Toyota

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Is it naughty to point out that the federal government that is harassing Toyota owns two of its chief competitors?

Comments

[arhyalon.livejournal.com]

No. It is entirely to the point. The current US government's treatment of the car companies is one of the most upsetting things I think the government has ever done--definitely in my lifetime.

The Car Companies thing upset you?

[stigandnasty919.livejournal.com]

Try this for size.....

One of the best articles on the credit crisis I have read. As ever a slighlty simplistic view, there were many other factors that led to the depth of the crisis, but it shows how regulators went native and became enablers rather than regulators.


How a secret rule caused the crisis
Monday, 22nd February 2010
EDITOR’S LETTER
Allister Heath
ALLISTER HEATH
SLOWLY but surely, some economists are beginning to piece together the real causes of the crisis. And as you might imagine, their findings are strikingly at odds with the conventional explanations, which tend to revolve around greed, bankers’ animal spirits and deceit.
One brilliant new paper shows how an obscure regulation deliberately encouraged US retail banks to buy CDOs – supposedly safe bundles of mortgages that lost most of their value in 2008 – and to get rid of safer assets. It is an astonishing tale, wonderfully retold by Jeffrey Friedman and Vladimir Kraus and published by the American Enterprise Institute.
Banks are required to set aside specified amounts of capital against their assets to protect themselves against possible losses; some assets require more capital and others less, dependent on perceived riskiness. Holding back capital is expensive for the banks but it is useful when things go wrong.
The Basel Accords govern banks’ capital; in 2001, the US?amended the Accord with its so-called “recourse rule”. US retail banks were required to retain just $2 in capital for every $100 invested in AAA or AA-rated CDOs (or any asset-backed security issued by the state-sponsored Fannie Mae and Freddie Mac), compared to $5 for the same amount in actual mortgage loans and $10 in commercial loans. The recourse rule – pushed through by the Fed and other regulators – was deliberately designed to steer banks’ funds into CDOs – and it worked a treat. The banks gorged on them. No fewer than 93 per cent of their holdings of mortgage-backed securities were either AAA-rated or were issued by Fannie or Freddie, as stipulated by the regulations; as far as the banks were concerned, they were merely following the new best practice.
Because they owned so many CDOs, retail banks suffered more than any other investors – except investment banks, which packaged mortgages into CDOs and were caught out with stocks of both when the music stopped. The recourse rule only covered commercial banks; hedge funds, insurers and others were not cajoled into buying CDOs. It is clear that the US authorities were therefore not only complicit but also directly responsible for the destruction of the US banking system. Their rule also helped inflate the demand for CDOs, securitisation and even sub-prime mortgages, especially when Wall Street had run out of mainstream mortgages to bundle up.
The authors remind us that the crisis was not directly caused by mortgage defaults – rather, it was triggered by a collapse in the market price of CDOs caused by fears about the effect of declining house prices. It was this which decimated balance sheets – not mortgage defaults per se. Had the regulatory system not encouraged retail banks to hold securitised bundles of hard-to-value, opaque CDOs, and instead treated other assets more fairly, the crisis might have been avoided.
The 1988 Basel I accords favoured the use of off-balance sheet vehicles such as structured investment vehicles (SIVs), which became huge in the UK and Europe and had a similar effect on the demand for CDOs. By 2006, Basel II began to be implemented outside America; it contained similar incentives to those contained in the recourse rule. The regulatory induced pro-CDO madness had gone global. Needless to say, nobody responsible for these pernicious regulations has been sacked. Bureaucrats, it seems, always get off scot-free.

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Re: The Car Companies thing upset you?

[fpb.livejournal.com]

Mh. But that Toyota was being shafted for being honest (or as honest as any corporation ever gets) was something I could see for myself.

Re: The Car Companies thing upset you?

[shezan.livejournal.com]

... and if you look at the new Basel accords, they demand compliance with the imposed solvency ratios within three months, which means in effect that institutions holding equity that has lost its market value will be compelled to sell it at the very worst time. The buzzword is "procyclical", meaning it is a crisis accelerator.

[affablestranger.livejournal.com]

Nope. It's quite important for people, especially the ones in government, to understand what's going on.

... not that it'll change anything. Big [insert name of industry] are Teh Bad Guys these days in D.C. politics. Only government can save us.

Any news over there?

[johncwright.livejournal.com]

Angry voices from conservative talk radio have been asking that over here in the states for some time now, but gotten very little press attention.

The scandal in science dubbed 'Climategate' also gets no headlines in the states. Are they covering it in Europe? It seems as if every day one hears of some additional utterly unscientific results, faked, dissent silenced, faulty data collected, data lost so it could not be double-checked -- The general atmosphere of corruption and accusation of corruption reminds me the Church under the Borgia Popes.

Re: Any news over there?

[shezan.livejournal.com]

Look up pieces by Christopher Booker and James Delingpole in the London Telegraph, by Matt Ridley and others in the Spectator (spectator.co.uk) etc. Climategate is breaking out in Yurrup at last.

[elegant-bonfire.livejournal.com]

A friend and I were just talking about this the other night--the media is making such a huge deal about Toyota, but the big 3 Am. car companies have a couple of recalls a year, usually, and no one seems to think anything of it.

[shezan.livejournal.com]

It was newsworthy because Toyotas are not expected to have recalls, being WELL-MADE. (Man bites dog.)

[shezan.livejournal.com]

That was my immediate reaction when this started.

[hobsonphile.livejournal.com]

Nope - not naughty at all.

I love my 2004 Corolla. I plan to drive it 'til the wheels fall off.

[happy-potterer.livejournal.com]

Harassing? You mean, saying, WTF, your gas pedals stick and you have been covering it up? Like newspapers in Japan have been saying?

I love my Prius and wouldn't buy a Big Three car for anything (unless they come up with one that doesn't suck) but it does bother me quite a lot that I have been driving my daughter around in a car with a possibly wonky accelerator. I have my recall notice from last fall warning that I ought to remove any after-market floor mat from under the gas pedal. I did so, thinking, "whew, glad they told me about that!" Now it appears that they knew when they sent that out that that was probably was not the issue with many of the acceleration problems (I'm happy to say that my 2008 Prius is not on the list, but I have the conscience to worry about my neighbors who drive Camrys, Corollas, etc.).

It's always good to follow the money, so you're right to point out that the US is (temporarily) majority owner of two car companies, but to dismiss the facts on that basis is ridiculous. I don't know how they do consumer and public health protection where you live, but I'm a US citizen and IMO the US government has a responsibility to call Toyota on the carpet whether or not it has a financial interest: millions of its citizens drive in them daily. And you have a rather naive and simplistic view of the relationship between Toyota and the US. It is a very big employer here and not a company anyone wants to piss off, and US officials as well as Toyota are under scrutiny, rightfully (the NHTSA promulgated the "floor mats" idea).

[fpb.livejournal.com]

I am not dismissing facts. It was not I but Americans who have more knowledge of the markets than I do who pointed out that recalls are a normal event for the (former) Big Three. I recall no congressual hearings for these. Toyota does it a few times and gets called to testify as though they were a bunch of mobsters. Sorry, this strikes me as slightly unequal, and the suspicion of self-interest is inevitable.

[happy-potterer.livejournal.com]

I recall no congressual hearings for these.

Naturally. Who pays close attention to these things? But before you charge bias, you might try a web search for other automakers and congressional hearings. E.g., Ford came under considerable fire for faulty tires on its SUVs about ten years ago. [sarcasm] No doubt that was just anti-Japanese fervor, since the tire company (Firestone) was Japanese. [/sarcasm]

An alternative explanation for the heat on Toyota: Although recalls are common, this one is particularly sweeping and concerns a flaw that's particularly life-threatening. Most recalls are about trivial matters.

[fpb.livejournal.com]

All right, let's leave it at that. It's just that I can recall the days when the Italian government was a wholly-owned subsidiary of FIAT, so it takes little to rouse my suspicions.