Asian shares slumped and were headed for their biggest daily fall in four weeks, while U.S. Treasuries gained after a U.S. task force rejected turnaround plans for automakers GM and Chrysler.
S&P stock futures dropped and European shares opened lower, with investors also spooked by news on Sunday that Spain would bail out regional savings bank Caja Castilla La Mancha, marking yet another official rescue of a firm hit by the global crisis.
Europe’s FTSEurofirst 300 fell 1.2% in early dealings on Monday and Spanish bank shares fell up to 8%.
The U.S. announcement by the White House autos panel marked a stunning reversal for GM and Chrysler and raises the prospect of bankruptcies that could further debilitate the already ailing U.S. economy.
The Obama White House is counting on investors helping with removing toxic assets from banks. But the Democrats in Congress and the Obama administration have both demonstrated that they can and will change the rules retroactively for anyone who takes any assistance from the government. Not exactly the way to gain the trust of investors.
The clearest losers appear to be the thousands of bondholders and lenders to both GM and Chrysler. In both cases, administration officials said that the companies were burdened by inordinate amounts of debt that would have to be scrubbed. Chrysler’s survival, the administration said, would require “extinguishing the vast majority” of the company’s secured debt and all of its unsecured debt and equity.
This is looting, pure and simple. The fact of the matter is that it is not rich plutocrats who will suffer for this. It is people with money in 401k funds. It is large pension funds. It is workers and retirees from GM.
This is a trainwreck.