(Don't) Buy American

Justice Ruth Bader Ginsburg stayed the Fiat-Chrysler deal pending a forthcoming order, perhaps because she simply wanted more time to make and informed judgment, or because she wanted to bring her associates into the decision. At issue are the protestations of three Indiana pension funds, controlled by a Republican state Treasurer, who simply want a better deal on their unsecured Chrysler debt they purchased about a year ago. Apparently the phrase "caveat emptor" doesn't enter into the equation.

Meanwhile, another genius collection of wingnuts have decided that the best way to restore American capitalism is to boycott American car companies.

"In the effort to reverse this lurch beyond the farthest left fringe of previous Democratic statist urges, individual Americans have a role to play. They have to say no to GM products and services until such time as the denationalization occurs," says Hugh Hewitt. He acknowledges that this is a serious step that could hurt people currently working for GM: "But there isn't any alternative, every dollar spent with GM is a dollar spent against free enterprise. Every car or truck purchased from Government Motors is one not purchased from a private car company that competes fairly against all other car companies."

Where Hewitt makes his point as a seemingly reluctant and composed agitator, Rush Limbaugh makes no bones about what he wants in his own praise of the idea. The most amazing thing here is that Limbaugh appears to be openly admitting that the purpose of this is economic and political sabotage -- to prevent President Obama from succeeding at something.

Limbaugh reassures any GM workers who might be listening that the boycotters aren't angry at them. "They don't want to patronize Obama. They don't want to do anything to make Obama's policies work!" he explains.

Quite a needle to thread - boycotting a US company while claiming to have nothing but love for that company's workers. Wow, I don't think Democrats will lose MIchigan for the next 200 years now.

As John Cole notes, just a week or two ago these same people were whining and crying about all the dealers being pushed out of business by Overlord Obama, and not they are conspiring to actively put whatever dealers are left out of business, if successful, by refusing to buy their products. Not to mention the fact that, at this point, the fastest way to return GM to the private sector would be to, well, buy a bunch of their cars, so the government can divest.

But none of this is supposed to make economic sense. It simply reflect the kind of lashing out at whatever perceived enemy that has become the sum total of Republican output these days. They are the wounded animal in the corner, thrashing about incoherently in the hopes that all of America beyond the myopic, paranoid corner that they inhabit will come to love them again.

Indiana State Teasurer Harold WATB

Three Indiana pension funds are holding up the sale of Chrysler to Fiat, despite multiple losses in bankruptcy courts. We'll know sometime tomorrow afternoon if they were successful, as the Supreme Court decides whether or not to stay the sale. The Indiana Treasurer uses words like "fiduciary duty" to argue in favor of more compensation for their secured debt:

The appeal heard Friday had been filed by the Indiana funds, which objected to the sale because they sought more compensation for the Chrysler secured debt they hold. A federal bankruptcy court in Manhattan previously approved the sale, which would transfer most of Chrysler’s assets to a newer, healthier company run by a group led by Fiat.

Lawyers for Chrysler and the government argued that the sale to Fiat needed to be completed as quickly as possible to preserve its viability and to save thousands of jobs. Fiat can walk away if no agreement is struck by June 15.
Late Sunday, Judge Arthur J. Gonzalez of United State Bankruptcy Court for the Southern District in New York approved the sale to Fiat, overruling more than 300 objections. On Monday night, he agreed to shorten a customary 10-day stay of the sale to four days, though the Court of Appeals stayed the transaction pending its hearing.

When Chrysler emerges from bankruptcy, a union retiree trust will own 55 percent, Fiat a 20 percent share that could eventually grow to 35 percent and the United States and Canadian governments minority stakes.

Would a collapse of the national auto industry be positive for the state of Indiana? Its pensioners? Furthermore, the Chrysler debt represents less than one percent of the total fund assets. James Kwak explains further:

The pension funds in question bought the Chrysler debt in question last July for 43 cents on the dollar. (They stand to get 29 cents on the dollar in the restructuring.) I guess the difference between that and speculation is that “speculation” is something that bad people do; when pension funds by distressed debt, it’s called “investment.” I have no problem with pension funds buying modest amounts of risky investments, but they are taking the same risks that hedge funds are taking, and if they lose money on bad investments, that’s the fault of the pension fund managers.

Now, the popular defense of the Indiana pension funds is that they have a fiduciary duty to their beneficiaries to maximize the value of their assets. (Hedge funds should have the same duty to their limited partners, unless I’m missing something, but let’s set that aside.) There is a deal on the table worth 29 cents on the dollar. Apparently they think Chrysler can do better by finding a a higher bidder (not likely at this point), or they can get more in liquidation. But that is far from a certainty, and the value of Chrysler is deteriorating as time passes; and if they manage to drag this out past June 15, Fiat can back out of the deal. So it’s not at all clear that their actions have a positive expected value for their beneficiaries.

So what’s going on here? Either (Indiana State Treasurer Richard) Mourdock really thinks that the chances of getting more than 29 cents outweigh the very real risk of getting less (and of blowing up Chrysler in the process). Or Mourdock (and Mitch Daniels, the Republican governor of Indiana?) believes that the order of priority of creditors in bankruptcy is more important than maximizing value for their retirees. Or Mourdock is trying to shift the blame for losing pension fund money on distressed Chrysler debt. Or he wants to score political points and embarrass President Obama.

I think it's the latter. And let's not kid ourselves about this being an example of the "little guy" going up against the big bad gobmint.

The Bondholders Crack

Looks like GM's bondholders jumped aboard at the last minute:

The revised offer to the holders of $27 billion in unsecured GM bonds amounted to a take-it-or-leave-it ultimatum: Go along with what the government auto task force's proposal or be left holding the assets a new GM doesn't want — ones with presumably little value at all.

In addition to the 10 percent of the stock in a newly formed GM that was originally rejected by bondholders, the new offer would give them warrants to acquire an additional 15 percent stake at a deep discount. That would come only if they agree to support selling the company's assets to a new company under bankruptcy court protection.

Basically, the government made them an offer they could not refuse. I think they got a worse deal than Chrysler's bondholders.

As long as I view this as basically an extension of the stimulus package, I think I can live with it. But I still worry about the autoworker pensions coming out of these bankruptcies. That hasn't been well-defined just yet. And this isn't pleasing:

"We will come out of this rid of some of the historic legacy costs that have been dragging us down for the last 20 years or so," GM Vice Chairman Bob Lutz said Thursday at an Automotive Press Association luncheon in Detroit. "We will come out of it with an all new focus on product development."

I guess the retiree health fund gets a piece of the company in this deal, so maybe they can save something for the workers. But really this is just a bad scenario, especially if it fails to save GM or Chrysler. It's hard to feel good about these deals.

Conservatives Now So Crazy They Think Obama Is Closing Chrysler Dealerships for Political Advantage

I'm a little late to this, but let me agree that the idea of Barack Obama having nothing better to do than to punish conservative car dealers for their donations to Republicans was always going to end up as a massive FAIL. Car dealers are a conservative lot - older, more male, more suburban, more business-friendly and more wealthy than the general population. Nate Silver does with graphs and statistics what should be immediately clear.

Overall, 88 percent of the contributions from car dealers went to Republican candidates and just 12 percent to Democratic candidates. By comparison, the list of dealers on Doug Ross's list (which I haven't vetted, but I assume is fine) gave 92 percent of their money to Republicans -- not really a significant difference.

There's no conspiracy here, folks -- just some bad math.

One of the insaneosphere denizens explains why they'll keep pushing this despite the lack of evidence.

Of course I want this looked into, of course. It's my guess it's a non-story, not my expert opinion.

But the MSM is so ridiculously biased that they make honesty a dangerous and politically counterproductive business.

The only way to even get the MSM to do their jobs and take a look is to pressure them by claiming Worst Scandal Eveh, even if we don't all necessarily buy that. But we have to claim that in order to spur any sort of media interest whatsoever. (That interest, of course, coming in the form of stories like Conservatives Now So Crazy They Think Obama Is Closing Chrysler Dealerships for Political Advantage, which isn't exactly the headline we seek, but that's the best we can hope for from the MSM.)

I obliged Ace with the suggested headline.

I understand the persecution complex; it's been conservative bread-and-butter for years. But that's quite an interesting admission, that the right will literally run with anything, no matter the truth, just to start up the Wurlitzer and make the media dance. That this ends up making them look relentlessly stupid in the end apparently doesn't matter.

The Next Auto Bankruptcy

As soon as I heard that GM and the United Auto Workers reached a deal similar on the merits to the Chrysler/union restructuring deal, I knew that the bankruptcy filing wouldn't be far behind. WaPo says next week, but more interesting than that, they claim that Chrysler will come out of bankruptcy as GM goes in:

The Obama administration is preparing to send General Motors into bankruptcy as early as the end of next week under a plan that would give the automaker tens of billions of dollars more in public financing as the company seeks to shrink and reemerge as a global competitor, sources familiar with the discussions said.

The move comes as the administration prepares to lift the nation's other faltering car company, Chrysler, from bankruptcy protection as soon as next week, industry sources said.

The shifts into and out of bankruptcy are landmarks in the Obama administration's attempt to broker a historic restructuring of the American auto industry in the space of months.

We're looking at $45 billion in loans, making it the largest investment in any company outside of AIG, I think. And the government would take 50% ownership in the deal. And the government is probably buoyed by the success and speed of the Chrysler bankruptcy, where virtually all the bondholders were eventually crammed down and the bankruptcy judge has expedited the process. Presumably they believe the same will happen with GM.

The loss of 2000 dealerships will really put a cramp on local economies. At least in Southern California, some cities have dozens of dealerships along a particular boulevard, and they account for a substantial portion of local sales tax revenue. These communities have already felt the pinch, but closure would devastate them.

Clearly the Administration has made up its mind that this is the best solution. But this is also why a robust public health care option must be invoked. The government has spent something like $55 billion on GM and Chrysler (with another $10 billion or so on GMAC, the financing arm). It could apply that to health care and suddenly make companies like them, and thousands of others, globally competitive.

Green Shoots, Leaves?

More dour news from the economy, on retail sales and new jobless claims. I concur with John Cole:

I guess we can throw “Sure, we are losing jobs but at least the rate of job losses slowed” out the window. Anyone who uses the phrase “green shoots” should be viewed as a lunatic.

And with 800 Chrysler dealerships about to shutter, more bankruptcies (Wow, Clear Channel, really?) on the way, and CRE loans threatening to take down regional banks as part of a second foreclosure wave, I think the new move from the political leadership needs to be from optimism to pessimism. If we continue to live in a rosy stress test world, we'll end up unprepared for the potential dangers to come. Complacency will sink us - contemporary reports in 1930 featured a lot of hopeful happy talk, too:

I will say that I think the greatest objective economic risk at this point is policymaker over-optimism. We need the European Central bank to continue loosening monetary policy, and it wouldn’t hurt if some of the world’s lesser central banks followed suit. We could use more stimulus in the United States and elsewhere in the developed world. We need corporate executives to understand the main risk to their interests to be coming from a lack of adequate economic recovery efforts rather than from losing small-bore political arguments with congressional Democrats. We need smart growth policy in terms of tax reform and trade. We need, in short, policymakers to continue to be worried. If they’re worried, and if they act on those worries, then more likely than not things won’t stay too bad for too long. But if they feel confident, then we might really be in trouble.

Unfortunately, the policy world has a hard time steering a middle ground between an atmosphere of panic, which is counterproductive, and an atmosphere of overconfidence, which is also counterproductive.

Leave the green shoots at the door and talk straight to the American people. And yes, we need a second stimulus bad.

The Lessons Of Chrysler

The bankruptcy judge in the Chrysler case basically told the hedge fund babies to quit their bitchin'.

The judge overseeing the bankruptcy of Chrysler on Tuesday took a significant step toward allowing the sale of most of the automaker to Fiat, approving the bidding procedures advocated by the company and backed by the Obama administration.

The decision by the federal bankruptcy judge, Arthur J. Gonzalez, is a setback for a group of Chrysler creditors who have argued that liquidation of the company or some other transaction could yield greater value. These lenders, primarily investment firms, have said that the plan for the Fiat transaction ran afoul of bankruptcy law and would chill efforts by others to produce competing, potentially higher bids.

But Judge Gonzalez disagreed, saying, “The court concludes that the bidding procedures are appropriate and necessary.” [...]

Judge Gonzalez earlier ordered the disclosure of identities of the Chrysler creditors, who had said making them public could lead to retaliation. A lawyer representing them claimed that the creditors had been harassed, and some had even received death threats.

Judge Gonzalez, said that their lawyers had not presented enough evidence of risk and gave the creditors until Wednesday morning to reveal their identities. The primary evidence cited by their lawyers was a set of anonymous comments on The Washington Post Web site.

These "death threats" that keep popping up every time a big-time financial company gets challenged never made sense to me. Now that I see they come from random Internet commenters named "jerkhoff" and it all becomes clear - they use whatever they can find to gather sympathy and chill dissent.

Meanwhile, as the deal moves forward, a couple lessons from how Chrysler dealt with its insolvency can be gleaned. First of all, Chrysler's road to profitability comes from importing the technology and management, not outsourcing the labor.

This big story was so easily missed because it runs against one of the main myths that our elites have cultivated about the US economy: that the country has a "comparative advantage" in highly skilled labor. In this story, the United States will continue to lose manufacturing and other "less-skilled" jobs as its economy becomes more concentrated in highly skilled sectors.

While this story of the US becoming a high skills center in the world economy may have been comforting to the elites, and was widely promoted by economists and the news media, there was never much truth to it. Highly skilled professionals did well in recent decades not because they succeeded in international competition, but rather because they were largely sheltered from it [...]

The end result of this protectionism for those at the top is a bloated overpaid sector of top managers, which is what we saw at Chrysler. If we compare wages for assembly-line workers in Europe and the United States, there would not be much difference between the pay of UAW members and their counterparts in Europe. However, there would be a very large difference between the multi-million dollar pay packages of the top executives at the US companies and their European counterparts. The pay gaps persist among the more highly paid engineers and management personnel.

Therefore, it was only logical that a bailout of Chrysler would seek to take advantage of the lower cost management and design skills available at a European car company like Fiat. In Chrysler, as in other companies, the high pay packages for these people are like an anchor dragging them down in international competition. If the US is to be competitive in the 21st century, we must either bring the pay of those at the top back down to earth or we should look to follow the lead of Chrysler and contract out for these services.

If only the bank executives competed on a level playing field with top talent abroad, most of whom get less in compensation and bonuses. And if only this perspective on restructuring and reducing in size were applied to the banks as well.

In return for its major loans to floundering auto companies too big and strategic to be allowed to go under, the Treasury opted for a structured bankruptcy, converting its loans to shares, ousting top executives, shrinking the companies. In return for its mega-loans to floundering banks that were also too big and strategic to fail, the Treasury has not opted for structured bankruptcy, has not converted its loans into shares, has not forced out top executives, has not moved to make banks smaller (save in its proposal to limit leverage). Indeed, its bailout of AIG rewarded bondholders such as Goldman Sachs to the detriment of everyone else.

Why the difference? Why compel the restructuring of one crucial industry and leave another, whose mismanagement all but brought down the world economy, basically untouched? Could it be that the leaders and folkways of American banking are familiar to the men who run the Treasury, while the leaders and folkways of the American auto industry are not -- meaning that they can assess Detroit more dispassionately than they can Wall Street? In short, where is the Treasury's Ron Bloom for banking?

If the Chrysler bailout turns out properly, maybe the Administration could take the hint.

Best Democracy Money Can Buy

For your reading pleasure, some snapshots of the banks and financial interests controlling our economy and eating up hundreds of billions in public money:

Their lobbyists:

A review of lobbying reports filed indicates that finance, insurance and real estate (FIRE) interests paid over $42 million to lobbyists who worked to defeat mortgage write-down in bankruptcy (cramdown) in the first quarter of 2009, as well as other anti-consumer legislation such as capping credit card interest rates.

$13 million of that comes from TARP recipients.

Then we have the bonus babies:

The 2008 AIG bonus pool just keeps getting larger and larger.

In a response to detailed questions from Rep. Elijah Cummings (D-Md.), the company has offered a third assessment of exactly how much it paid out in bonuses last year.

AIG now says it paid out more than $454 million in bonuses to its employees for work performed in 2008.

That is nearly four times more than the company revealed in late March when asked by POLITICO to detail its total bonus payments. At that time, AIG spokesman Nick Ashooh said the firm paid about $120 million in 2008 bonuses to a pool of more than 6,000 employees.

And there are the fraudsters:

New York AG Andrew Cuomo just issued 100 subpoenas to investment firms in his expanding investigation of pay-to-play schemes that defraud public employee retirement funds, and announced the participation of 100 officials in 36 states' attorney general offices in the probe.

(This pension fund placement agent scandal looks like a doozy.)

And finally, you have the good old American greedheads:

The White House, auto executives and union representatives were all able to come to an agreement last week to keep Chrysler out of bankruptcy. But the car company's creditors -- Wall Street banks and hedge funds -- refused repeated compromises and drove the company under.

The refusal doomed a major American auto company to bankruptcy, but it may have been a smart business move for the lenders.

Many of the Wall Street firms holding Chrysler bonds may also own credit default swaps that they bought to hedge their bets. These swaps, which are essentially like an insurance policy on the bonds should Chrysler default, were likely mostly issued by AIG.

AIG, thanks to the government bailout, has paid off swaps in the past at 100 cents on the dollar. Under the deal they would have had to accept with Chrysler, the bondholders would have received as little as 30 cents on the dollar, for example.

Why take 30 or 35 cents on the dollar from Chrysler when you can get the whole buck from the American taxpayer?

Like one of these hedge fund managers recently said, "This is America!" It sure is. The land of the "we're going to bring down your car company so taxpayers can indirectly bail us out with our credit default swaps from the company paying out millions in bonuses, freeing us up with more money to put into defrauding public pension funds, and our lobbyists will ensure it."

Stupid Unions, Getting Their Contractually Obligated Retirement Health Care

We have another meme about the Obama Administration's Chrysler deal - they gave the union the farm.

Labor unions usually dread bankruptcy, and for good reason. Their pay, benefits and pensions typically suffer significant cuts, as airline and steel workers can attest.

But for the United Automobile Workers union, Chrysler’s Chapter 11 case, which began in New York on Friday, could turn out to be — if the company survives and thrives — the Cadillac of bankruptcies.

The U.A.W., for example, has received upfront protection from the Treasury Department for its pension plan and the fund that will take over responsibility for retiree medical benefits.

Moreover, that fund, called the voluntary employee beneficiary association, or VEBA, will control 55 percent of the equity in the new Chrysler once it emerges from bankruptcy, and hold a seat on the Chrysler board.

That's because they made a deal with Chrysler beforehand, as did practically everyone but the vulture funds. So this is not a traditional bankruptcy. Emptywheel cuts up this nonsense:

Now to be fair, there is a germ of truth in this article: the poor little hedge funds purportedly being strong-armed by the union do hold debt that takes precedence over the VEBA (retiree health care) fund. In relative terms, a tiny bit of it. But that's their problem, not that the evil union stole their money, but that the larger secured debt-holders have a big enough share of the debt to be able to make a deal without them; as masaccio explains, it's called cramdown, and it's not unusual. The key to Obama's deal is not any allegiance to the union--tens of thousands of jobs are going to be lost in this deal even in the best scenario, and current workers have already made huge sacrifices (see this article for a description of what the Chrysler deal really means for the union members themselves)--but instead due to his leverage over the big banks--JP Morgan Chase and Citi--that have been sucking at the federal teat for the last year, and to those banks' interest in getting the most money out of their investment in Chrysler. I guess those poor little hedge funds should have found stronger big players to associate with, because JP Morgan Chase and Citi's interests are not in the same place as the hedge funds (or weren't after Obama's team started negotiating in earnest). Furthermore, the shills for these poor little hedge funds unions pretend that, without the government intervention they decry, there would be anything left for them to take.

If you believe the unions unfairly got a better deal than those poor hedge funds, you believe that debtholders should be able to take down the economy for their own pleasure and reward. Maybe the bondholder community should take the message before the same thing happens to them on GM as well.

Grading On A Curve

The news leaking out from the stress tests just got worse and worse. First all the banks would be fine, then one would need more capital, then "at least" one, then six. So the banks did the responsible thing - they sought a delay while begging for a second opinion.

Citigroup Inc. may need to raise as much as $10 billion in new capital, according to people familiar with the matter, as the government continues negotiations with banks over the results of its so-called stress tests.

The bank, like many others, is negotiating with the Federal Reserve and may need less if regulators accept the bank's arguments about its financial health, these people said. In a best-case scenario, Citigroup could wind up having a roughly $500 million cushion above what the government is requiring.

The discussions stem from the tests being run by the Fed and the Treasury to assess the health of the country's 19 largest banks. Those results will be released Thursday, later than initially planned.

It's amazing that the banks are somehow allowed to negotiate the test results, like a slacker tenth-grader trying to pass calculus. This undermines the whole credibility of the tests, effectively making them useless. And this is a direct result of the Treasury Department structuring these tests in such a way that assured the banks nobody would fail, and all of them would get whatever funds were necessary, whether through private capital or a virtual government guarantee. It seems to me that the stress tests could have been used as leverage for negotiating Administration priorities. Instead, the opposite is the case.

It's hard to discern at a remove how much of the peevishness is the discovery by banks that they have little to lose in behaving like utter pigs. We saw it today with the failure of the bankruptcy mod bill in the Senate (even after concessions had been offered). Admittedly, Chrysler was a partial exception, since the Treasury made considerable economic concessions, but finally drew the line and put the company into bankruptcy. However. Team Obama wanted to make a show to prevent even worse shenanigans with GM (but the New York Times points out that the pre-pack could take as long as four months, hardly a quick in and out, and some bankruptcy lawyers have pointed out that other deals expected to be fast track have taken a year).

But let's face it, in a real test, you don't get to score it yourself and then argue the grade. The banks fundamentally don't seem to accept that they are regulated entities and expect to be treated as equal partners. Given the likely decay in employment given the weakening fundamentals, all the Treasury is doing is getting the banks to face the music perhaps six months ahead of time, which is something they should be doing on their own.

The Administration had something of real value, namely information, and they failed to use it. As a result, cramdown dies, thanks to the Mortgage Bankers Association. Foreign banks with substantial ties to the US can refuse to give up tax information on their offshore customers with impunity. And they'll be sure to go after the credit card reform bill in the Senate next week.

With respect to Chrysler, I keep hearing that Obama won a game of chicken with the hedge funds, and granted Cerberus ended up with nothing while Perella Weinberg accepted the government offer at the last minute. But Chrysler sits in bankruptcy, and nothing there is assured except that some of the fund managers will get their CDS paid off.

Geithner decided not to use the tools at his disposal. And I don't think he did that by accident. At this point, I'll have to believe this talk about a new Pecora Commission when I see it.

The Whine Of The Brooks Brothers Suits

Hedge fund managers are awfully steamed about the Snidely Whiplash mustache that Obama hung on them yesterday:

President Obama's harsh attack on hedge funds he blamed for forcing Chrysler into bankruptcy yesterday sparked cries of protest from the secretive financial firms that hold about $1 billion of the automaker's debt.

Hedge funds and investment managers were irate at Obama's description of them as "speculators" who were "refusing to sacrifice like everyone else" and who wanted "to hold out for the prospect of an unjustified taxpayer-funded bailout."

"Some of the characterizations that were used today to refer to us as speculators or to say we're looking for a bailout is really unfair," said one executive who spoke on condition of anonymity because of the sensitivity of the matter. "What we're looking for is a reasonable payout on the value of the debt . . . more in line with what unions and Fiat were getting." [...]

"It sounds like people are being bullied right now," said Ron Geffner, a partner at the law firm Sadis and Goldberg, which represents hedge funds. "To play the 'I stand with Chrysler, I stand with families, I stand with the dealers, I stand with the consumers' -- that's great conceptually, but . . . I stand with the fact that we live in a capitalist society where companies who don't modify their business plans and stay current die and go by the wayside."

It's simply a lie to say they wanted a payout in line with the unions and Fiat. They wanted a bankruptcy so they could cash in on credit default swaps that pay out in the event of a bankruptcy, and make a killing at the expense of Chrysler.

Also, if we indeed do live in a capitalist society, where everyone is treated equally and companies must act within the boundaries of the regulatory landscape, then I expect these hedge fund managers to march en masse to Capitol Hill and demand they be charged the regular marginal tax rate on their income rather than the capital gains rate that allows them to hide billions from the federal government. Surely, because they believe in capitalism and the level playing field so much, they'll get right on that.

I don't have a problem with investors acting purely in their economic interests, but government has a role to play in making sure those interests aren't as perverse as this, where a minority of investors (the bigger banks signed off on the 28 cents-on-the-dollar deal) can throw a company into bankruptcy because of the side bets. And those investors can own up to the fact that their desire for CDS money left them rooting for bankruptcy. It'd be the honest thing to do.

The Hedge Funds Destroy The Economy, Again

Over the last 30 days, Chrysler secured deals with their union. They got the bondholders to take 28 cents on the dollar. They made a deal with Fiat. They lined up pretty much every stakeholder and got them all to share in the pain. And then the hedge funds said no and forced them into bankruptcy.

Chrysler LLC is going to file for bankruptcy, an administration official confirmed to CNN Thursday.

The filing comes after some of the company's smaller lenders refused a Treasury Department demand to reduce the amount of money the troubled automaker owed them.

Chrysler officials had no comment on the bankruptcy report. The company faces a Thursday deadline from the Treasury Department to reach deals with creditors who had loaned the company about $7 billion.

But the filing will not mean the halt of operations or liquidation for the troubled 85-year old automaker. Instead, the administration expects to use the bankruptcy process to join Chrysler with Italian automaker Fiat.

In addition, the United Auto Workers union announced late Wednesday night that its membership at Chrysler had overwhelmingly ratified a concession contract reached between the company and union leadership on Sunday night.

This will be a quick bankruptcy, since most of the deals are in place. But in this case, the hedge funds (they are the "smaller lenders" referenced in the article) are more likely to get a better deal from a bankruptcy judge. And we're certainly going to see if anyone trusts buying a car from a company in bankruptcy. So Chrysler comes out of this, but diminished, because the hedge funds demanded payment.

Now can we tax their income as income instead of capital gains?

...Obama on the hedge funds, just now:

While many stakeholders made sacrifices and worked constructively, I have to tell you, some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them. I stand with Chrysler's employees, its families and communities. I stand with Chrysler's management, its dealers and suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars. I don't stand with those who held out when everybody else is making sacrifices.

Obama had an interesting bit last night where he talked about the enormous scope of the political landscape, and how "I can't get the banks to do what I want them to." It was a telling example.

...By the way, the biggest windfall for the hedge funds is that they bought lots of credit default swaps that they can now cash in on to hedge their investment with Chrysler. They stand to gain much more money with Chrysler in bankruptcy. And ultimately, that was the decision they made. We're talking billions.

Shrinkage Of The US Auto Industry

It looks now like GM and Chrysler will avoid bankruptcy, by consolidating operations, giving stakeholders a haircut and basically shrinking the size of the American auto industry. Chrysler's biggest lenders reached a deal with the Treasury Department to accept about 28 cents on the dollar for the company's debt. Add this to their deal with the UAW forcing them to accept losses, and an imminent deal with Fiat, and the automaker will presumably meet the requirements to borrow another $6 billion in federal assistance.

As for GM, they're essentially shrinking their output, cutting brands like Hummer, Pontiac, Saab and Saturn, and closing up to 1,000 dealerships (though that's on top of what could be another 1,600). That's likely to put 130,000 people out of work at least.

Emptywheel has this to say about the GM restructuring:

That said, today's plan finally gets around to cutting the number of dealers that GM will need to cut to turn itself around--they're talking of closing 2,600 of their 6,200 dealers across the country (did I say tons more job losses?).

On a conference call with GM CEO Ray Young, I asked how they were going to pull this off--was the government going to help them get out of their contracts? As a later questioner noted, the elimination of the Oldsmobile dealers was a very costly process. Young basically said that GM now could use the Oldsmobile process as a lesson in how not to do things.

That said, Young wasn't prepared to explain how GM plans to get out of 2,600 dealer contracts without billions in costs. The government is not going to help--so this is still an area where bankruptcy would offer an advantage to GM over this restructuring. Young said the impacted dealers would be approached over the month of May, and dealers would be wound down over 2009 and 2010. One of the reasons for the big factory idling, he explaned, was to help dealers sell down stock before they closed up shop (which means dealers may be able to pay off their debt before closing their business.

I'll again point out that it makes perfect sense to shrink the part of the American auto industry that makes AUTOMOBILES, but not to shrink the companies that could make other useful durable goods; namely, wind turbines, high speed rail cars, and other factory-produced items. Why can't GM and Chrysler get in on those contracts? Why would we build up new factories instead of retooling the ones we have?

Victory, Comrades!

So the American automakers are slowly moving toward their final positions. Chrysler put together a deal with the UAW to save them $200 million a year, and similar deals will probably be applied to Ford and GM. Obviously, Chrysler's deal with Fiat must still be consummated. As for GM, looks like we're all going to own it, and I trust this means we all get a discount.

The U.S. Treasury would own at least a 50 percent stake in General Motors under a plan the company released today to avoid bankruptcy.

The strategy would essentially formalize the government's control over one of the icons of corporate America.

"I'm a believer in dealing in reality," GM chief executive Fritz Henderson said in announcing the new plan. "We've gotten great support from the Treasury. It has viewed this matter from day one as a kind of private equity investment. It has pushed us in a lot of ways."

The announcement came as the company said it would further shrink the number of workers, dealers and types of cars in an attempt to prepare it for a United States shrunken by the recession.

Henderson said GM will eliminate 21,000 jobs by next year and phase out its Pontiac line as part of a last-ditch restructuring effort to keep the company afloat and win additional government aid.

Now this would be some ACTUAL socialism in the traditional sense. I understand the concept of trying to save all these manufacturing jobs, but I agree that a state-owned GM, at a time when the Administration is seeking policies that move away from large auto manufacturers with the product profile of a GM, could be a problem. What I've often little understood is why the government couldn't offer contracts to companies like GM to retool their factories to make high-speed rail cars and wind turbines and other physical parts of the green economy. Maybe this could be a step toward it.

Haggling With Taxpayer-Owned Companies

This is a maddening enough situation when you isolate it, but keep in mind that the government has kept these same banks afloat with hundreds of billions of dollars in capital.

The Obama administration has entered a tense showdown with several of the nation’s largest banks that appears likely to determine whether Chrysler survives.

Last week the Treasury Department, which runs President Obama’s automobile task force, presented banks holding $6.9 billion in Chrysler’s secured debt with a plan under which they would get about 15 cents on the dollar, or about $1 billion.

That is roughly the trading level of Chrysler debt in recent days, a reflection of Mr. Obama’s declaration that the firm is not viable on its own, and must put together a partnership with Fiat or go out of business [...]

On Monday the banks, led by JPMorgan Chase and Citigroup, rejected the administration’s plan outright, with some of the debtholders arguing that they would rather break up Chrysler and sell its assets — notably its Jeep brand — because they believed that they would receive more money selling the assets than they were being offered by the administration.

The lenders offered 65 cents on the dollar and a 40% stake in Chrysler, and the government has now counter-offered with 22 cents and a 5% stake in the reorganized company. The union is sitting on the sidelines at this point.

Can I just re-emphasize how ridiculous this is? For all practical purposes, we own the banks that are haggling with us. And this isn't the only area in which the banks are using our money to show leverage over our government. Among the millions of dollars in political lobbying, the banksters are stopping progress on consumer bills:

The banks have made it difficult for Congressional Democrats and the White House to give stretched homeowners a stronger hand in negotiating lower monthly payments on mortgages and to prevent credit card companies from imposing higher fees and interest rates.

Having won some early skirmishes by teaming with Republican allies, the banks now appear to have the upper hand and may wind up killing — or at least substantially diluting — both pro-consumer measures.

I don't think they'll stop the credit card bill - the President has personally stepped in on that one and I expect a decent bill to pass, the way it did yesterday - but cram-down does look dead, with key Democrats jumping ship. James Kwak correctly sources my anger.

The banks leading the charge over Chrysler: JPMorgan Chase and Citigroup. The banks opposed to cram-downs: Bank of America, JPMorgan Chase and Wells Fargo. The banks blocking credit card protections: American Express, Bank of America, Capital One Financial, Citigroup, Discover Financial Services, and JPMorgan Chase. All or almost all are bailout beneficiaries. But don’t blame them: they’re just doing what they can to maximize their profits at the expense of the taxpayer, which is perfectly legal (and even ethical, depending on your conception of shareholder rights). Instead, you should be wondering why they are in a position to be maximizing profits at the taxpayer’s expense.

If you’re Tim Geithner or Barack Obama, you’re probably thinking that now would be a nice time to have a controlling interest in these banks so they would stop blocking your efforts to help the rest of the economy. But the government has consistently bent over backward to avoid gaining control over the banks. It began with Henry Paulson (Bush administration) taking non-convertible, non-voting preferred shares last October; it continued with the Citigroup and Bank of America bailouts in November and January (during the transition period), in which the banks got underpriced asset insurance in exchange for more non-voting shares; and it peaked in the third Citigroup bailout in February, when the Obama administration insisted on forcing other investors to convert preferred shares into common, precisely to avoid getting a majority stake.

If the government had simply accepted the ordinary consequences of its actions - majority ownership - it would at least not have to plead for favors from Citigroup and Bank of America, who desperately needed help on any terms the government chose to dictate. Arguably JPMorgan and Wells are in a different situation, since the government was never in a position to buy a majority stake, and they are claiming they only took TARP money as an act of patriotic solidarity. But leaving aside TARP capital, the government has gone to extraordinary lengths to protect the financial system - guarantees on money market funds, increased guarantees on deposits, guarantees on bank debt, massive programs to lend against or purchase securities, not to mention the AIG bailout conduit - without which none of these banks would be in a position to make a profit. Yet it has left the banks in a position to capture the entire surplus from its actions, without getting the kind of concessions that would come in handy now.

When government takes its own tools away from itself, this is the consequence - a society governed by oligarchs.

Banks Aren't Lending, Don't Have Enough Capital, Other Than That They're Fine

Tim Geithner showed up on Capitol Hill today, facing the Congressional Oversight Panel (whose leader got a brushback from the Beltway establishment and the right leading up to this hearing) to defend his plans for the financial industry.

Treasury Secretary Timothy Geithner defended the bank rescue program devised by the Obama administration Tuesday as the International Monetary Fund predicted U.S. financial institutions could lose $2.7 trillion from the global credit crisis [...]

Geithner said the new plan "strikes the right balance" by letting taxpayers share the risk with the private sector while at the same time letting private industry use competition to set market prices for the assets.

"If the government alone purchased these legacy assets from banks, it would assume the entire share of the losses and risk overpaying," Geithner said in his remarks. "Alternatively, if we simply hoped that banks would work off these assets over time, we would be prolonging the economic crisis, which in turn would cost more to the taxpayer over time."

Geithner said "the vast majority of banks" have more capital than they need to be considered well-capitalized. But he said the economic crisis and the bad assets have created uncertainty about the health of individual banks and reduced lending across the system.

I think the vast majority of banks are well-capitalized only if you mean "not the big ones." I mean, we have pretty hard evidence on this. The Treasury wouldn't play accounting games by converting preferred shares to common stock, which has the express purpose of reducing the liabilities on the banks' balance sheet and giving the impression that THEY ARE MORE WELL-CAPITALIZED, if the opposite was true. James Kwak pretty well takes apart the whole idea, so I won't comment further.

In addition, if the banks were so well-capitalized, they would actually lend instead of hoarding capital, which after all is the function of a bank.

Lending at the biggest U.S. banks has fallen more sharply than realized, despite government efforts to pump billions of dollars into the financial sector.

According to a Wall Street Journal analysis of Treasury Department data, the biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February, the latest available data, than in October, the month the Treasury kicked off the Troubled Asset Relief Program.

The total dollar amount of new loans declined in three of the four months the government has reported this data. All but three of the 19 largest TARP recipients with comparable data originated fewer loans in February than they did at the time they received federal infusions.

Interestingly, the same banks that cut back the most on lending are the ones who have received the most money from the federal government, which suggests that the TARP funds might as well have been thrown down a well. But the banks want to return that TARP money (and I'm sure they'll get around to that any day now) while talking up their own earnings, which have been seen by the street as soft as tissue paper. To their credit, Treasury wants to put some limits on that return of TARP money, based on some amorphous idea of whether repayment is in the "national economic interest". But clearly, the banksters have never acted in that interest. This sad tale is sadly indicative:

Top officials at Chrysler Financial turned away a government loan because executives didn't want to abide by new federal limits on pay, according to new findings by a federal watchdog agency.

The government had offered a $750 million loan earlier this month as part of its efforts to prop up the ailing auto industry, including Chrysler, which is racing to avoid bankruptcy. Chrysler Financial is a major lender to Chrysler dealerships and customers.

In forgoing the loan, Chrysler Financial opted to use more expensive financing from private banks, adding to the burden on the already fragile automaker and its financing company.

They have always been more concerned with their personal fortunes than the health of the overall economy or even their own businesses. The greed here is astonishing.

Let's be honest here. Many banks are insolvent, and even the Administration admits that some will need more help. They don't want to sell the toxic assets because their essential insolvency will be too obvious to ignore. And they don't want the stress tests revealed for basically the same reason. At no point has the government appeared willing to end the stranglehold that the elites and the financial interests have over this economy.

I continue to worry that the Administration’s “wait-and-see” strategy is just increasing the ultimate costs - in terms of financial losses and unemployment. No government ever likes to tackle a severe banking crisis head on (mostly because that would greatly upset the financial elite), but it’s almost always the right thing to do.

I remain unconvinced by the Treasury’s line that “there is no alternative” to their approach. Or perhaps they are shifting towards the line that: “based on information that only the government has (and can have), it is our assessment that all other approaches would be more damaging.”

If that is now their position, we have built a financial system that is immune to democracy - today’s complexity and lack of transparency mean that it is easier than even to become too big to fail. The major banks now know this and will behave accordingly.

Oh, and by the way, the PPIP plan may be open to fraud and puts the taxpayer on the hook for close to $2 trillion.

It's their world, we just live in it.

More at TPM Muckraker.

JP Morgan Chase Greedier Than The Actual J.P. Morgan

Marcy Wheeler has been all over the effort by top banks who have been bailed out by the US government pushing Chrysler into bankruptcy by resisting pressure, as bondholders, to cut the carmaker's debt. Apparently there are a number of reasons for this.

The J.P. Morgan position, said these people, is that concessions by Chrysler's creditors should be treated as they would be in a normal bankruptcy -- meaning the billions of dollars of government debt and the UAW retiree health-care obligation should be wiped out before the secured lenders lose anything on their $6.8 billion.

In other words, JP Morgan Chase would be able to jump the line, as in a bankruptcy, and get repaid before US taxpayers and retirees. This is the same bank that's accepted at least $25 billion in public money, through TARP payments, AIG counter-party funds, and more, just to survive. But that's not all. A bankruptcy would cause, in Marcy's estimation, the loss of over 200,000 Chrysler jobs. You would think that a bank with substantial outlets in Michigan wouldn't want to see 200,000 unemployed Michiganders without the ability to deposit money into their Chase bank accounts. But they've got that covered.

JP Morgan Chase has figured out a way to profit off all the unemployed people it is creating in Michigan. Chase, you see, provides Michigan's unemployment insurance debit cards.

And the services can end up being pretty expensive for beneficiaries. Here's what Chase charges (and will be able to charge those that it causes to lose their job) for use of their debit card.

More than two withdrawals in a 2-week pay period: $1.50 each

Non-Chase withdrawals: $1.50 each

More than one bank teller withdrawal in a pay period: $4.00 each

Transaction denied for insufficient funds at POS, ATM, or teller: $1.50 each

More than one ATM balance inquiry in a pay period: $1.00 for each

Statement delivered by regular mail: 95¢ per statement

Granted, if an unemployed person manages their meager finances well and has Internet access (those inquiries are free), they probably can get by on one weekly withdrawal. But if someone loses track of their spending or doesn't have Internet access or likes dealing with human beings, these fees are going to start to take a huge bite out of what little they get.

Though debit card users can spend all they want in stores. As with Chase customers normally, Chase loves when you use your debit card at stores, because they get a bigger fee from merchants (back in the day when we still banked at Chase, that's what the Chase guy told me) than if you use a credit card. They're profiting coming and going.

The word "conflict of interest" fails to describe JP Morgan Chase at this point. And so if they want to force workers onto the street while keeping corporate welfare for themselves, consumers have a choice as well. They can cut up their cards.

My husband and I decided the only way to pressure JP Morgan Chase to negotiate in good faith with Chrysler was to close our Chase accounts. We want our money to go to a bank that is investing in rebuilding Michigan--not bankrupting it.

Now, FDL and Progress Michigan are calling on others to join our Chase boycott.

Sign the petition

Join the FaceBook group

Find your Michigan Chase branch and close your account

We don't have much more than our purchasing power at this point. Help out if you can.

More On The Auto Plan

Things are moving fairly quickly on the auto company front. Within an hour or so of President Obama's announcement about two struggling automakers, Chrysler announced the framework of a deal with Fiat, while GM's new leaders immediately stepped into their positions. Clearly the President's call for Chrysler to find a merger partner or be forced into bankruptcy focused their minds a little bit.

Obviously, there is concern that a double standard is being applied to the auto companies when compared with the larger banks, and I agree. On the substantive merits of this proposal, however, I think Obama had few alternative options. Emptywheel, who lives in Michigan and has worked for auto companies in the past, had a good take.

...here's what Obama seems to be announcing today:

• Chrysler will be forced into a marriage with Fiat in the next month or be denied any additional aid--which will surely put it into bankruptcy
• GM (which failed to get the required concessions from the UAW and bond-holders) will have 60 days to come up with a new, more aggressive turn-around plan
• At the end of 60 days, the government may require a "quick rinse" bankruptcy (one month) to get GM's stakeholders to take their losses

Thus far, it's tough to tell whether this is a good plan or not. As far as Chrysler, they can't survive alone. So the forced marriage gives it one chance to avoid bankruptcy that otherwise seems inevitable. I don't think Fiat will take the deal, so I expect Chrysler to enter bankruptcy within the next month.

As for the GM plan, they are finally talking about dealer concessions (which a "quick rinse" bankruptcy would help, too), which was the element that everyone had thus far ignored. And some of this tough love with GM seems to be a logical next step given bond-holders' intransigence since December. GM had been, thus far, unable to get its bond-holders to accept the losses they had told GM, in November, they would take, so Obama is threatening to use a court to make them do so--followed by UAW concessions [...]

In other news, here are the assessments of the GM and Chrysler plans. They strike me as eminently reasonable assessments. My biggest complaint, thus far, is that the Administration does not mention "health care" in either of the assessments. They mention legacy costs, but not health care. So thus far, they seem unprepared to deal with the fundamental competitive disadvantage that we're asking our manufacturing companies to shoulder.

It seems to me that the UAW - and by extension line workers - have been making nothing but concessions throughout this ordeal. Heck, even Brian Kilmeade on Fox and Friends admitted that the salaries for domestic auto workers are in line with the Japanese, and the main differences come in health care costs. The facts are that manufacturing industries in this country remain at a competitive disadvantage because we are the only industrialized nation where employers are burdened so excessively with the cost of health care, and productivity does not fill the gap. So forcing dealers and bondholders to the table so that the costs of restructuring are shared makes sense, as does reforming health care to increase global competitiveness.

A few other parts announced by Obama were intriguing - he put a government guarantee on warranties of GM and Chrysler cars, which could help them keep customers should they fall into a quick rinse bankruptcy; he assigned a Director of Auto Recovery to "support the workers, communities and regions that rely on the American auto industry"; and he sought to revive the "cash for clunkers" proposal that has succeeded in other nations, particularly Germany, in boosting auto sales:

As he rolled out one last reprieve for the nation's troubled automakers, President Obama also restarted a legislative push that ran out of gas during last month's stimulus talks: a $10,000 rebate offer to car owners who traded in their old models for more fuel-efficient wheels.

The "cash for clunkers" plan was originally proposed by Sens. Dick Durbin (D-IL) and Tom Harkin (D-IA), at a total cost of about $16 billion. It was dropped from the stimulus amid GOP opposition, but Obama said today that he would "work with Congress to identify parts of the recovery act that could be trimmed to fund such a program and make it retroactive starting today."

Senate leaders sounded warm to this idea today. Increasing fuel economy at the low end by getting the biggest emitters off the streets actually does more to reduce greenhouse gas emissions than moving someone from a moderately efficient vehicle into a hybrid. So this makes some sense economically as well as environmentally.

I think a lot of people hope that the President would show the same tough love to the banking industry that he did with the auto industry today, and that is the main headline. However, there is an outline of how this can possibly work for the better for the auto industry and the workers who rely on it.

Just One More Fill-Up?

The government had until March 31 to assess the restructuring plans for GM and Chrysler and decide whether or not to give them more loans until they can sustain themselves. Obviously, the Obama Administration didn't much like what they saw.

President Barack Obama is sending a blunt message to Detroit automakers: To survive — and win more government help — they must remake themselves top to bottom. Driving home the point, the White House ousted the General Motors chairman as it rejected GM and Chrysler's restructuring plans.

Obama is set to elaborate on that message Monday when he announces what his White House told reporters over the weekend: Neither GM nor Chrysler submitted acceptable plans to receive additional federal bailout money [...]

Frustrated administration officials, speaking on condition of anonymity ahead of Obama's announcement, said Chrysler has been given a 30-day window to complete a proposed partnership with Italian automaker Fiat SpA. The government will offer up to $6 billion to the companies if they can negotiate a deal before time runs out. If a Chrysler-Fiat union cannot be completed, Washington plans to walk away, leaving Chrysler destined for a complete sell-off [...]

For GM, the administration offered 60 days of operating money to restructure. Officials say they believe GM can put together a plan that will keep production lines moving in the coming years.

There's a lot to unpack here.

First of all, the most high-profile fallout is that GM CEO Rick Wagoner was forced out. Michigan Gov. Jennifer Granholm described Wagoner, who was with GM for 31 years, as a "sacrificial lamb." He admittedly was at the helm when American automakers failed to adjust over the last decade, making SUVs and losing market share to Toyota and Honda. The company has lost $82 billion over the past 4 years.

And obviously, bailouts of any kind are unpopular at this point, and must be met with major concessions. However, one must be struck by the dichotomy of the President and bank CEOs making nice-nice on Friday, and forcing Wagoner out today. As Atrios put it, "apparently the real economy is less important than the paper one." Josh Marshall digs a bit deeper:

Citi does not have the same CEO it did at the start of the crisis. And the government installed a new CEO at AIG after the initial bailout. Another rejoinder might be that the automakers' plight is of a much more longstanding vintage than that of the finance barons, though I suspect, as we learn more, we'll be revisiting those assumptions. And even after getting substantial government aid, I think Wagoner's the first auto industry CEO to get the boot. So perhaps we should be asking why it is that something like this hasn't happened sooner.

All that said, though, after that meeting of the major bank CEOs at the White House last week, it's hard for me not to think that, for all that has happened, their clout in Washington is just on a scale where they are accepted as peers of the realm. And simply immune to certain sorts of treatment.

The White House may believe that anger over the initial auto bailout, and bailouts in general, force them to be tough. And certainly the government should not throw good money after bad if there's no hope of viability. But with millions of jobs at stake, certainly a good bit of people are going to notice that the auto industry is being forced into concessions that practically no bank has had to make.

Car Market Competition

Nearly lost in everything else this busy week, the President has hinted at more aid for the auto industry, albeit with major conditions.

The aid package for the companies will be unveiled in the next several days, he said, and will be contingent upon the companies adopting business plans that reflect the fact that they have a smaller share of the auto market.

"We will provide them some help," Obama said during an online "town hall" event.

"I know that it is not popular to provide help to autoworkers -- or to auto companies -- but my job is to measure the costs of allowing these auto companies just to collapse," he said [...]

"If they're not willing to make the changes and the restructurings that are necessary, then I'm not willing to have taxpayer money chase after bad money," Obama said. "And so a lot of it's going to depend on their willingness to make some pretty drastic changes. And some of those are still going to be painful, because I think you're not going to see a situation where the U.S. automakers are gaining the kind of share that they had back in the 1950s."

I think that's essentially right. The auto market has fractured and we can no longer expect the US industry to be sustained by the government at the same level. By the way, the creditors, specifically the bondholders, have to understand that as well. Everyone's going to have to take a haircut, and then we'll have some good old-fashioned competititon.

Just this week, India's Tata Motors released the world's cheapest car, but that will be confined to the local market unless it includes safety measures to allow it to be sold in the US. The electric market in this country is starting to heat up, from the 200 mpg Aptera, a futuristic three-wheeled vehicle which is trying to change its status as a "motorcycle" (which disqualifies it for certain tax breaks for consumers), to Tesla's just-released $50,000 sedan, the cheapest all-electric vehicle currently on the market. The prices will continue to drop through increased competition, spurring innovation. It feels a little like the 1920s, with a proliferation of smaller car companies competing for market share. That's probably better for consumers, and since the competition is playing out on fuel economy, better for the environment as well.