Frontier goes Chap 11...

[climbhappy]

andy,
i agree with you on that. the american consumer fueled this entire decade's growth with leveraged money. call it even margined money on their house. just like a margin call when the market tanks is the housing debacle. one good result would be a lessening of the trade gap. it's so enormous will this put a dent in it?

I don't know what else that bernanke could do since alot of the jobs lost will never come back and the ones created were low paying. Then this goes right to your point, and who'll be able to afford the colt 45 and the trip to mickey Ds?

 

[Andy]

andy,
i agree with you on that. the american consumer fueled this entire decade's growth with leveraged money. call it even margined money on their house. just like a margin call when the market tanks is the housing debacle. one good result would be a lessening of the trade gap. it's so enormous will this put a dent in it?

I don't know what else that bernanke could do since alot of the jobs lost will never come back and the ones created were low paying. Then this goes right to your point, and who'll be able to afford the colt 45 and the trip to mickey Ds?

I read a stat early last year discussing automotive sales in CA and FL. In 2006, more than 25% of the auto purchases were paid with HELOCs (home equity lines of credit). The US savings rate went negative in 2005 and has been negative since then. With their credit tapped out, a lot of Americans (including my ex-wife) are now raiding their 401ks and IRAs (do NOT do this; that money is protected from personal bankruptcy) in order to maintain their lifestyles. Eventually, we will have to live within our means - that day is not too far off.

On the trade deficit, I think that you will see two things occur. First, people are going to stop buying all that unneeded crap, most of which is made in China. Second, you're very likely to see an anti-trade sentiment growing where many will want some sort of Smoot-Hawley type tariffs put in place.
I think that we'll see the trade deficit decrease quite a bit. I consider it a good thing; the US has been taken advantage of in many trade agreements.

As far as jobs, I haven't thought too much about which ones will be lost and which ones will survive. The biggest cutbacks will likely come in areas where you have consumer discretionary spending, such as vacations (gonna hurt the airline industry). The most insulated will probably be in medical and federal government (I think local governments will be making cutbacks).

 

[radarlove]

you're very likely to see an anti-trade sentiment growing where many will want some sort of Smoot-Hawley type tariffs put in place.
I think that we'll see the trade deficit decrease quite a bit. I consider it a good thing; the US has been taken advantage of in many trade agreements..

Um...not sure if you know that Smoot-Hawley was the trigger for the Great Depression? This is a "good thing" for us to do again?

 

[Andy]

Um...not sure if you know that Smoot-Hawley was the trigger for the Great Depression? This is a "good thing" for us to do again?

Pinning the Great Depression on Smoot-Hawley is quite a stretch. It's a lot more complex than a single protectionist tariff.
The start of the Great Depression has historically been defined at 29 Oct 1929, Black Tuesday on the stock market. Smoot-Hawley was signed in 1930 and was put in place to appease farmers who were angry over food imports. Did you know that Smoot-Hawley had lower tariff rates than the Fordney-McCumber tariffs of 1922?

The difference between then and now is that we were running a trade surplus back in the 20s; we're running a huge trade deficit today.
Here are some stats that I was able to dig up:
1929
US exports to Europe $2.341 Billion
US imports from Europe $1.334 Billion
1932
US exports to Europe $784 million
US imports from Europe $390 million
So Smoot-Hawley pushed US trade surplus from excess of $1 Billion to ~$400 million.
Contrast that with today, where our trade deficit for the month of Feb was $62.3 Billion.

The decrease in consumption during the Great Depression cannot be blamed on Smoot-Hawley; people stopped spending money. It didn't matter if it was domestic or foreign goods; people around the world stopped spending money. The same will happen today.

I wasn't trying to say that establishing higher tariffs is a good thing or a bad thing (I personally favor it); what I was trying to say is that this will likely be a reaction to the economic downturn. You will hear a lot of public outcry over the balance of trade as more people lose their jobs.
This is a natural reaction, just as people blame the housing problem on subprime borrowers. Subprime is not the problem; it goes much deeper.

 

[climbhappy]

the economy has usually bounced back within 4 to 6 quarters. i've read the airline industry usually lags about 2 years, since they're slow to act on the way down and then have to catch up. it makes sense

this downturn could last 2 or 3 years. if the fed is going to stimulate things, they need to lower corporate tax rates which the rest of the world has done except america. how can they do this and stimulate the economy with a 20 billion/ month war?

i think you could see radical new trade policy if the dems get in. shouldn't we do something different to produce a different result?

i've read housing values could plummet up to 50 percent since things come to a screeching halt in a manner of speaking. one guy has said oil will drop 40 or 50 bucs when things slowdown so we have that going for us. i guess due to weak demand

which is more important? ( i know it's about freedom)
fighting the terrorists in iraq near all that oil, or propping up our economy , so we can fight the terrorists over there without it making us a former superpower?

 

[radarlove]

Pinning the Great Depression on Smoot-Hawley is quite a stretch. .

Sounds like you took a lot of history, perhaps with fewer economics courses. Tariffs = bad, free trade = good.

Trade surpluses or deficits are unimportant, because the basis to measure them disregard the movement and input of human capital and concentrate only on hard goods. There is a monsterous trade deficit between various states in the U.S. does anyone care?

We can argue econ all day long, but I'll leave you with one point: human capital is not measured well (some say at all). Microsoft's value is not in its capital assets on the books, the value is in the brains in the organization. What's the capital value of the Google engineers?

 

[climbhappy]

radarlove:

is your premise : the sum of the entire amount of u.s. human capital greater than the net equity of all us corporations or the market cap of every u.s. company?

trade imbalances cause u.s. companies to move offshore to compete because they cannot be the lower cost producer and lose shareholdr value.
a great example are the 24,000 lost jobs in the sock making industry of north carolina that went to honduras after Nafta and up to the present day. it's a microcosm of the bigger problem. it's about labor cost. low labor cost = increased shareholder return.= bonuses for execs. (sounds a little like our industry....hmmmmm)

if i took the human capital of those wlamart, target shopping workers and their IQs , it would probably wouldn't make much capital, but they're nice people.

 

[Big Beer Belly]

Already explained, but if you decide to stop paying the mortgage due to being upside down on your loan, you simply put the keys in the mail and send them back to the bank. You walk away and the bank can't go after you for any shortfalls between what they sell the house for and what you owed. This is non-recourse. I haven't dug into it, but I've been told that almost all mortgages are non-recourse.
Yes, your credit rating tanks, but how valuable is a credit rating if you're out of a job?

Interesting discussion Andy... thanks.

Had judgment day with the my accountant a few weeks back and discussed this point. In CA (unsure of other states, but it varies as Lear mentioned) your ORIGINAL first is non-recourse. However... and a big HOWEVER... when you re-fi, your loan is now recourse in CA!

This recourse will act as an important brake in the downward housing pressure in many distressed neighborhoods.

FWIW ... I'm reading 2012 for the subprime mess to run its destructive [global] course.

BBB

 

[PCL_128]

Tariffs = bad, free trade = good.

That's very reminiscent of Dubya's idiotic absolutism.

 

[CaptJax]

Airlines Face New Cash Challenge

Airlines face new cash challenge

By JOHN WILEN AP Business Writer
Article Launched: 04/12/2008 02:52:19 AM PDT

NEW YORK—Frontier Airlines, the latest airline to file for bankruptcy, was pushed over the brink by a problem that could spread to other carriers: credit card troubles. The carrier on Friday blamed its Chapter 11 bankruptcy protection on a cash squeeze caused by its credit card processing company, which has decided to keep a larger chunk of the Denver airline's ticket revenue.
The move ends a policy under which the processor, First Data Corp, passed on most money from ticket sales to Frontier. The change is intended to protect First Data, which would be on the hook for ticket refunds if Frontier stops flying. Frontier plans to continue operating while in bankruptcy.
First Data's decision represents a new threat to an industry facing jet fuel prices that have soared 74 percent in one year, a new government focus on safety that has grounded thousands of flights in recent days and tight competition and falling demand that, combined, have limited carriers' ability to raise prices.
"It's just a god-awful time for this industry," said Bob Mann, an independent airline consultant based in Port Washington, N.Y. "This illustrates the uncertainty of capital markets to a T."
ATA Airlines, Skybus Airlines and Aloha Airlines all have filed for bankruptcy in recent weeks. Champion Air plans to shut down and MAXjet Airways went bankrupt in December. All cited some combination of high fuel prices and falling demand, among other factors.
While it's not uncommon that banks processing airline credit card transactions hold a certain amount of a carrier's proceeds in their own accounts until a passenger completes his or her travel, it is unusual for a processor to suddenly change its cash withholding policy, analysts say. In the case of Frontier, the new requirement—known in industry speak as a holdback—was the proverbial straw that broke the camel's back.
"We believe that we currently have adequate cash on hand to meet our operating needs," Frontier Chief Executive Sean Menke said in a statement. "Unfortunately, our principal credit card processor very recently and unexpectedly informed us that, beginning on April 11, it intended to start withholding significant proceeds received from the sale of Frontier tickets."
Such a "change in established practices" would throw a serious wrench into Frontier's cash forecasts and business plan, Menke said. The bankruptcy filing prevents First Data from imposing the new cash withholding requirement, he said. The airline also threatened to sue First Data.
"The terms of our agreement with Frontier Airlines are not unique; they are considered standard industry practice and terms originally agreed upon by Frontier," First Data, of Greenwood Village, Colo., said in a statement.
"They do this because ... they're concerned that a carrier will use the proceeds in advance of travel occurring and then not have the funds to actually perform the travel," Mann said.
Companies such as First Data usually base cash withholding decisions on their own analysis of an airline's finances—most airlines are contractually required to provide their processors with monthly cash flow reports and forecasts.
"They're doing the same thing that I'm doing," said Ray Neidl, an analyst at Calyon Securities who late last month expressed concern about Frontier's projected cash position. Earlier this week, the carrier said it had no concerns about bankruptcy. Credit card processors constantly review the credit profiles of the companies they serve, Neidl said.
But negative news reports and analyst research notes can also undermine a credit card company's confidence in an airline by contributing to fears that an airline's failure is imminent, said Mike Boyd, president of the Boyd Group consultancy in Evergreen, Colo.
"It could happen to any airline," Boyd said.
It's not the first time credit card companies have imposed cash withholding requirements on airlines. Many did so in the months after the Sept. 11 terrorist attacks because of worries about the industry. Several airlines, in fact, declared bankruptcy in the years after the attacks, due to the downturn in business and by the recession earlier this decade. Strict cash withholding requirements were a factor in Delta Air Lines Inc.'s 2005 bankruptcy.
Now analysts believe most larger airlines have sufficient cash to weather the current economic downturn and spike in fuel prices. The six largest airlines—AMR Corp.'s American Airlines, Delta, UAL Corp.'s United Airlines, Northwest Airlines Corp., US Airways Group Inc. and Continental Airlines Inc.—have a combined $20 billion in cash on their balance sheets, Mann said. Their credit card processors won't likely change withholding requirements unless there is a significant change in operating conditions.
It's the smaller companies with less cash that are more at risk of facing new cash withholding rules, analysts say.
On Friday, Calyon's Neidl dropped coverage of Mesa Air Group Inc., citing its small capitalization. Last week, Mesa said Delta planned to end a major contract-flying agreement and Mesa sued to keep the deal intact. Mesa has declined to comment on whether it faces bankruptcy.
Larger carriers canceled thousands of flights affecting more than a quarter of a million passengers this week to check electrical wiring in MD-80 aircraft. The inspections were required to comply with Federal Aviation Administration safety regulations.
American Airlines was the hardest hit with nearly 3,100 cancellations, including almost 600 on Friday. The airline said it will cancel an undetermined number of flights on Saturday, but expected to resume normal operations by Saturday night. The cancellations will cost American tens of millions of dollars, but Chief Executive Gerard Arpey said the carrier can withstand the losses.