“A bad bank that sold cars…”

That can sum up GM’s business structure; GMAC (which GM owns 49% of) is losing money on loans of all kinds, while GM is bleeding cash and will certainly default without government help.

General Motors Corp., seeking federal aid to avoid collapse, said it used $6.9 billion in cash in the third quarter and may fall below the minimum it needs to operate before the end of this year.

As one might imagine, their earnings weren’t too good either; they had a third-quarter operating loss of $4.2 billion, or $7.35 a share – which exceeds the value of their market cap. They had a non-cash one time gain which offset this number, leading to a net loss of only 2.5 billion.

The only thing we can do is wait and see how this works itself out – one way or another, it should be fast.

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Tax Plans: Obama vs. McCain

The highest tax bracket, or families who earn $2.87+ million a year, would experience a 11.5% increase on a 35% marginal rate of taxation, or an overall tax rate of 40.25%. McCain would bring it down to 33.46%.

I think Obama’s plan reflects intelligence (and a bit of populism), because:

1. He’s not reducing government tax receipts as much as McCain, which will not exacerbate our deficit.
2. He’s providing a tax break to the part of America which has the greatest propensity to spend money (which is good for the consumer spending component of GDP), and increasing taxation on the people who are more inclined to save the next dollar they earn. The “fair vs. unfair” argument, for the time being, will be neglected…I think that is a sign of a good leader.
3. Ultra-free market enthusiasts argue for low rates of taxation with the mindset being that the consumer can better allocate money through free enterprise better than a government ever could; by lowering taxes on the working class, Obama is promoting entrepreneurship and private investment, and funding it with the taxes of the super-upper class, who have already achieved these goals – which is a bit like communism if you ask me…

Here’s how the rates of taxation look today:

Year 2008 income brackets and tax rates

Marginal Tax Rate	Single	Married Filing Jointly or Qualified Widow(er)	Married Filing Separately	Head of Household
10%	$0 – $8,025	$0 – $16,050	$0 – $8,025	$0 – $11,450
15%	$8,026 – $32,550	$16,051 – $65,100	$8,026 – $32,550	$11,451 – $43,650
25%	$32,551 – $78,850	$65,101 – $131,450	$32,551 – $65,725	$43,651 – $112,650
28%	$78,851 – $164,550	$131,451 – $200,300	$65,726 – $100,150	$112,651 – $182,400
33%	$164,551 – $357,700	$200,301 – $357,700	$100,151 – $178,850	$182,401 – $357,700
35%	$357,701+	$357,701+	$178,851+	$357,701+

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“Massive Effort to Save Mortgages”

From the WSJ:

J.P. Morgan Chase & Co. launched an ambitious plan Friday to modify the terms of $70 billion in mortgages for borrowers who are behind on their payments or soon could be.

The move by the New York bank will cover as many as 400,000 borrowers. They’ll be moved into loans carrying lower interest rates, smaller principal amounts or other more-affordable terms.

This is great news…They must have figured that these high yielding, Option Adjustable Rate Mortgages aren’t worth too much if the borrowers default on the mortgage. Option ARM’s are particularly toxic since they allow the borrower to make a minimum payment which may not even cover the due interest – resulting in a higher loan balance (which accrues more interest over time).

The changes will particularly focus on a type of loan structured in such a way that the borrower’s outstanding balance sometimes grows month after month. J.P. Morgan inherited $54 billion of such loans with its takeover of the beleaguered thrift Washington Mutual Inc. in September.

The article goes on to point out that Wachovia had $120 billion worth of these exposures from their purchase of Golden West Financial, and that they had initiated the process of restructuring the terms of the loans. It is a smart step in making sure that home owners will be able to eventually pay down their principle; the last thing these banks want is an increase in mortgage defaults – therefore reducing mortgage interest rates is necessary in preventing this from happening. Now that the Government has replenished some of the lost capital in the banking system, giving the bigger banks as much as $25 billion, don’t be surprised to see Bank of America, Wells Fargo, and Citi follow JP Morgan’s footsteps.

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