As U.S. Moves to Minimize Foreclosures, Could GM Go Under?

by: Kathy Lien November 12, 2008 | about stocks: GM / UDN / UUP    

Kathy Lien

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Every day, equities, currency and bond traders weigh the good news with the bad to determine if they want to buy or sell.

Tuesday, there were just as many positive reports that should have helped to stabilize the markets but has instead failed to stem the bleeding in equities and currencies.

In a market environment where pessimism is being felt in the bones of investors, it has become increasingly difficult to shift market sentiment.

The US dollar and the Japanese Yen continued to outperform as risk aversion drags nearly all of the major currency pairs lower. Even though USD/JPY has remained unchanged, the EUR/USD and GBP/USD fell more than 200 pips.

The Good News: US Government Accelerates Efforts to Minimize Foreclosures

As investors remain nervous about the outlook for the global economy, good news has failed to have a positive impact on risk appetite. Today officials from the Treasury and the Federal Housing Finance Agency said that through Fannie Mae and Freddie Mac they plan on accelerating efforts to help homeowners that are facing foreclosures. This includes reducing interest rate and extending loan terms, which should have been perceived as a step in the right direction. More specifically, the mortgage servicers will help borrowers who are more than 90 days delinquent bring their monthly payments down to 38% of their gross income, which is now considered the threshold of affordability. For an American that earns $75,000 a year, affordable means monthly payments of $2375 or under.

In addition after falling to a record low, IBD/TIPP reported a material improvement in economic optimism.

The Bad News: Fears of GM Bankruptcy

However the market has completely shrugged off the positive developments and has instead chosen to focus on the fears that General Motors (GM) will be forced into bankruptcy. The White House has indicated that they are open to accelerating the loans previously approved for the auto industry while House Speaker Nancy Pelosi called on Congress to pass an emergency rescue package for the industry.

$25B loans were originally allocated to the automakers for developing more fuel-efficient vehicles, but the legislation could be changed to divert the money towards more urgent initiatives such as helping the automakers fend off bankruptcy.

Given President-elect Barack Obama’s pledge to help the auto industry last week, official support is inevitable. However if the government does not act fast, the market could push the automaker into bankruptcy. On Monday, analysts issued price targets of zero for GM’s stock. With 263k workers under their umbrella, General Motors could be too big to fail.

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This article has 4 comments:

  •  
    Nov 13 09:50 AM
    It can not go on forever. The market must know that. Yet, it begs for another bailout. AIG and the bank bailouts are not working. Excuses like the good results just have not taken effect yet are not to be believed. If this were the truth then he would not have changed the usage of the bailout money.

    The GM bailout is a payoff to the unions pure and simple. GM can go bankrupt just like any other company and reorganize. The unions have paid the Democrat Party with donations and campaign workers. They want payback. Just more moral corruption.
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  •  
    Nov 13 12:45 PM
    The possible GM bailout IS NOT A PAYOFF TO THE UNIONS! Bailing out GM is a MUST to help stabilize this bush recession, that we are in, and stave off the possible bush depression......... idiot!
    Reply | Link to Comment
  •  
    Nov 14 08:02 PM
    On Nov 13 12:45 PM TGI NOMOREBUSH wrote:

    > The possible GM bailout IS NOT A PAYOFF TO THE UNIONS! Bailing out
    > GM is a MUST to help stabilize this bush recession, that we are in,
    > and stave off the possible bush depression......... idiot!

    Oh my! another strident Michigan UAW worker starting to go WAH as he sees his job going away.. hahaha

    As usual, these union types always want to blame somebody else for the destruction to their industry that their avaricious labor contracts have caused. Well, your time is near. You will just go away like all the steel workers went away over in Western PA. And, the rest of America will forget you quickly.
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  •  
    Nov 20 04:13 PM
    Its not a payout to the unions because the unions won't benefit from an auto industry bailout. The pink collar workers in the finance industry aren't seeing any of the $700 billion. Neither will the blue collar workers benefit from an auto bailout. The only ones who will benefit are the fat cats who have failed to fix Detroit's problems of the last 40 years. And caused the problems on Wall Street.

    And finances will always fluctuate no matter how much or how little government intervenes to try to "stabilize the economy".
    Reply | Link to Comment
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