G.M. for a large chunk of their business. While some of the bigger ones would survive, the smaller ones may certainly follow G.M. into bankruptcy.Its pensioners and workers would be adversely impacted as would be its investors.Its stockholders would definitely see their investment getting wiped out, while its bondholders may have to accept reduced repayments over a longer period of time. Its dealers are also likely to lose money and create further unemployment.It also has to be kept in mind that the automotive sector is one of the biggest investors in R&D in America.G.M. set up the world's first automotive research center in Warren,Michigan and currently holds over 500 patents!It is the world leader in certain technologies,never mind that Toyota is able to earn more per car that it sells than G.M.Reduced spending in this area will have far reaching consequences.

The federal government's approach to bailouts has been uneven to say the least. On the one hand you have the example of Lehman Brothers who got nothing, while on the other you have AIG who got everythingIn comparison to AIG the auto companies want very little. Let's hope better sense prevails and all this talk of G.M.'s bankruptcy is nothing but pressure tactics to extract concessions from the UAW union and its creditors.Bankruptcy for G.M. would be a wrong decision at the wrong time.

Will Changes in M to M Accounting End the Financial Crisis.

The mark to market accounting system,as an accounting device became popular in the 1980's. The system was supposedly a foolproof method for valuing various financial instruments.Large corporations and banks adopted these rules as they felt that they provided a more transparent method of determining profits.
Now these very rules are being blamed for precipitating much of the subprime mortgage crisis.It is argued that they have compelled financial institutions and banks to exaggerate their losses on hundreds of billions dollars worth of assets.These massive write downs have been blamed for forcing several giant companies to seek federal aid in order to avoid bankruptcy.It is argued that this wholesale reduction of lending capacity is the primary reason behind the current economic slowdown.
It is tempting to accept the above argument. Unfortunately it does not give the true picture. M to M rules are perhaps the most accurate method of valuation if the assets are liquid and are traded regularly. However if the assets are not very liquid,as most of the mortgage backed securities are,then distress sales are likely to cause wild fluctuations in their prices. The present problem arose when companies needed to put up extra cash and had to liquidate such securities in a hurry.In a market where liquidity had suddenly dried up price fell very sharply.Compounding the problem was the fact that many of these securities were novel instruments which did not enjoy a ready market even in normal times.Many banks that held them perhaps had no intention of selling them.
The FASB has approved changes that will allow auditors to use 'significant professional judgment' to value such illiquid securities.Although the change may prevent further write downs it remains to be seen whether it will allow the reverse or 'write ups' to happen. Till houses and cars start selling again and the overall economic scenario takes a turn for the better, it is unlikely that any accounting jugglery is going to help matters.

Gasoline Cars vs Hybrid Cars - Which is Cheaper?

Today people are queuing up for hybrids for a host of reasons. More mileage, cleaner emissions, less dependence on imported oil and the likes.

So how do conventional cars really match up to hybrids. Well here's a look.

As far as fuel efficiency goes the odds are clearly in favor of hybrids. You could get savings of 20%-25% on your gasoline bills if you are driving a hybrid. But before you get rid of your gas guzzler and rush off to the nearest Toyota/Honda dealer there are some things you must consider.

There is a lot of hype about the fuel efficiency of a hybrid. In fact the mileage that you actually get may be lower than what is advertised. This is because driving conditions in which the battery of a hybrid gets recharged fastest is by deceleration and regenerative braking. This simply may not always happen, resulting in a noticeable difference between the advertised and the actual mileage.

Then there is the premium that you pay for a hybrid: It shouldn't be anything less than $2,000 . If you consider the fuel that you save then at the current gas prices you will need to drive about 150,000 miles before you recover the initial difference in cost. If you don't drive too much it could be at least a ten year wait. What's more hybrid's store energy in large battery packs. These are costly to replace, more than $2,500. Although they last a long time, the cost of replacement is certain to drive down the resale value of used vehicles.

Again mixing of electric power and traditional internal combustion engines requires a lot of fine tuning. Then there are risks associated with handling powerful batteries. Small hiccups may mean a trip to sophisticated garages rather than the mechanic round the corner. The result, more money spent on maintenance.

However inspite of these apparent drawbacks it seems hybrids will win in the long run. As their production increases, prices are bound to come down because of economies of scale. Then the federal government offers a tax credit for buying a hybrid, which is about $2,000 for a 2007 Honda Civic. Additionally some companies also offer cash incentives to employees buying hybrids.

All in all, no matter what your calculator tells you now , hybrids are the cars of the future. Even today the extra dollars spent on one are a small price to pay for preserving the environment.

Japanese vs.US Hybrid Cars-Why the Difference?

Hybrids are the fastest growing segment of the American car market.In 2006 the sales of hybrids rose to 1% of total car sales ,an increase of 22%over the previous year.This high rate of growth looks set to continue with the public growing increasingly concerned about depleting world oil resources and the environmental impact of fossil fuels.

The figures speak for themselves.Hybrids can cut fuel consumption by up to as much as 40%.As far as cleaner environment goes the new Ford Escape Hybrid produces less than one pound of smog producing pollutants in a 15,000 mile drive.Its significance can be understood only when you consider that for non hybrid passenger vehicles the corresponding figure is 67 pounds!

It was Toyota which first demonstrated the hybrid-electric concept at the Tokyo Auto Show in 1995.At that time Toyota set an aggressive development schedule to bring the Prius to the Japanese market in two years time in an effort to be the first car company in the world to offer a production hybrid-electric car for sale.And succeed they did.The Prius was offered to the Japanese public in 1997 before the signing of the Kyoto Protocol.

The Prius went on sale in the US in 2000 and was an instant success.The first hybrid electric model in the US market,however, was the Honda Insight in 1999.The Honda Civic hybrid went on sale in 2002.

The year 2004 will be remembered for the launch of the second generation Prius.In addition the first full size pickup hybrids the Dodge Ram and the Chevy Silverado as well as the first SUV hybrid the Ford Escape hit the streets this year.

The success of the 2004 Prius led some experts to call it the most successful car model of all times.At one time it sold at a premium of $2000 over its sticker price!Even today the Prius sells more than all the other models combined.

So what did Toyota and the other Japanese automakers get right which the US automakers got wrong?Nothing really because it was just a question of focusing on a particular area.US automakers concentrated all along on pure electric cars and hydrogen fuel cars.While electric cars were introduced in the market they did not become popular because of limitations of size,speed and range.The hydrogen fuel car is still under development although GM hopes to introduce it in the market by 2010.

Of late the US manufacturers have sought to duplicate the success of the Prius.Encouraged by the success of the Ford Escape they have directed their energies into developing an American hybrid.But unlike the Ford escape which has been built under a licensing agreement with Toyota,GM's forthcoming Chevy Tahoe hybrid is st to be a very important event for the American auto industry.

Why so?The Prius recharges its battery pack through deceleration and regenerative braking.Thus while it improves fuel economy significantly in the city its results are not so spectacular on the highways.The USA is a huge country with a vast highway network.The Tahoe hybrid and all GM dual mode hybrids offer some additional tricks on the highway, which is very important in the US.

The year 2008 therefore promises to be an interesting one for the US hybrid industry.While none of the models are going to match the efficiency of Toyota,US automakers are clearly back in the reckoning.

Is The U.S. Justice System Flawed?

A report released recently informs us that almost 2.2 million people are in US jails. This marks an eight fold rise in the number of Americans in prison since 1970.It costs the taxpayer about $65 billion annually. The report has been produced by the JFA Institute a Washington criminal justice research group.

The impact of such a large number of people in prison is awesome.Once you include the families the prisoners leave behind,the prison guards and the prison administration, the lawyers and the justice system, it would seem that the system affects almost everybody.

The benefits of the present system are clearly visible. The streets are definitely safer.The homicide rate in the 1990's fell by 43% and continues to decline. The value of a safe neighborhood certainly outweighs the costs of imprisonment.

On the flip side, the prison population is set to increase by almost 200,000 over the next five years and it will cost another $27.5 billion to build and run the additional prisons that will be needed.Such a judicial system also serves to deepen the divide between the privileged and the disadvantaged.This is because the disadvantaged, the less skilled and the less educated are more likely to end up in jail.Spending their productive years in jail not only reduces their lifetime earnings but also adversely affects the prospects of re-employment upon their release.It also certainly affects the financial prospects of the families they leave behind.Critics also argue that in spite of such a harsh system the crime rate is where it was in 1973.

So what needs to be done about it. Before attempting an answer it is necessary to understand the reasons that lie behind this prison boom.It happened because crime increased and there seemed to be no way to control it except by imposing tougher penalties.This resulted in longer jail sentences being handed out with fewer chances of an early release.The war on drugs led to the arrest of a large number of small time users and drug dealers.Presently almost 60% of prison inmates are in for drug offenses.Supreme Court Justice Anthony M. Kennedy remarked:'Our resources are misspent, our punishments too severe, our sentences too long.'

Maybe it's time to give the entire system a re look.To start with, prison sentences for petty crimes could be shortened and prisoners could be made eligible for early release in deserving cases.Alternate forms of punishment also need to be considered.There is also a case for being a bit lenient on 'soft drugs.'Debates on legalizing marijuana for medical use seem to indicate that this option is being seriously considered.

An editorial in The Washington Times said that prisoners deserve punishment.'But we shouldn't forget that a vast majority will also be returned to society, which has as much at stake in their rehabilitation as they do.'

Move Over G.M.-The Honda FCX Clarity Is Here!

Honda may have found the answer to $4 plus gas.It has started production of the FCX Clarity fuel cell car that goes on lease in California this year. It is the first regular production fuel cell car aimed at individuals. The others have been aimed at fleet operators. The response has been overwhelming. People have been literally falling over themselves to get a chance to drive the sleek four door car, and Honda has drawn a lottery to decide who will be among the around 100 lucky ones who get to drive it.Mind you, this is when leasers will have to pay $600 a month as lease charges plus extra for fuel. The $600 a month however includes both collision insurance and maintenance.Even then it is a bargain as each car is estimated to cost more than $300,000 to build.A gallon of hydrogen fuel costs about the same as as a gallon of gasoline, but you get two to three times the mileage with hydrogen. Although GM has about a six month start with its Chevy Equinox fuel cell vehicle, Honda has come up with a much more attractive car.

The car's V-flow fuel cell has been developed in-house by Honda. It uses hydrogen to generate electricity, which powers the 134hp electric motor. The car is a front wheel drive, and travels 270 miles on a full tank of hydrogen. It has a top speed of 100mph, and goes from 0-60mph in 10 seconds. Honda intends to develop up to 300 FCX Clarity models over the next three years.

But presently there is a big negative to using hydrogen as a fuel. Making hydrogen takes more energy than hydrogen produces. It is proposed to produce hydrogen from natural gas and the world's reserves of natural gas are limited. Till such time that hydrogen can be produced from sea water, the days of really cheap fuel are still far away.

Hedge Fund Owner Cheats Investors Of $450 Mill,, Vanishes

Samuel Israel, founder of the Bayou hedge fund group has disappeared the day he was to begin a 20 year prison term for defrauding investors of $450 million. Police have put out 'Wanted' posters, and describe him as 'armed and dangerous.'

Founded in 1996, the fund raised about $300 million from investors, promising them that the fund would grow to $7.1 billion in ten years. The fund however never seems to have made any money and got along by overstating gains, or reporting gains where there were losses. In 1998, about three years after the fund was launched, international financial markets were in turmoil following the Asian crisis, and in America things were made worse by the threatened collapse of Long Term Capital Management. The fund made huge losses. In order to cover their losses the group approached investors for fresh money. In order to attract investors , Israel allowed them to join by bringing in a minimum of only $250,000, which is much smaller than the amounts typically demanded by hedge funds. He also waived his management fees and charged only 20% of the fund's profits as his remuneration. Simultaneously he hired a fresh firm of auditors who were willing to fake accounts to hide the mountain of losses the firm was saddled with.

But it was these very practices that started making people suspicious. As news got around about the true state of affairs, investigations were started, and in September 2005 the Commodity Futures Trading Commission filed a complaint in court alleging misappropriation and fraud.

In April of this year, Israel was sentenced to 20 years in prison and ordered to pay a fine of $300 million after pleading guilty to defrauding investors. On the 10th of June he vanished just hours before he was to begin serving his sentence. It could be suicide, but people suspect that he has faked his death and is on the run.