Useless Predictions and GM Bullying

Last week I posed a question about why we listen in awe to Bernanke's economic predictions when he has already demonstrated his inability to make accurate predictions. Today, Barry Ritholtz has a brief and simply impossible to argue with post regarding a similar prognosticator: Alan Greenspan.

"Why does the public — and the Press — constantly seek out reassurances from the same people who misled them time and again in the past?

That was the question on my mind as I pondered yet another declaration from Alan Greenspan that the Housing Market has bottomed. That he has consistently made similar such statements before is cause for doubting him here. That these prior bottom calls were as far back as 2006 is cause for ridicule."

Anal_yst @ 1-2 Knockout addressed another concept that drives me crazy: that of economists who base predictions based on the length of the "average prior recession," or the "typical length of a bear market rally."

"Contrary to the claims of others, I think its quite clear that global (and regional) dynamics and fundamentals are materially different than they have been at any earlier period of human history, which means these analyses constitute at least one type of logical fallacy, and are thus of little or dubious value...I'm of the belief that such forms of analysis - and those who propagate their use - do more harm than good insofar as almost any conclusion reached is, at best, a non sequitur, and may introduce or reinforce false beliefs to the investor population. "

Finally, I found this Bloomberg piece "GM Retirees Bully Bondholders," to be very well written.

"GM’s likely bankruptcy filing is being cast in some quarters as a fight between “money people” intent on making a killing and honest efforts by the government to save a company and jobs. In reality, GM’s demise comes down to a fight between retirees. On one side are GM’s unionized retired workers. On the other, are the rest of us -- either in retirement or savings for it. Guess who will lose as things now stand? Under the restructuring plan on the table, GM’s retirees would get 39 percent of the company, along with the promise of a $10 billion payment into their health-care trust fund. That is in exchange for $20 billion GM owes the fund. Not making out so well are current or future retirees who depend on the performance of mutual funds, 401(k) plans and insurance companies that invested in GM bonds. These debt investors, who are owed about $27 billion, will get just 10 percent of the company."

You don't have to be a math major to see that the GM retirees, who hold junior obligations (that means that the SENIOR bondholders will get the first proceeds from any funds GM has), are getting many multiples on their stake compared to the senior bondholders. The difference is that the Obama Administration has labeled the senior holders as big money Wall Street types, and pitted the bond negotiations as a battle of good "poor GM retirees" vs bad "big bad Wall Street," although Reilly points out that this claim is incorrect.

Karl Denninger takes a slightly more aggressive approach to the GM debacle here, although he's no less correct. The VEBA is GM's pension plan, and the boldface is Derringer's, not mine.

"This despite the fact that the UAW is going to get somewhere between 80 cents and the full buck for every dollar they are owed for their VEBA. VEBA obligations are unsecured and subordinate to yours under the law. That means that under the law the UAW is entitled to exactly nothing until you get every dollar you are owed."

Ahhhh... If only the populist rantings from the Administration weren't so blatantly wrong and illegal... The sweet irony in this GM case is that many who will pick up their pitchforks chanting "Yeah! Down with the rich Wall Street bastards!" in response to Obama's decree may be the same folks who actually own the senior GM debt in their own pension funds.

-KD