Atlantic City's Revel Casino Files For Ch 11 Bankruptcy

Atlantic City has been on the ropes for the past couple of years as new casinos have opened up all around the New York City metro area. Throngs of gamblers have sought out casinos in New York, Connecticut, and Pennsylvania. Some, like the casino at Aqueduct and Yonkers Raceways are utilizing electronic gaming, rather than the typical table games of yore.

In to that situation came Revel Casino, which was hyped as the newest and largest casino. It came with a huge price tag too, and New Jersey also sweetened the deal with $250 million in tax breaks.

None of that has helped as Revel never took in enough money to be sustainable.

It is now filing Chapter 11 bankruptcy.

What went wrong?

Wrong time and place - it was opening as the recession was finally receding, but other casinos with lower costs had opened closer to New York City and Philadelphia in the interim. Atlantic City's hasn't been considered a destination for a gamblers for years. If you've got coin to throw on the tables, you'll be heading to Las Vegas where you can get room and airfare for a comparable amount of money that you'd spend in Atlantic City.

Many of the casinos have suffered from a lack of investment (notably the former-Trump properties), including those that sold for little more than the land value.

While some effort has gone into improving the conditions beyond the boardwalk, Atlantic City is very much a depressing locale to visit. Then again, many of the same complaints could be filed against Las Vegas - which despite its glitz and glamour on the Strip - is still complicit with a seamy underside that has many of the same problems as Atlantic City.

What Vegas has that Atlantic City lacks is the cachet of being a destination for more than a quick jaunt. While there are plenty who come to Vegas for a night, many more are coming for extended periods of time to gamble, see shows, and take in the sights. That's not happening in Atlantic City, and some of that has to do with the casino culture.

There's far too much reliance on the bus junkets from New York City carrying senior citizens and gouging others who might want to spend more money in town. After all, if a casino lowered the cost of a hotel room per night, that would translate into more money spent on the floor - greater buzz and lead to people spending more time and money in the casinos.

Revel wasn't alone in trying to change the culture in Atlantic City to increase spending there; Borgata has done the same with catering to a more affluent set of visitors. The problem is that Revel's costs ballooned and couldn't be sustained.

Now, it's possible that New Jersey will eventually recoup the costs for the tax breaks it gave to Revel. Just don't count on it happening anytime soon.

Federal Judge Rules Airlines Must Stand Trial On 9/11 Negligence

American Airlines and United Airlines have been trying to get a negligence case thrown out against them over their actions on 9/11 that led to the destruction of the World Trade Center in New York City. World Trade Center Properties, which is Larry Silverstein's company, had sought to hold the airlines liable for the destruction of the WTC and claimed damages of $8.4 billion.

Judge Alvin Hellerstein ruled that the airlines couldn't get the case dismissed on summary judgment, but also capped the damages sought to $2.8 billion (the amount that Silverstein paid for the 99-year lease).

Judge Hellerstein said at this stage he could not reasonably determine the defendants' claim that insurance payments received by WTCP covered the damages the company is seeking from them.

"On this record, before trial, I am not able to make such findings," Judge Hellerstein said in a court filing.

The case is in re September 11 litigation, Case No. 21-MC-101, U.S. District Court, Southern District of New York.

Part of the airlines argument was that Silverstein has already recovered insurance proceeds.

What the ruling indicates is that there's a material issue of fact and summary judgment wasn't warranted.

If Silverstein were to recover at trial, I'd expect the airlines to immediately appeal. A ruling in Silverstein's favor would seriously hurt the airlines' bottom line, which is still on shaky ground (American is in bankruptcy and a judge just threw out the pilots' union contract deal). There's no way that this would settle since so much money is at stake and the airlines' financial situation is perilous.

If Silverstein doesn't win at trial, it would reduce his ability to build at WTC and elsewhere (though the real issue regarding construction of the stalled 2WTC and 3WTC is a lack of tenants who have committed to leasing at the unfinished buildings. Silverstein had also been hoping to build a skyscraper a few blocks away on Church Street, but that too has stalled after demolition of the former Moodys building.

Gingrich Bounces $500 Check To Get On Utah Ballot

Newt Gingrich's campaign is writing checks his campaign can't cash. A $500 check written by his campaign to get on the Utah ballot bounced. Yet, he still thinks that he should be President? He can't balance the books on his own campaign, but fashions himself fiscally prudent?

This is the same Newt Gingrich who only days ago saw his health care think tank declare bankruptcy.

MF Global Clients May Never See $1.2 Billion Recovered

MF Global, the company that was headed up by prominent Democrat and former New Jersey Governor Jon Corzine, may never know what happened to the $1.2 billion in mission client money even though investigators thought they were making progress in unwinding the company's actions immediately prior to the bankruptcy:

Previously it looked as though regulators and probably the company's CEO Jon Corzine knew where that shortfall ended up without saying where they thought it went publicly. Some news outlets reported that, for example, roughly $200 million of the missing customer money went to JP Morgan. And today, The Journal's Scott Patterson and Aaron Lucchetti make the case for why that missing $1.2 billion is gone forever. One hypothesis floated again is that MF Global employees dipped into customer money to improperly use in other parts of the company. Another theory is that the company simply lost customers' funds on bad bets outside of the European bond market: "Investigators also are examining other scenarios that have gained traction in recent weeks, such as the possibility that MF Global suffered steep losses on investments made using customer money."

That's right; no one knows what happened to the money and they are characterizing the money as having been "vaporized". If the trustee in bankruptcy can't find the money, then the clients whose money was stolen will have to figure out the next steps. I can't imagine them not suing Corzine and other key figures in the company for fraud and breach of fiduciary responsibility in both their individual and corporate obligations.

Still, the money wasn't vaporized; it was misappropriated and stolen from client accounts. That's a criminal matter, and I concur with the view that a grand jury should be investigating filing charges against key individuals at MF Global, up to and including Corzine.

MF Global so completely ignored general accounting principles and the first rule of investments and brokerages - to keep corporate and client funds separate. Their malfeasance is overwhelming and Congress will once again hold hearings on the situation on February 2.

More Details Emerge About MF Global Debacle

New details continue to emerge about the conditions that set in motion the collapse and bankruptcy of MF Global. It turns out that one of the items that led to the financial firm going bankrupt was a change in the rule done in December 2000 that allowed these kinds of firms to expand where they could invest their own money.

Before 2000, the rule permitted futures brokers to take money from their customers' accounts and invest it in a number of approved securities limited to "obligations of the United States and obligations fully guaranteed as to principal and interest by the United States [U.S. government securities], and general obligations of any State or of any political subdivision thereof [municipal securities.]" That is, relatively safe securities with high liquidity.

The banks, however, pushed the CFTC to expand the investment options that would allow firms to practice "internal repo." In this scheme, money is taken from customer accounts and invested short-term in a variety of securities, with the futures brokers reaping the not-insignificant financial rewards from their customers' money.

And, lo and behold, such efforts were successful. In December 2000, the CFTC agreed to amend Regulation 1.25 "to permit investments in general obligations issued by any enterprise sponsored by the United States, bank certificates of deposit, commercial paper, corporate notes, general obligations of a sovereign nation, and interests in money market mutual funds" — in other words, riskier investments that could make more money for Wall Street.

Then, in February 2004 and May 2005, Regulation 1.25 was further amended and refined to the liking of Ferber and the banks. In the end, the door was opened for firms such as MF Global to do internal repos of customers' deposits and invest the funds in the "general obligations of a sovereign nation."

This practice, of course, may well be the centerpiece of the MF Global disaster. We now know that Corzine — who was CEO of Goldman Sachs from 1994 to 1999 — bet $6.3 billion on the distressed long-term bonds of countries such as Italy and Spain, although it's unclear if clients' funds were used. Bart Chilton, a CFTC commissioner, told Bloomberg News on Nov. 10 that the loss to customers' accounts may have resulted from a "massive hide-and-seek ploy."

Time to turn back the clock on those regulations and reinstate them to the pre-2000 rule, which not only protected the customer accounts, but limited the bank/financial firm exposures to sovereign debt crises.

The push for ever greater profits from the banks blinded them to the downside and banks thought that the US government would backstop them (and for a chosen few, they were right). But that's the wrong tact for the banking/financial industry to take. There's plenty of money to be made without pushing into financial instruments that could potentially take down entire firms and destabilize the economy because of how entangled firms are with sovereign debt of foreign nations and unstable economic conditions. The pre-2000 rules made plenty of sense, and the reason they were changed was an attempt to maximize profit all while ignoring the downside risks.

Those downside risks are now being realized and it's time to reestablish the old rule.

Corzine Resigns From MF Global As Investigations Continue

Things are not looking good for former New Jersey Governor Jon Corzine. First, his new company MF Global imploded after Corzine pushed the company to take risky bets on sovereign debt in Europe and failed to have sufficient collateral to back those bets.

Then, the company failed to provide proper protections for client accounts - commingling funds of clients with company money that is a huge red flag. That only came to light after suitors for the company started poring through the books and saw serious discrepancies. Those discrepancies total more than $630 million that cannot be accounted for.

The potential buyers fled, MF Global declared bankruptcy, and the regulators and investigators are now picking over the ruins.

And what of Jon Corzine? Not only has he resigned as head of MF Global, he's now hired a criminal attorney, which is natural because he's likely going to be facing charges relating to the commingling of funds, leading everyone astray with his reassurances at a time when he knew, or had reason to know, that his company was crumbling all around him.

We're supposed to be grateful that Corzine didn't seek his massive severance package, which totals more than $12 million? Sorry, but he's bankrupted the company; there's no money to collect.

Mr. Corzine resigned from MF Global on Friday morning and will not seek $12 million severance payments.

Federal authorities, including the Federal Bureau of Investigation and the Securities and Exchange Commission, are investigating the $630 million in missing customer money at MF Global.

Mr. Levander could not be reached as he is out of the country, according to his assistant. He did not return an e-mail seeking comment. Daniel O’Donnell, the chief executive of Mr. Levander’s law firm, Dechert, declined to comment.

In Mr. Levander, the chairman of Dechert, Mr. Corzine has retained a New York lawyer who is no stranger to defending prominent Wall Street executives. He represented John Thain, the former chief executive at Merrill Lynch, in a government inquiry related his role in Merrill’s sale to Bank of America. Ezra Merkin, a hedge fund manager who invested with Bernard L. Madoff, hired Mr. Levander to defend him against a New York attorney general’s lawsuit connected to the Madoff case.

“Andy is not just smart but has a deep understanding of the investigative process,” said Steven M. Cohen, a defense lawyer at Zuckerman Spaeder in New York and the former top aide to Governor Andrew M. Cuomo. “He understands how cases are built and therefore how they are defended.”

Other recent high-profile assignments for the bow-tie clad Mr. Levander include his representation of the outside directors of Lehman Brothers and Monster.com, a jobs Web site, in a government investigation relating to the backdating of employee stock options. In 2004, he obtained an acquittal for Michael Rigas, a former Adelphia Communications executive, in a criminal trial. A jury convicted Mr. Rigas’s father and brother in the same case.

Like much of New York’s white-collar defense bar, Mr. Levander is a former federal prosecutor in Manhattan. A graduate of Tufts University and Columbia Law School, Mr. Levander clerked for Judge Wilfred Feinberg on the Federal Appeals Court in Manhattan. He joined Dechert in 2005 after it acquired Swidler Berlin Shereff Friedman, a small New York firm where he had worked.

Corzine also hired another firm to represent him in bankruptcy proceedings and shareholder suits that are already being lodged against the firm and him personally.

This will not end well for Corzine.

UPDATE:
Is there a conflict of interests between the regulators and investigations into Corzine's actions. The head of the Commodity Futures Trading Commission (CFTC), is Gary Gensler. The two have crossed paths numerous times and raises questions as to whether Gensler can do his job to suss out all that went wrong with MF Global and hold Corzine accountable:

Gensler was a partner with Goldman Sachs, rising to rank of co-head of finance before leaving the firm in 1997 for a role in the U.S. Treasury department. At the time, Corzine, a 24-year veteran of the firm, served as its CEO.

The two men met up again on Capitol Hill, when Corzine, then the junior senator from New Jersey, in 2002 helped co-author the landmark Sarbanes-Oxley Act, which imposed massive new regulations in response to accounting scandals that caused Enron, Tyco and WorldCom to implode. Gensler was a senior advisor to Sen. Paul Sarbanes (D-Md.), then chairman of the Senate Banking Committee, for whom the act was partially named.

This week’s turn of events–MF Global’s meltdown and subsequent findings by its regulators that the firm allegedly violated requirements on customer segregated funds–promises to reunite the two men once again, though on opposite sides of the table. A CFTC spokesman did not return a message immediately seeking comment on Corzine and Gensler’s connection and whether it represents a potential conflict.

I don't think this will affect the investigations, since Gensler could recuse himself while others around him in the CFTC can do their jobs.

UPDATE:
Wouldn't you know it that Corzine lobbied to get regulators to reduce their restrictions on the very kinds of transactions that undid MF Global.

As a former United States senator and a former governor of New Jersey, as well as the leader of Goldman Sachs in the 1990s, Mr. Corzine carried significant weight in the worlds of Washington and Wall Street. While other financial firms employed teams of lobbyists to fight the new regulation, MF Global’s chief executive in meetings over the last year personally pressed regulators to halt their plans.

The agency proposing the rule, the Commodity Futures Trading Commission, relented. Wall Street, which has been working to curb many financial regulations, won another battle.

Yet with MF Global in bankruptcy and regulators scrambling to find $630 million in missing customer funds, Mr. Corzine’s effort may come back to haunt him.

The proposed rule would have restricted a complicated transaction that allowed MF Global in essence to borrow money from its own customers. Brokerage firms are allowed to use customers’ money to earn interest, not unlike banks, but this rule would have outlawed using customer funds for a loan to the firm itself.

Corzine's Big Bets Bust Major Financial Firm; Regulators Want To Know Where Investor Money Went

One of the sacrosanct rules in finance (and law) is that you never commingle investor/client funds with your own. It's one of the few automatic ways that a lawyer can find themselves disbarred.

Yet, we're now learning that the financial firm headed up by none other than former New Jersey Jon Corzine is potentially in hot water over being incapable of accounting for hundreds of millions of dollars of investor funds after MF Global went belly up after Corzine bet big on foreign funds and lost.

Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, which is run by Jon S. Corzine, the former New Jersey governor, several people briefed on the matter said on Monday.

The recognition that money was missing scuttled at the 11th hour an agreement to sell a major part of MF Global to a rival brokerage firm. MF Global had staked its survival on completing the deal. Instead, the New York-based firm filed for bankruptcy on Monday.

Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse.

The discovery that money could not be located might simply reflect sloppy internal controls at MF Global. It is still unclear where the money went. At first, as much as $950 million was believed to be missing, but as the firm sorted through its bankruptcy, that figure fell to less than $700 million by late Monday, the people briefed on the matter said. Additional funds are expected to trickle in over the coming days.

But the investigation, which is in its earliest stages, may uncover something more intentional and troubling.

Sloppy controls my ass. Banks and financial firms know down to the penny how much is in individual accounts and that MF Global was playing games and can't account for where all the investor money was is not just troubling, but it shows that regulators failed in basic oversight to make sure that the brokerage was playing by the rules.

How did MF Global get in this mess? Corzine bet company money on European debt - and didn't have sufficient capital to back up the bets. He did the same kind of thing at Goldman Sachs where some of those decisions went bust, but Goldman Sachs could absorb some of those losses. Here, he's dealing with a much smaller firm and by buying up big holdings of debt from Spain, Italy, Portugal, Belgium and Ireland at a discount, he thought he could turn around and profit if the Eurozone fixed its mess. However, it wasn't to be.

So, while the bonds may have matured in less than a year - we've repeatedly seen that failure to have proper capitalization can lay low major financial firms. MF Global was taking inordinate risk and lacked sufficient capital reserves; that's where the issue of investor money comes into play. Regulators are now poring over whether the company used those investor funds to paper over and increase the capital behind the bond bet.

The CME and other regulatory bodies are already saying that MF Global broke the rules. The question will be determining the extent of the mess.

And criminal charges should be coming down the road too. You break these kinds of rules, and you're essentially stealing from your clients in the hopes that you can make back your money. It's a losing proposition and the brokerage industry needs to know that these rules aren't to be trifled with.

Air America Finally Folds Up

Air America is finally folding after limping along on life support since 2006. It had entered bankruptcy protection in 2006 because it could never make money from advertising, which is the lifeblood of any radio venture. For them to claim that the economic market forced this decision avoids the point that the network had been in trouble for years, and that it never showed that it could be a viable media outlet.

Curiously, while the New York Times mentioned that Al Franken at one point was one of the high profile personalities on the network, it studiously avoids any of the money issues that Franken had with the network, or the problems that the network had with the Gloria Wise Boys and Girls Club in New York City.

I doubt anyone is going to miss the network as its listnership was so paltry.

GM; Chrysler Emerging From Bankruptcy

So, the slimmed down General Motors has emerged from bankruptcy and taxpayers are on the hook for the liabilities and bad parts of the company. Hooray! (that's sarcasm folks).

General Motors Corp. CEO Fritz Henderson says the new GM will be far faster and more responsive to customers than the old one.

Henderson said today the company had emerged from bankruptcy protection far faster than anyone thought it could.

He says the company now will focus more on customers, including a partnership with eBay for people to buy vehicles by auction online.

Henderson says the company will build more cars and trucks that consumers want and launch them faster than in the past.Once the world's largest and most powerful automaker, new GM is now cleansed of massive debt and burdensome contracts that would have sunk it without federal loans.

But the new GM also emerges amidst the worst sales slump in a quarter-century.

The massive transfer of factories, money and intellectual property was completed about 6:30 a.m., according to a person briefed on the situation, clearing the way for a smaller and faster company better equipped to compete in the brutally tough global automotive market.

The person, who asked to remain anonymous because the deal wasn't announced officially, said the signing meant the new GM had emerged from bankruptcy. The person said lawyers spent the night signing a 2-foot-high pile of documents clearing the way for the asset sale to the new company.

One bankruptcy expert called GM's 40-day case the fastest ever for a company of its size.

The new company claims that it will be more responsive to customer needs and wishes, but I wonder how exactly they're going to pull that one off. Products take years to develop from conception to street version. Consumers were big on SUVs until they ceased doing so. The government is putting the screws to the automakers to produce cars of a certain type, but that doesn't mean that consumers will go for it.

It also doesn't address who will be in charge and how new deals with the unions will take place given that the unions now have an ownership stake in the company (and the UAW also now has an ownership stake in a company that competes against Ford). GM will continue cutting jobs to trim its costs, but there's no guarantee that consumers will buy their cars.

It's Official: GM Declares Bankruptcy; Chrysler Sold to Fiat

So, where does the company go from here?

General Motors Corp., the world’s largest carmaker until its 77-year reign ended last year, filed for bankruptcy protection in the U.S. with a plan to create a 21st-century company that can compete in world markets.

GM reported $82.29 billion in assets and $172.81 billion in debt. The U.S. government will bankroll the transformation of the 100-year-old automaker, a victim of tumbling sales and higher gas prices. The U.S. plans to convert much of its $50 billion of loans to a 60 percent stake in the new entity, administration officials said. Today’s filing coincides with a deadline for GM to convince a government auto task force that it could reorganize out of court through debt and cost cutting.

“It’s been a long time coming, but the reality of a GM bankruptcy is still a bitter pill to swallow -- it’s a bit like the Titanic sinking,” said Stephen Pope, chief global strategist at Cantor Fitzgerald in London. “This is a step they should have taken more than a year ago, which could have put them in much better shape before the economy went down.”

Detroit-based GM is the largest manufacturer to file for bankruptcy, surpassing Chrysler LLC. The carmaker plans to launch a new company in 60 to 90 days, armed with vehicles from its Cadillac, Chevrolet, Buick and GMC units for the U.S. market. A federal bankruptcy judge would supervise the sale or liquidation of unprofitable brands, such as Saturn and Hummer, and at least 11 unwanted factories.

We own the company - by we, I mean the federal government, which continues pouring billions into the company while the company reorganizes, but will not get the money back. Instead, the government is buying a significant stake in the company.

I don't have anything good to say about this particular arrangement. The government continues to do an awful job of predicting winners and losers, and to suggest that the government can figure out what vehicles the public wants is going to be entertaining to watch. Of course, the government could simply dictate that the public has to buy those fuel miser vehicles, but that's going to lead to significant backlash. They'll have a quick opportunity when they decide the fate of the Chevy Volt, which is one of those expensive loss-leaders that GM was going to rely upon to help improve its CAFE figures, but which wouldn't help improve its solvency issues. The government will have to figure out which is more important - getting the company on solid fiscal footing or pushing it's eco-agenda. Shareholders responsibility is to get the company on solid fiscal footing, so if the company holds onto the Volt, they'll have to run serious contortions on why this makes fiscal sense (then again, it's the government, which means fiscal responsibility is out the window).

Thousands of dealerships will be let go, and that means that tens of thousands more people will be laid off. It was long overdue, but it doesn't make the situation any better. Factories will be shuttered and the nation's industrial base will shrink further. Again, these changes are necessary, but that doesn't reduce the pain that will be felt throughout the industrial centers around the nation. It also means that tens of thousands more jobs are at risk as suppliers find product lines coming to an end.

Magna is buying General Motor's European division, Opel, and it's expected that the brand will focus on electrification. Unless you have a power generation and distribution system that can handle increased loads, and charging stations for those vehicles, the electric vehicles will continue to suffer from image problems.
GM will also apparently retool a factory that is currently idle so as to produce new smaller more efficient cars. It remains to be seen if anyone will actually go ahead and buy them.

Separate from all this is the fact that the government is shredding traditional bankruptcy policy by putting junior creditors ahead of senior creditors. Bondholders are getting shafted, which has long term credit implications since they'll be less likely to invest in other entities when they know that the government will simply shove them aside in favor of the unions. The unions make out like bandits under this proposal, getting 17.5% of the company, while the bondholders and other unsecured creditors get 10% (their actual share was much higher, and they will get warrants to buy another 15%).

Meanwhile, the Chrysler sale has been cleared to Fiat. CNBC also reports that the unions finally made concessions to help bring the costs in line with that of Japanese automakers operating in the US. That's going to save the new GM more than $1.3 billion annually.

In the U.S., the United Auto Workers' ratification of concessions, announced Friday, will save GM $1.3 billion per year and bring its labor costs close to those of its Japanese competitors. The new UAW deal freezes wages, ends bonuses and eliminates some noncompetitive work rules.

It also moves billions in retiree health care costs off GM's books. In exchange for its ownership stake, $6.5 billion of interest-bearing preferred shares, and a $2.5 billion note, the trust will take on responsibility for all health care costs for retirees starting next year. Higher health care costs alone accounted for a $1,500-per-car cost gap between GM and Japanese vehicles.

GM will offer buyouts and early retirement packages to all of its 61,000 hourly workers as it plans to shrink overall employment. The company also has about 27,000 white collar employees. In contrast, GM employed 618,000 Americans in 1979, more than any other company.

If this new company can't get its act together, those concessions wont mean a whole lot, nor will the ownership of the company.

UPDATE (Legalbgl):
In related news, the Dow Jones Industrial Average has replaced GM with Cisco.

The Dow Jones industrial average is adding Travelers and Cisco Systems, dropping Citigroup and General Motors.

The announcement Monday of the changes to the 30 stocks that make up the best-known barometer of Wall Street comes as GM enters bankruptcy protection, a move that was widely expected.

Dow Jones said in a statement that Travelers, the property and casualty insurer and one-time division of Citigroup, would replace its former parent. Cisco , which makes computer networking gear, is filling the role left by GM after 83 years as part of the Dow.

The changes take effect June 8.

GM and Citigroup's place on the DJIA has been tenuous at best as of late. The DJIA has strict rules regarding keeping your stock price over $1.00, and both of these companies have dipped below that level recently (although Citigroup has rebounded to over $3.85 as of late.)

GM Cuts 1,100 Dealerships in U.S

Well, yesterday it was Chrysler, today, the other shoe fell. General Motors cuts 1,100 dealerships.

General Motors announced plans to drop about 1,100 U.S. dealers as it struggles to slash billions of dollars in operating costs and debt ahead of an anticipated bankruptcy filing by the end of the month.

Taken together with a similar announcement by bankrupt Chrysler a day earlier, over 2,300 U.S. auto retailers have been put on notice that they are being eliminated by the two embattled automakers.

The unprecedented closures taken under the oversight of the Obama administration's autos task force put over 100,000 jobs at risk across the United States and show the spreading economic pain from the collapse of the two Detroit-based automakers.

GM confirmed it planned to eliminate about 1,100 dealerships on the grounds that they are less profitable and weakly capitalized by letting their franchise agreements expire between now and the end of 2010.

The automaker expects to drop another 470 dealerships from cutting its Saab, Hummer and Saturn brands, said GM spokesman John McDonald.

After merging remaining dealerships, the plan is for GM to cut about 2,600 showrooms, or 40 percent of its U.S. retail network.

"We are telling them basically that you are not going to fit into the picture long term, but between now and then we will help wind the business down the best way individually with each dealer," GM spokesman John McDonald said.

GM dealers affected by the closure plans received letters by express mail Friday morning informing them that the automaker did not see how it could have a "productive business relationship" after 2010.

Well, congratulations President Obama, you have successfully moved 100,000 people onto the public payroll. Now, instead of fostering a true renegotiation of the union contracts, which would have lowered the production costs of GM and Chrysler cars to competitive levels, President Obama has supported the Unions, which empowered them to stand up to GM and Chrysler which has led to Chrysler's bankruptcy, and the impending GM bankruptcy, and at least 100,000 people (non UAW people, so they really don't count to President Obama) have lost their jobs. And who is going to pay for this? Who is responsible for picking up the tab? US. The taxpayers. As these people loose their jobs they will collect unemployment. They will loose their health case so they will move to government sponsored plans, that we all pay for. The consequential costs of this are enormous. Each one of those dealers also supported local economies, paid taxes, bought food at local diners, paid landscapers, paid for trash pickup, etc. Each dealer that gets put out of business effects each business that it dealt with. Therefore spreading the misery. That is the damages that protecting Unions will deal to the economy.

And this depressing economic news comes after Chevrolet (a GM unit) and Ford posted some impressive numbers against rival Toyota.

For the first time all year, not one but two Detroit brands outsold Toyota. Chevrolet and Ford both posted brand sales that exceeded Toyota’s figures, proving that there are some silver linings, at least in Detroit, in the continuously cloudy new car market in the United States.

Toyota wasn’t the only Japanese automaker to post a bigger-than-expected sales decrease; Nissan posted its biggest decline of the year and Subaru posted its first sales slide this year.

***

Hyundai sales were down 14 percent, the least of any high-volume, non-luxury brand so far. April was the best month ever for the Genesis and the Accent and Sonata both saw 26 and 7 percent increases, respectively.

Both Chevrolet and Ford outsold Toyota for the first time in 2009. Toyota’s 112,345 cars and trucks couldn’t match Chevrolet’s 115,265 or Ford’s 116,263.

Chevy’s Traverse crossover sold a reasonable 8,2004 units, its best month this year, while HHR, Tahoe and Express passenger van sales were all up, as well. Overall GM sales were down 33.7 percent to 173,007 units.

Ford’s Fusion, including the 2009 and redesigned 2010, which recently hit dealers, had its best-ever April with 18,321 units sold.

So lets debunk the myth that GM and Ford can't build cars that Americans want. The problem is that GM, Ford and Chrysler cannot produce cars that Americans want at the same price point that Toyota, Honda and Nissan can. The reason why is simple. The American big three are struggling against high health insurance costs, high pension costs and until recently, high job board costs. These are costs that add to the bottom line, that Honda, Toyota and Nissan just don't have. And its was not bad business that straddled them with this debt. It was the fear of union strikes, bad publicity and political pressure that forces the big three to kowtow to union demands. If you want to save the automakers, if you want to save American manufacturing, if you want to save the economy, if you want to save blue collar workers, you have to force the unions to make hard decisions and help the companies survive.

Chrysler Closing 1/4 Of Dealerships Nationwide

This shouldn't come as a surprise as Chrysler struggles to get on sound financial footing. It's closing a quarter of its dealerships.

Chrysler LLC will close down 789 dealerships, or roughly 25% of the current number, according to a plan filed in bankruptcy court Thursday.

Chrysler had a total of 3,181 authorized dealers in operation at the time of its April 30 bankruptcy court filing, according to court filings. Just over half of that number accounted for more than 90% of Chrysler sales, according to the filing.

The dealers being shut down represent 14% of Chrysler's total sales, the carmaker said.

Auburn Hills, Mich.-based Chrysler does not believe closing these dealerships will adversely affect sales.

For New Jersey, it means 30 dealers are going by the boards, which are named here.

That means that those dealers that are closing represented a drag on business and weren't profitable for the company. It also means that those working at those dealerships will soon be out of jobs, and will have a hard time finding work within the industry given the dire problems facing the US automakers.

Systemic Failure in Newspaper Business

The New York Times Co., which owns the Boston Globe and other properties, is contemplating shutting down the Globe's newspaper business within a matter of weeks. The Times simply can't find a way to make money, and they're selling anything and everything that either has a chance of making money to keep the Times afloat or canning entire businesses because they have no chance of making money.

Some see this as a ploy to extract more concessions from the unions that continue to ignore reality and the failings of the newspaper business model.

The Times has already engaged in a sale-leaseback of its headquarters in New York City to raise capital, and it looks like they're trying to sell the company's share of the Boston Red Sox to majority owner John Henry. That's probably the most profitable sector of the company, which has lost most of its share value and net worth over the past few years. Editorial decisions haven't helped either, as the paper essentially caters to less than 50% of the marketplace.

Instapundit thinks that this is a lose-lose situation for the unions and the company. I see it as poetic justice for the leftists at the paper who now have to play union-breaker after hollering about how other businesses and industries treat unions so poorly. The reality is that the unions and management here have done such a poor job adjusting to the economic situation, that both are going to suffer all the more for it.

No More Delaying of the Inevitable

Chrysler is going to file for bankruptcy, at least according to headline reports at CNN, which notes that negotiations with creditors have collapsed.

That's a better situation than the one that the government was hoping to induce, which essentially gave the UAW a larger say in the company affairs than the shareholders, who have more money at risk. It would have also created the unusual situation wherein Ford would have to be negotiating with its competitor - the UAW - when it came time for employee contract negotiations. You see, the Obama Administration was pushing the idea of making the UAW part owners of both GM and Chrysler, which meant that Ford would have been forced to negotiate with its competitors to determine the next union contracts. How exactly is that supposed to make sense?

It only makes sense to the Administration who has to dole out favors to those who have backed it in the past. It's a spoils system, and they're fighting over the spoiled remains of an auto industry decimated by bad business decisions and union inflexibility to adjust to changed circumstances.

There are reports that the Administration is backing a Fiat-Chrysler merger, but that's a bad deal for all. Fiat isn't exactly a healthy company either, having been boosted by the Italian government after its near collapse. It's a matchup of two sick companies, one of which has been on taxpayer funded life support that has delayed the inevitable bankruptcy.

The president’s staff is aiming for Chrysler to file for Chapter 11 protection as early as today to pave the way for Fiat to take a 20 percent stake in the Auburn Hills, Michigan-based automaker, people familiar with the situation said. If Chrysler has to go through bankruptcy, it won’t take long, Obama said.

“It would be a very quick type of bankruptcy, and they could continue operating and emerge on the other side in a much stronger position,” Obama said.

Chrysler’s best assets would be sold to a new entity that would have an ownership structure similar to that envisioned in an out-of-court deal between the U.S. automaker and Turin, Italy-based Fiat, said the people, who declined to be identified because discussions are private.

Administration officials were still resolving outstanding issues and the plan wasn’t finished, one of the people said yesterday.

“I don’t think there should be a stream of subsidies to automakers, but helping them to restructure now,” when sales have collapsed, is “realistic,” Obama said.

Chrysler is expecting the Obama administration to say today whether the company has met all of its requirements to go ahead with the proposed Fiat alliance with Fiat, Chief Executive Officer Robert Nardelli said in a note to employees.

When the Administration says that they are hoping to sell the best assets to Fiat, it means the actual factories and manufacturing base. The bad assets: that's the union pensions and benefits packages, plus the financing arm. Who will hold that bag? The taxpayers.

Count on it.

UPDATE:
The Times reports that UAW stands to gain a say in company operations at automakers. Sorry to break it to the Times, but they've had a say all along. They've been the ones dictating employee costs for generations, and it is their refusal to accept changes in compensation practices over time that has led the automakers to bankruptcy.

What the Times ought to have said is that the UAW now stands to have a much bigger say in the automakers, but it doesn't mean that it will do the automakers any good. It just means that the taxpayers will be left holding the bag when the UAW realizes that it can't justify its own costs.

Chrysler Preparing For Bankruptcy Filing

This shouldn't come as a surprise. Chrysler has been hemorrhaging money for years, and its merger with Daimler-Benz was a disaster. It's subsequent takeover by Cerberus Capital didn't improve matters.

Reorganization under Chapter 11, here we come.

The Treasury Department is preparing a Chapter 11 bankruptcy filing for struggling U.S. automaker Chrysler that could come as soon as next week, according to a New York Times report.

People with direct knowledge of the action told the newspaper that the U.S. Treasury has an agreement in principle with the United Automobile Workers union, whose members’ pensions and retiree health care benefits would be protected as a condition of the bankruptcy filing.

In March, the Obama administration gave Chrysler has until the end of the month to reach agreements for an alliance with Italy's Fiat, a reduction in secured debt and resolution of labor issues with its unions.

President Obama said the turnaround plans that the automakers presented to Congress earlier this year hadn’t gone far enough. He gave Chrysler one last chance to turn its operations around, raising the threat that he might force the company into a quick, managed bankruptcy if that proves to be the fastest way to restore it to health.

So, the bankruptcy filing will mean that taxpayers are on the hook for Chrysler's pension and health benefit obligations. That's quite the sop to the UAW, but we expect nothing less when dealing with the Democrats biggest backers.

There was nothing that Chrysler could do that would turnaround the company. Producing products that the public didn't want and which cost too much because of those pension obligations meant that Chrysler was at a disadvantage. Couple that with the left's assault on the very vehicles that Chrysler excelled at making - SUVs and minivans - and it was a recipe for disaster.

No auto company could manage a turnaround in a short period of time when factoring in the design and production costs with creating new vehicles.

Call the Bluff

General Motors new CEO Fritz Henderson (the replacement for the now dispatched-at-the-behest-of-President-Obama Jeff Wagoner) now says that the company may face bankruptcy despite the multibillion dollar bailout.

General Motors’s new chief executive told CNBC that filing for Bankruptcy may be the best option for the struggling automaker.

In a taped interview to be aired tonight on NBC Nightly News, Fritz Henderson said that because of greater demands from the Obama administration to restructure, GM is considering the bankruptcy option. The auto giant previously had ruled out such a move, saying it would discourage people from buying GM cars.

Henderson’s comments came after President Obama bluntly rejected turnaround plans by GM and Chrysler and demanded that both companies make fresh concessions in order to get more federal aid.

Henderson, who was GM’s president and chief operating officer, was named the new CEO after the government forced the resignation of CEO Rick Wagoner on Sunday. GM’s board is also being restructured.

Henderson told reporters that the company would still prefer to restructure outside of court, but the level of support Washington is offering would help the company quickly restructure through bankruptcy.

The company has had months to deal with the unions and restructure contracts under the bailout and has failed to accomplish anything. During Wagoner's term, the company shed tens of thousands of jobs and still faces a massive pension and benefits cost that tacks on unsustainable costs of every vehicle.

Henderson says bankruptcy is coming? Is this a threat or a promise, because either way, it is coming. The government wasted billions delaying the inevitable, and we may see billions more wasted to save a company that could not make the tough decisions.

Let them carry through on the threat.

Bankruptcy is the one thing that will save these companies from the structural failures to date, not the wasted tens of billions that the government has thrown at them. President Bush was wrong to start with a bailout, and President Obama was wrong to continue them.

Bankruptcy forces hard choices to be made and allows the companies to get a clean start. The bailouts only delayed the inevitable.

End of an Era: Fortunoff Anticipating Liquidation

The venerable New York area company is preparing to shutter its remaining stores and liquidate its assets. The jewelry and home furnishings store simply couldn't deal with the recession and bad business decisions; it was in the market segment that exposed them to the worst of the recession - jewelry and home furnishings.

Bloomberg News reported Tuesday that Fortunoff had closed its flagship Manhattan store on 57th Street and is making plans to liquidate its merchandise. The chain may file for bankruptcy protection soon, said people with knowledge of the matter, who declined to be identified because the discussions are private. Lori Rhodes, a spokeswoman for Fortunoff's owner NRDC Equity Partners LLC, declined to comment.

"What are the two worst sectors in retail right now? Jewelry and home. They're in both," said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting firm based in New York City.

Fortunoff has two stores in Paramus and one in Wayne. It has a yard and home store on northbound Route 17 in Paramus and a jewelry and gift store at the Paramus Park mall. The company has a full-size Fortunoff jewelry and home store at the Wayne Towne Center mall in Wayne.

The home store on Route 17, if vacated, would join more than a half-dozen empty furniture sites within a 3-mile radius of the intersection of Routes 4 and 17. Furniture stores often are difficult to re-lease to anything other than another furniture store. They are designed with a maximum of showroom space and a minimum of parking space, because furniture stores aren't considered high-traffic retail. The nationwide housing slump has hit furniture retailers hard and created a greater supply of vacant stores than there is demand.

Chuck Lanyard, president of retail real estate brokerage The Goldstein Group of Paramus, said he still is making deals to put furniture stores in some of the empty spaces, as chains from other parts of the country see an opportunity to move into New Jersey. Ashley Furniture just signed a lease to move into part of a vacant Levitz store on southbound Route 17, Lanyard said.

The Fortunoff store on Route 17 also could be easier to rent, Lanyard said, because it appears to have a higher parking-to-square-foot ratio than other furniture stores.

NRDC has reportedly been trying to find a buyer for the chain, with no luck. NRDC, which also owns the Lord & Taylor department stores, bought Fortunoff a year ago after it sought bankruptcy protection.

Lord and Taylor had been planning to shut the 57th Street store, but plans to sell Fortunoff jewelry in the Lord and Taylor chain will not happen.

NJ Transit Does It Again

I've railed on about the Secaucus boondoggle for years now. That white elephant cost taxpayers and commuters hundreds of millions more than originally estimated because NJ Transit had to build a gold plated facility that is severely underutilized.

Now, we learn that NJ Transit spur line to the new Giants Stadium/Xanadu complex is costing far more than it should have, and that had NJ Transit opted for a different route it could not only have saved millions of dollars, but it would have avoided purchasing land that is part of a Superfund site.

But that did not stop the state from making the site the cornerstone of a $182 million project to bring rail service to Giants Stadium, Xanadu and the rest of the Meadowlands Sports Complex.

A review of the rail project shows that the New Jersey Sports and Exposition Authority in December 2006 spent $6.2 million to buy 56 acres of the site from its current owner, Honeywell International.

At about $108,000 an acre, that's roughly five times the price the state charged a private developer for 785 acres of contaminated land at the nearby EnCap Golf project site.

Six alternative routes considered for the rail line, built as a spur off NJ Transit's Pascack Valley Line, would have allowed the state to buy much less land — only about 3 acres — and avoid Superfund-style contamination.

Additionally, all of the competing rail alternatives would have been built off the much more widely used Bergen Line, which also would have served Pascack Valley riders.

The state says the Honeywell option, with its proximity to the Pascack Valley Line, was the most cost-effective and useful for New Jersey mass-transit users. They also note that their deal with Honeywell makes the Morristown-based conglomerate solely responsible for the costs of the cleanup.

Someone was profiting from that choice, despite the fact that it makes little sense for the trains to operate from the Pascack Valley line and not the Bergen line.

The link project was originally supposed to cost $150 million. Its current cost is $182 million, and growing. Here are the alternatives.

Even as the project was being debated in 2005, there were questions over how and why this particular right of way was chosen.

This is the way NJ Transit does business. They are not fiscally responsible, and despite their claims that the route chosen was the best and most cost effective choice and that alternative routes might have not been cost effective for obtaining easements and/or necessitated construction of elevated rail lines, the cost for obtaining the easements is significantly higher than it should have been. Why did the state pay far more for the Honeywell land purchases, than private developers received for the Encap deal? That raises questions about both deals; namely that the developer in Encap got a sweetheart deal and/or NJ Transit got gouged in the Honeywell deal.

UPDATE:
EnCap has declared bankruptcy after failing to reorganize. It also means a boon to lawyers:

The end of the bankruptcy case, EnCap attorneys have warned, could lead to years of expensive and time-consuming litigation among more than a dozen entities, with at least 200 unsecured creditors now left to look to parties other than EnCap for compensation.

The hearing began with attorneys for the New Jersey Meadowlands Commission and insurance giant AIG telling Winfield that negotiations had broken down over a disputed $148 million insurance policy to finish cleanup of the landfills at the EnCap site. That led the commission for the first time to side with Wachovia Bank — which wants to foreclosure on the property — in asking the judge to dismiss the case.

Circuit City Calls It Quits

They're not even going to bother with reorganization. They are going to liquidate and go out of business. Nationally, that means that 35,000 people working for the company will be out of jobs.

The company began a disastrous course in recent years after firing the most experienced workers in a cost cutting effort that only meant that incompetent floor staff were left to handle customers. Sagging sales and increased competition from Best Buy, Target, and Walmart led to the company calling it quits.

That means that if you're in the market for a good deal on a big screen tv and home theater for the Super Bowl, now is your chance.

Dreier LLP Declares Bankrupty In Wake Of Founders Craziness

Dreier LLP, a major New York law firm, has declared bankrupty. A law firm going out of business isn't exactly big news, but the reason for this particular firm going under is.

Marc Dreier founded this firm, and was caught in Canada attempting to impersonate another attorney so as to obtain tens of millions of dollars:

The mid-size firm, Dreier LLP, has represented celebrities including retired football star Michael Strahan and former News Corp. publishing executive Judith Regan.

Dreier's lawyer has said his client would cooperate fully with the court-appointed receiver overseeing his assets.

The 58-year-old defendant was jailed without bail last week after being charged in a criminal complaint and by the SEC in the alleged sale of fraudulent promissory notes.

Prosecutors accused Dreier of posing as if he were peddling heavily discounted investments in a New York City real estate development company because original investors, damaged by the world's financial crisis, were backing out.

The SEC said Dreier created an elaborate charade to convince three hedge funds that the investments were real. One hedge fund sent $13.5 million to Dreier while another wired $100 million, authorities said

Prosecutors have estimated total loses could top $380 million.

The defendant also is charged in Toronto with impersonation in connection with the attempted sale of $45 million of notes to a hedge fund.

The other attorneys at the firm aren't involved in the criminal activities, but they're going to feel the fallout.