U.S. Economic/Financial News

GM Board Considers Dirty-Money Cerberus Bid for GMAC

General Motors Assistance Corp.'s board was scheduled to meet March 6, to review the bid by the dirty-money-linked Cerberus hedge fund for 51% of GMAC, in which bid Cerberus is joined by Citigroup. The bidders are offering between $11 and $12 billion. If tentatively approved, GM would convene a formal board meeting in June to accept the offer.

Some in the GM leadership are not enthusiastic about parting with a majority share of GMAC, since the latter entity earns between $2.5 to $5 billion in profit per year. But the Wall Street-City of London financiers are using credit downgrades—Fitch downgraded GM on March 1—and outright threats to push the deal through for Cerberus. Bloomberg.com reported March 6 that the major three credit-rating agencies—Fitch, Moody's, and Standard & Poors—have delivered warnings. "All three said they will cut [the credit rating of] GMAC back to par with GM without a sale." S&P had put GMAC's separate credit rating five levels above that of GM; were GM not to sell GMAC soon, S&P would slash GMAC's credit rating five levels.

Moreover, GM, which lost $8.55 billion in 2005, is having a fire sale, in a desperate bid to raise cash:

* Both Japan's Asahi News, and USA Today, reported March 6 that GM is about to conclude a deal to sell a 17.4% stake in Suzuki Motor Company for about $2 billion, leaving GM with only a 2.6% stake in Suzuki.

* GM is also in discussions to sell more than 60% of GMAC Commercial Holding Corp., a real estate firm, to a consortium led by KKR private equity firm and Goldman Sachs.

* The March 5 Detroit News reported that GM and the UAW "are in advanced talks on buyout offers for up to 20,000 [GM] hourly workers," as a leading feature of the plan to shut down large parts of GM production in North America.

Wilbur Ross Circling Around Auto-Parts Sector

As the U.S. auto-parts sector—which possesses advanced machine-tool capability, and twice the production workers as the motor-vehicle sector proper—shuts down, Rothschild banker Wilbur Ross is attempting to gobble up the assets cheaply. On March 2, asset-stripper Ross bought up the European operations of the large American parts supplier Collins & Aikman, which is in bankruptcy. He is now attempting to purchase, as well, Collins and Aikman's domestic operations. On March 3, Dana Corp., a very big auto-parts producer, went bankrupt. On March 5, Detroit News columnist Daniel Howes boasted, "At this rate, the opportunities for Ross & Co. could be endless. Pieces of C&A, Dana, Oxford Automotive, bankrupt Delphi and castoffs from Visteon Corp—all of them could find themselves part of Ross' aptly named International Automotive Components." Taking control of these properties, Ross would loot them, as the deaths of miners earlier this year at the mining properties of Ross's International Coal Group, testify.

Severe Drought Afflicts Southern/Southwest U.S.

It's not a pretty picture. The drought-stricken sector of the U.S. stretches across the Gulf Coast swath that was hit by Katrina, and encompasses much of Arkansas, Missouri, Illinois, Kansas, Nebraska, South Dakota, and eastern Colorado. Then it gets worse—in Oklahoma, Texas, New Mexico, Arizona, and northern and western Mexico.

What has been going on for months has started to get national press attention. Phoenix went 143 days without rain before it got a rain storm a few days ago. Santa Fe has had its driest winter since 1890, getting just over a quarter-inch of rain since November. Some mountainous areas in the Southwest that average more than 100 inches of snow each winter have received less than an inch all season. Of the U.S. Resources Conservation Service's 34 snow-measuring sites in Arizona, 29 had no snow at all this winter.

What is real now is wildfire. Even before the winter drought took hold, more than 8 million acres of state and Federal lands across the country were burned last year, the largest amount since the record year of 2000. "It looks like we're at the driest we've been in 40 years," said Santa Fe National Forest forest-fuels specialist Tom Johnston.

Is Farmland Speculation the Next Big Thing?

The purchase of farmland by developers to be used for anything from hunting and fishing preserves to housing developments has driven the average price for farmland up by 11% over the last year, with some areas seeing a rise in prices of 40%—as in Maryland and Florida, USA Today reported March 9. Virginia farmland values reportedly rose a mere 21% over the last year.

Bernanke Warns Small Banks of Danger in Commercial Real-Estate

Federal Reserve Board Chairman Ben Bernanke, in prepared remarks to Independent Community Bankers of America conference in Las Vegas March 9, warned smaller community banks of a potential danger in their commercial real-estate exposure. Bernanke said, that although community banks—defined as banks with assets of a billion dollars or less—have been doing quite well, and are likely to continue to do so, they "face a changing business environment that presents a number of important long-run challenges." Among those challenges are those involving "financial and risk management," which centers on community banks' increasing focus on commercial real-estate lending, "leading to a significant shift in the balance sheet and risk profiles" of these banks. This rapid growth, Bernanke said, may have outstripped risk-management practices. Bernanke also criticized a loophole that allows commercial companies, e.g., WalMart, to own banks.