America's Financial Mess

[brian0918]

If the market drops below 8000, that's actually good isn't it? I mean, it takes us back to normal, back to the real prices before the inflation of the last decade?

It did get below 8000. The lowest yet is 7888.48.

[sanjavalen]

Yes, the housing crises was fundamentally caused by bad philosophy, both on the part of government regulations and individuals not acting in a rational long-term manner. Although, the myth was being heavily sold that the value of one's house would always go up, so it would be like buying a $300,000 house tomorrow for $100,000 today. My brother's house did that, actually, it went higher, to almost $600,000 in about ten years. So, were individuals irrational for acting that way? or for buying a bit more of a house assuming it would go up in value tremendously over the years?

By the way, I was shocked to see that the Dow plummeted even more: 8,579.19 -678.91 -7.33%

The Tokyo stock exchange was closed indefinitely after it fell 10%...wonder if the SEC will do that to our market? The market is failing!...the market is failing! No, it is behaving as if the Feds are screwing everything up, which it is.

I can't find any news item showing that the Tokyo stock exchange was closed indefinitely. Can you provide a link?

Closest thing I can find is: http://biz.thestar.com.my/news/story.asp?f...mp;sec=business

The president of the Indonesian stock exchange says trading will be suspended indefinitely "to prevent deeper panic" after another huge drop on Wall Street.

Indonesian authorities planned to reopen the market on Friday morning after a suspension was imposed Wednesday.

But a last-minute change of plan has been announced after Asian stocks tumbled Friday morning amid fears of a global economic downturn.

Bourse President Erry Firmansyah says, "The situation is not yet conducive. This is to prevent deeper panic. It will be closed indefinitely while we will continue to monitor."

[softwareNerd]

If the market drops below 8000, that's actually good isn't it? I mean, it takes us back to normal, back to the real prices before the inflation of the last decade?

Ideally the market ought to be where it ought to be, and we'll know this in hindsight. If it ought to be at 8000, then it is good that it gets there fast. If it ought to be higher, and this is a panic, it will be an opportunity for some, but not generally a good thing.

[Thomas M. Miovas Jr.]

It's possible I was confusing the Indonesia market with the Tokyo market when I reported that it had been closed indefinitely. Here is a news story that says: "In Indonesia, authorities have suspended trading indefinitely on the Jakarta Stock Exchange after the index plunged more than 10 per cent on Wednesday."

However, some sectors of the Tokyo exchange, such as bonds, were closed for about 15 minutes when they plummeted more than ten percent.

Hope this reporting didn't cause too much concern

By the way, the stock markets ought not to be looked at as simply a hedge on inflation, it is more of a projected future of profitability for companies. In other words, the stock markets lead future news of profitability, and if you cannot make more than the rate of inflation, you are doing something wrong. With the markets plummeting around the world, the foresight says that companies will not be making huge profits anytime soon. If a global recession does hit, then many companies will be running on held cash or credit instead of profits, which is not a good sign. I'm not good at predicting the markets, and had lost money in a bull market, so I don't know what to advise, but if I had money, I would consider putting money in the markets for the long-term recovery. However, with the governments taking over many of their banks, even in the US, not sure what that will do to the economy overall, and neither does anyone else, which is why the markets are tanking.

[brian0918]

As athena pointed out in another thread, at the G7 meeting this week, they're going to discuss shutting down all the world markets while they "rewrite the rules":

http://www.bloomberg.com/apps/news?pid=206...id=aP5mpMUORBWM

Now's the time to take a photo of yourself and hang it on the wall, so you can look at it later on and recall what it was like to have some semblance of rights.

Edited October 10, 2008 by brian0918

[Clawg]

This will devalue the stocks and money because what good is money if you don't have the right to spend it as you like?

Rewriting the rules... Thunderdome? "Two men enter, one man leaves!"

Mmmh... I guess now it's time to get a gun, lots of fuel and move to a remote area

[brian0918]

Rewriting the rules... Thunderdome? "Two men enter, one man leaves!"

WHO RUN BARTERTOWN? WHO RUN BARTERTOWN?!

[adrock3215]

Now's the time to take a photo of yourself and hang it on the wall, so you can look at it later on and recall what it was like to have some semblance of rights.

LOL, that provided me with a good laugh for the day.

[Thomas M. Miovas Jr.]

The Emergency Economic Stabilization Act of 2008 is not a big hit with Americans across the political spectrum. The vast majority think it is not going to do the economy any good. Most Americans are against bailing out big business. And Most Americans want the government to stay out of the economy. The Fox News Poll didn't go into details about whether or not the government should not be involved in the economy at all, which would be the pro-capitalist position, but they certainly didn't like this move on the part of the Feds.

This week, the Dow was down 2400 points to its lowest levels since about 2002, and I think, at least in part, it was world markets wondering if the bail out was going to work or not in the long-run. I'm certainly skeptical about governments around the world -- even ours -- nationalizing banks, as that means they will not be operating according to market principles, and is the initiation of force on the part of governments. A free market is a moral market; to introduce force in economic transactions is immoral.

http://www.foxnews.com/story/0,2933,436041,00.html

[Seeker]

The Dow Pre-Market is down 350. It could easily drop below 8,000 today.

Not to quibble but ... who cares? One of the things that is most troubling about this whole fiasco is the utter disregard of the long-term trends in favor of such questions as how many tenths of a point has the Dow lost this second? If you believe, as I do, that markets ultimately self-correct, then you can't take seriously momentary volatility (by which I mean, anything up to and including a total collapse of trade this minute, or today, or this week, heck for even this whole month assuming you've got a decent survivalist kit). You know how Rand talks about emotions as kind of a computer that gives its instant indication of good or bad? Well, anytime I see this type of short-term focus I get a big, bad emotional spike, because I know that thinking short-term is a fundamental ethical - and thus political - flaw. In fact there is only one reason that people are willing to be stampeded into all this government intervention and that is short-term thinking. I am convinced that that - and not even the issue of freedom vs. force - is the critical issue behind this whole mess.

I also completely reject the spectre of "a decades long depression" as the long-term vision. That is simply impossible, assuming the government were to get out of the way. Actually, that is one area where we should be vitally concerned about what the government is doing. Were it the case that anyone in the political arena would make that argument!

[Thomas M. Miovas Jr.]

I also completely reject the spectre of "a decades long depression" as the long-term vision. That is simply impossible, assuming the government were to get out of the way.

Unfortunately, I don't think the government is going to get out of the way, which may lead to a protracted downturn in the economy as a whole. Already, Paulson is putting together a plan to buy up equity in banks as part of the "rescue plan". The curious thing is, he's going to do this without buying up voting stock in the banks.

"Paulson said the government's program would be designed to complement the efforts of banks to raise fresh capital from private sources. He said that the government's stock purchases would be of nonvoting shares so that the government will not have power to run the companies."

So, what is the government buying if it is not regular stock? and why would anyone else, including the banks, want to buy this sort of equity back? In other words, what does it mean? are the banks or the SEC going to create stock out of whole cloth, and what will that do to shares in the bank that already exist both when they are bought now and sold later?

[tribe me]

I agree. The hardest part of the whole thing for me to wrap my mind around is that the government is doing everything wrong from not only a moral perspective, but also a practical perspective. The interventions of the government are simply wrong on every measurable account. It's stunning.

They have not addressed Investor and Consumer confidence, so if they were going to intervene, they should have at least done it correctly.

[softwareNerd]

While one might object to government buying stocks in banks, it is not as easy to object to the government supporting the banking system as a whole, at this point in time. Objectivism would say that the government should get out of the way of the banking system, and let it be completely private. However, this does not imply that the government should do so tomorrow. Today's banking system has been built on almost 100 years of government control and over 60 years of government-backing. Any transition from the banking system has to be phased in carefully.

It is important to realize the fundamental nature of our current system is this: there can be a run on any bank, even the most solvent ones. Wachovia was quite possibly a solvent bank. Wells Fargo has paid a few billion dollars to buy it, and Wells has a reputation for caution. The government cannot simply walk away from the current mess, any more than it can tell retirees that they won't receive social-security checks starting next year.

Rather, the government ought to come up with a set of principles it can then begin to apply. Also, all concrete steps must be designed to move us to a future of less government control, and a better public awareness of the risks and rewards when there is no government guarantee. Within that, the following are examples of sub-principles (tentative, and only illustrative):

• Clearly-solvent banks should be backed by government today. This should be done in a way that does not convert banking obligations into Treasury bonds: this might imply charging higher fees for protection over the current statutory ($250K) balance, and might also imply having any guarantee back less than 100% of the outstanding balances.
  
• Transition to a system where the government backs less banks, at a higher cost, and at a lower risk. Over the medium-term (say 5 years hence) banks wishing to continue to receive such government-backing should be required to back guaranteed deposits with a narrower range of (increasingly less risky) asset classes. Banks may continue to have other assets, but they would not be considered when computing whether they have enough asset-cover for their government-backed deposits. Meanwhile, the fees charged by the government for such backing will be raised. After this immediate crisis is past (say 1 or 2 years from now), the recent guarantee of retail money-market funds needs to be made more costly, the protection reduced to less than 100% of current guaranteed funds, and there needs to be a public-awareness effort to make sure people understand that the government will not back them...no wink-wink, we actually will, in a crunch. Also, there needs to be some thinking about contract clauses with depositors that kick in under certain run-on-bank conditions.
  
• The government should cut spending immediately. This may include cuts in so-called "entitlement programs". (Note, that when our government was proposing a scheme to put up $700 billion, instead of trying to cut spending at least a few billion somewhere else, our law-makers added in another few billion of pork.)
  
• All government schemes that help lower the cost of mortgages should be abandoned. That means the CRA should be scrapped immediately; the FHA scheme to back high-risk mortgages should be stopped. Fannie and Freddie should stop helping to insure middle-class mortgages. Doing this will mean higher mortgage rates, but that is where the costs have to fall: on the borrower. The government has to get out of the business of subsidizing home-ownership.
  

... and so on...

[KendallJ]

Snerd,

I understand where you are coming from. And I also am worried because if the insolvency continues, it will have a drastic real effect on business. One can only go so long before companies start feeling the stress of the inability to get credit.

However, I think the thing that needs to be done simply wont.

I don't think it's enough to back "solvent" banks. Mostly because the whole system is networked, and banks that are solvent today, stand to be insolvent if the ones that are fading fall. As I'm starting to understand how this whole things propagates, it's really becoming clear. That is, the banks that are poison will eventually drag all the others with them if they are not fixed.

The banking system has to be recapitalized. That is, as much of the assets that are good in the system, and this includes a huge amount of assets in suspect, and insolvent banks has to be resturctured.

Also it has to be a coordinated effort. Doing one Ch11 at a time risks the newly recapitalized bank still being dragged under.

What this implies is as long as govt bailout is on the table, that the only way that govt money will do any good is to recapitalize the system. I'm not sure there is enough money to do that in the bailout, and the damage done by sucking 700b OUT of the economy to put it back in may make things worse faster than they can be fixed. Also it implies none other than govt taking ownership positions in every bank, which I think conservatives will balk at. And liberals will also. for different reasons.

I"m sure there is enough capital in the world to recap the financial system. That is not my worry. What worries me now is the coordination required. By today's laws such coordination is patently illegal as probably the most severe form of collusion one could think of. I'm starting to become very pessimistic that this thing is going to end in none other than a full-scale depression.

That said, I guess my concern is that even many of the points you give are as unlikely to happen as the "free market" fix. And at the root of it, even that is not enough.

I think the only thing that will work is a coordinated effort to recap the banks. Govt needs to lead a 1907 style "Come to Jesus" session where all balance sheets are turned out, and private capital is included in the mix, in fact encouraged. It would mean that govt woudl have to ignore a whole swath of anti-trust law, and regulatory review of acquistions. I just don't know if the "Wall St Greed Did this" crowd would stand for it, as another example of back room dealing. Certainly neither presidential candidate would favor it, and it's Executive's play.

Edited October 11, 2008 by KendallJ

[KendallJ]

I think this is such an interesting (and personally costly to all of us) example of how bad principles really screw everything. Paulson isn't JP Morgan, and right now, fast action and knowledge of root causes is absolutely critical. This is not time for leadership by let's pull a team of bureaucrats together and figure out what to do. What we need is a Midas Mulligan, 10 of them. What we get is Paulson, and is 35 yr old "wunderkind". ARG. It makes me want to vomit.

[adrock3215]

Snerd,

I understand where you are coming from. And I also am worried because if the insolvency continues, it will have a drastic real effect on business. One can only go so long before companies start feeling the stress of the inability to get credit.

I know it is not the main problem, but through their myriad of half-assed regulations, the government has actually worsened the problems in credit markets within the last month. For instance, one of the worst things government could do in a period of uncertainty where no one wants to lend to banks, is to ban short selling. Why? Because it will price potential lenders out of the debt markets. It works like so: If I am offering to insure the debt of a Goldman Sachs or Bank of America through credit-default swaps, I hedge my liability exposure by shorting the stock. That way, if Goldman starts to disintegrate, I (the insurer of the debt) make money on my short equity position to offset the increased risk of insuring the debt of said financial firm (not to mention the increased payouts I would have to make if a debt default actually occured by the borrower). Through this hedging strategy, I can keep the prices that I charge lenders to Goldman Sachs for insurance low. However, if I (the insurer) cannot protect myself against a bank failure by shorting the stock of the company I am insuring, my only option is to raise the price of insurance to potential lenders. This price increase hurts the borrower (financial firms) in two ways: 1. It prices many would-be lenders out of the debt market which leaves them unable to obtain capital to fund day-to-day operations, and 2. The skyrocketing costs of insuring a financial firm's debt creates the artificial psychological worry that the firm is headed toward insolvency .

Many of these credit-default swaps that protect bank bond investors against default are held by hedge funds who hedge their bets by shorting the stock of the same firm they are insuring. After the short ban the prices of insuring against debt defaults soared, which exaccerbated the already cooling credit markets.

I agree with Kendall here sNerd: your scenario is as unlikely as any "private" solution. The fact of the matter is that the government has grown so big and heavy-handed in the financial industry, that there may be no acceptable government-led way out of this at present. My opinion is that what we are seeing is an inevitable product of fiat money. I think that I agree with Mises when he writes in Human Action:

The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

Edited October 11, 2008 by adrock3215

[Thomas M. Miovas Jr.]

I see the root of the problem being an altruistic and anti-capitalist mentality on the part of those running these government organizations that led to the problem. For example, the article about the FHA loans and wanting to guarantee hundreds of thousands of mortgages as if the home owner has no responsibility to pay his mortgage because owning a home is considered the "right thing" to permit to happen, even if they cannot afford it. So, I think the first thing they would have to do would be to stop backing these bad loans and foreclose on those houses. But altruism is preventing both the Democrats and the Republicans from considering that as a solution. There is no right to a house, and no one wants to say that. So, the same "solutions" that got us into this mess are continuing -- and everyone else will pay the bills.

I tend to agree with a phasing out proposition, but that requires having government officials with the right principles, not altruism and statism and not manipulating the markets. However, it may well be that someday there will be a philosophical revolution and capitalism will come back with a vengeance and to hell with those who were living off the government dole. If you cannot afford to pay for your house, then you don't have a right to them. If your bank is run so badly that you are overextended on loans (bad or otherwise) then you will fail, with no government backing. When it comes to FDIC insurance, that can be covered with private insurance companies. And the Feds need to get out of printing money and having control of the currency.

So, when it comes to what ought to be done first, well first they need to stop backing up bad decisions, such as home owners agreeing to buy expensive houses they cannot properly afford. But this would require rational selfishness and self-interest on the part of most Americans to say, "I'm not going to pay for those houses with my tax dollars!"

In short, I don't see how we are going to get out of this mess without a philosophical revolution; one that will bring back capitalism. Whether or not this will lead to a phase-out or a quick repeal of many bad laws or even a Constitutional Amendment similar to the one presented in Atlas Shrugged that prevents the government from manipulating the economy is a question of critical mass when that day comes. But by then, I think Americans will have had enough of it and a phase-out won't occur, it will be more of a revolution of policies, and those living off the government dole will be evicted in short order.

[softwareNerd]

Kendall and Adrock,

I agree substantially with both your posts: i.e., recapitalization is the likely answer, and that the short-selling ban was bad.

When I said that the government should bank "clearly solvent" banks, I was pretty much thinking of re-capitalization as one method of doing so. Yes, Kendall, I agree with what you say about solvent one day and insolvent the next; and, that the problem cannot be addressed piece-meal. I'm not saying: the government must do all these steps or we're doomed. Quite the contrary.

I should explain the motivation for my post. An Objectivist friend was suggesting to me that the government should simply step out of the way and let the system collapse. That is where I'm coming from. I fear some free-market advocates don't realize that a bank can go under even if it acted as a normal, rational person would act. I agree that re-capitalization might be the solution to restoring credibility. Unfortunately, this puts the government in a position of deciding which banks are strong and should be saved and which ones are weak and should fold. This is what they've done already on an ad-hoc basis.

I think Paulson and Bernanke now understand that recapitalization is the only solution. I think they genuinely wanted to avoid direct investment in banks, and do it indirectly. Their $700 billion plan was an attempt to let banks convert there weaker assets into cash. Ofcourse, this does not re-capitalize the banks, but it addresses the same issue. i.e. it does not change the number on the balance sheet, but it makes everyone more sure of the number -- the the extent of $700 billion. It strengths the quality of capital, while leaving the nominal quantity unchanged.

As an interesting side-note to this, it was Congress -- including Barney Frank -- who put the the ability to recapitalize banks into Paulson's bill.

[Thomas M. Miovas Jr.]

Kendall and Adrock,

I agree substantially with both your posts: i.e., recapitalization is the likely answer, and that the short-selling ban was bad.

Why couldn't the banks re-capitalize by selling those bad mortgages at a bargain on the free market? Presumably, they will be getting more from the government -- or at least that is what they are hoping for. But why should the government pay more than they can get on the open market?

See, I think there is an attempt to reverse cause and effect here. It is not bad mortgages that led to the crises, but rather bad mortgages are the effect of bad policies. And the attempt to prevent housing prices from collapsing by the sudden flux of low priced homes on the market is what they are trying to prevent, whereas that scenario is exactly what needs to happen since the market is flooded with homes right now. This flooding of the market was caused by government policies that encouraged the housing bubble, and the only way to stop it effectively would be to let the housing prices come down and foreclose on homes not being paid for, and getting the government out of housing. For one thing, if one is concerned about poor people having houses, then letting the housing market reach the low level of the new supply and demand would help to bring home prices down in a capitalistic fashion, solving that particular problem (if you think it is a problem, which I don't).

There is an economic principle: All markets clear. Which means that if you have something you want to sell, then you can find a buyer, even if you have to sell it at a loss. And this happens in any market once the supply becomes saturated with products or services. The attempt to keep home prices high, because that's where they were years ago, is irrational. And I think this feeds into the myth that home prices will never fall, and that the current falling of home prices is some sort of distortion of the market, when it isn't. The continuing raising of home prices was the distortion brought about by governmental interference in the economy. Keeping the government out of the mess and letting home prices fall is the solution of the market. And trying to keep home prices high by not foreclosing and not letting the market work is immoral; as it introduces the initiation of force into the market.

[adrock3215]

I agree that re-capitalization might be the solution to restoring credibility.

The distinct problem with re-capitalization is that it will be done under the false premises of fiat money. Any re-capitalization done under such circumstances is essentially a paper-money pyramid scheme, and is therefore inherently unstable anyway. Also, wouldn't the unwinding of such high leverage cause tremendous disruptions in the system anyway? We have never gone through such a thing in our history, so it is anyone's guess.

I personally disagree with the govt taking ownership positions in banks or a 1907 style JP Morgan role. If you look at Bank of America, Citigroup, JPMorgan, etc, you will find that they are all still paying dividends. If their balance sheets are being punished, why can't they suspend dividend payments?

Why couldn't the banks re-capitalize by selling those bad mortgages at a bargain on the free market?

There is no MBS market right now. The point of the government's bailout plan is to make a market for MBSs.

Edited October 11, 2008 by adrock3215

[gags]

The distinct problem with re-capitalization is that it will be done under the false premises of fiat money. Any re-capitalization done under such circumstances is essentially a paper-money pyramid scheme, and is therefore inherently unstable anyway. Also, wouldn't the unwinding of such high leverage cause tremendous disruptions in the system anyway? We have never gone through such a thing in our history, so it is anyone's guess.

I agree with you that much of what we are experiencing is the hangover from many decades of paper money overconsumption. Unfortunately, this isn't going to change any time soon and probably not in our lifetimes. The only way I can see them moving back to a gold standard would be in the aftermath of a total systemic collapse, and that is still unlikely, even at this point.

Given this situation, I don't see any other solution than to recapitalize the banks as discussed by Snerd and KJ. The most practical and the least disruptive way of doing this would probably be the plan to have the government buy preferred shares in the troubled banks. Make the preferred shares non-voting, have them pay a low, non-cumulative dividend, and give them some sort of two-way put/call feature that encourages the government to get out and the banks to buy the govt. out when things have stabilized.

I personally disagree with the govt taking ownership positions in banks or a 1907 style JP Morgan role. If you look at Bank of America, Citigroup, JPMorgan, etc, you will find that they are all still paying dividends. If their balance sheets are being punished, why can't they suspend dividend payments?

The only reason I can think of is that management has analyzed the potential negative effects of suspending dividend payments on their share prices and has concluded that they are better off continuing to pay them.

[softwareNerd]

Why couldn't the banks re-capitalize by selling those bad mortgages at a bargain on the free market? Presumably, they will be getting more from the government -- or at least that is what they are hoping for. But why should the government pay more than they can get on the open market?

There's a particular model of doing business which is almost always profitable, but deadly in a crisis. It is the model of: borrow short-term, lend/invest long-term. In almost all situations, this allows one to borrow cheap and lend/or invest at a slightly higher rate, keeping the "spread" as profit. A "run" occurs when short-term credit dries up or becomes too expensive, in a time of severe crisis, which is also a time when nobody is keen to buy your long-term loans/investments -- which are the only way you can re-pay. In other words, this is a situation one's assets can cover one's liabilities if you are given time to pay them off, but not if you are forced to sell your assets at distressed prices in the middle of a market panic.

Non-banks that face this problem are a separate case. However, borrowing short and lending long is the essential model for our banks, backed by government guarantees.

[Thomas M. Miovas Jr.]

There is no MBS market right now. The point of the government's bailout plan is to make a market for MBSs.

I assume MBS means "mortgage based securities," and I don't understand why the claim is that there is no market for them now. Why not? I mean, I realize the banks having these securities may not make a profit, especially with house values coming down, but any small business owner will tell you that when times are tough, lower your prices and have a sale on over-stocked items. Holding for the long-run is only good for those items that become more valuable over time, which is what was happening with housing for at least 15 years. I think having your business model be based on assets increasing in value over time is not a good strategy because there isn't anything that can be shown to always increase in value over time. In other words, if due to the bank's business model they cannot make a profit in the short run dealing in normal loans, then they need to re-think their business model. But, then again, the government prevents payment interest being at the market price, say, 10% instead of 5% on homes, so the banks can make money in the short-run.

The only thing I can think of as to why there may not be a market for MBS is that the government is prohibiting "dumping" in those markets. Because otherwise, someone would buy them at some price. I just don't buy it that no one would buy them at any price. That is, I can't see how buying them would necessarily lead to losing money no matter what. Perhaps someone can explain that to me?

[dadmonson]

GM and Chrysler to merge? Big drop in global auto sales predicted...

http://money.cnn.com/2008/10/11/news/compa...dex.htm?cnn=yes

DETROIT (AP) -- General Motors Corp. and Chrysler LLC have held preliminary talks about a merger or an acquisition of Chrysler by GM, according to published reports Saturday.

The Wall Street Journal, citing people it described as familiar with the discussions, said Cerberus Capital Management, the private equity firm that owns 80.1% of Chrysler and 51% of GMAC Financial Services, proposed trading Chrysler's automotive operations to GM. The Journal said Cerberus would receive GM's remaining 49% stake in GMAC.

The New York Times, also citing people familiar with the talks, said the automakers were discussing a merger. The Times did not mention GMAC, a traditional auto lender hit hard by the housing market downturn.

The talks have stalled because of the recent turmoil in the financial markets, according to the Journal. Its sources said negotiations could resume if markets stabilize because both GM and Cerberus want to quickly divest the assets under discussion.

The negotiations between 100-year-old GM and 83-year-old Chrysler began more than a month ago, according to the Times. Its sources said the chances of a merger were "50-50" as of Friday and likely would take weeks to complete.

Both newspapers posted their stories on their Web sites late Friday.

"Without referencing this specific rumor, as we've often said, GM officials routinely discuss issues of mutual interest with other automakers," GM spokesman Tony Cervone said.

"The company is looking at a number of potential global partnerships as it explores growth opportunities around the world," Chrysler spokeswoman Lori McTavish said. "Beyond those partnerships already announced however, Chrysler has not formed any new agreements and has no further announcements to make at this time."

GM (GM, Fortune 500) shares closed Friday at $4.89, up 13 cents, or 2.7%. On Thursday, they closed at $4.76, the lowest level since 1950.

GM said Friday, in response to the stock price, that it is nor considering a bankruptcy filing.

"Clearly we face unprecedented challenges related to uncertainties in the financial markets globally and weakening economic fundamentals in many key markets, but bankruptcy protection is not an option GM is considering," a company statement said.

First Published: October 11, 2008: 6:13 AM ET

Edited October 11, 2008 by dadmonson

[Thomas M. Miovas Jr.]

There is something else I don't understand about this whole mess: Why is it necessary for banks to borrow from other banks in order to balance their books? I guess a deeper question than that is, why do the books have to be balanced? In a regular business, there is generally some sort of daily balance in the positive, unless that company borrowed money, and even then given the pay back schedule, the books are still positive provided some business was done on a day to day basis.

In other words, let's say a small business needs to borrow money in order to open its doors. So long as his sales money is greater than his payments and other expenses, isn't his books in the positive? Are banks never in the positive, thus requiring them to be balanced every day by borrowing from other banks? I mean, I just don't see why this is necessary, and I don't see why it is necessary for a well run business to have to borrow money in order to meet payroll.

Are all banks so overloaded with bad mortgages that they have to borrow in order for ends to meet? and if so, why didn't anyone at the bank make better arrangements, such as getting out of the mortgage business the way some seem to have done in order to avoid having to borrow from another bank every day? Did they really have no choice whatsoever except dealing with sub-primes according to government edicts?

I don't get it....What am I missing?