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The Biz Roundup April 7

Drive this in L.A. and your life expectancy drops to 5 minutes.

General Motors and Segway on Tuesday unveiled a tiny two-wheeled, two-seat electric car designed to drive on its own and automatically avoid collisions. . . .

Neither GM nor Segway gave any prices or dates when production might start for the vehicle, dubbed Puma – Personal Urban Mobility and Accessibility – as they showed a prototype in New York.

(“Segway and GM launch Puma joint venture ,” Financial Times, April 7) The bitty-sized electric vehicle song has been sung many times before. Yet this new version will automatically avoid collisions. Like the Escalade running a red light at 40 mph. What does this thing have? Ejector rockets?


They took our money. Now give that money to the other guys taking our money!

Part of what stands in the way of a deal with Fiat is restructuring Chrysler’s debts and [Michigan Governor] Granholm said following a panel discussion this morning that any of those debt holders who received backing from the government’s Troubled Asset Relief Program, or TARP, “should be willing to take a haircut.” Or, in other words, write down the value of that debt.

(“Gov: Tell bailout banks to cut Chrysler a break,” Detroit Free Press, April 7) Now there’s a prisoner’s dilemma if ever I’ve seen one. If TARP-rescued banks cut a deal for GM and Chrysler and accept a sub-par price for the secured debt those companies hold, then they take substantial write-downs and look bad to the taxpayer. If they don’t cut a deal, the banks become solvent faster but risk losing taking bigger write-offs if the government does not bail out the automakers. And if the government does bail out the automakers, then the banks still preserve face (they get the full value of the debt) and taxpayer money is used to shore up the automakers, just as it would if the banks cut the value of the debt. So what’s the outcome? The rational choice, like in all prisoner dilemma games, is to betray everyone — refuse to negotiate the debt, take the risk of losing even greater money, and letting the government foot the bill. For those of you who aspire to become economics or math geeks, this situation is a Kaldor-Hicks efficiency rather than a Pareto efficiency. Which means it sucks to be the automakers owing money to TARP-rescued banks.


And speaking of bankruptcy, guess who’s next?

General Motors Corp is in “intense” and “earnest” preparations for a possible bankruptcy filing, a source familiar with the company’s plans told Reuters on Tuesday.

A plan to split the corporation into a “new” company made up of the most successful units, and an “old” one of its less-profitable units, is gaining momentum and is seen as the most sensible configuration, said another source familiar with the talks.

If the plan goes through, the new GM would be expected to assume some previous creditor debt from bankruptcy proceedings, such as secured debt, said the second source, adding that GM bondholders were likely to lose substantial value in bankruptcy.

(“GM in “intense” preparations for bankruptcy: source,” Reuters, April 7) GM and the TARP-rescued banks opt for the ten years in jail. Told you. The holdout bank? Chase, of course.

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