From Naked Capitalism…..

So let’s play out my variant of how a bankruptcy goes. The three ring circus described in The Deal moves forward. The story anticipates the bankruptcy process lasts till late 2010. I tell you what happens in the meantime: there are just about zero car sales. No normal prospective car buyer is going to have any confidence with a process this protracted and uncertain and will take his business elsewhere. GM runs through its DIP money faster because neither it nor any of its dependents are getting any dough, The assumptions going in, made with unduly optimistic assumptions about sales (no allowance for customer revulsion) are way way off base.

But now that GM is in Chapter 11, there is no turning back. Its cash hemorrhaging has grown far beyond what was ever envisaged even in supposed worst case forecasts. The only options now are nationalization (to what end? The brand has been destroyed) or liquidation. And liquidation takes down the parts suppliers, which in turn makes most of the foreign transplants unworkable.

So for the hatred of UAW and the stubbornness of some GM creditors we destroy the entire US auto sector.

This is silly. The health of the auto industry is ultimately dependent on the financial health of the consumer, not the Big Three. As long as there are people buying cars in America there will be an auto industry in America. As long as people need to drive cars they will need to fix cars. This means that parts suppliers will still be selling parts.

This issues of not wanting to buy from a bankrupt company is a red herring. Of course nobody wants to buy a vehicle from the Big Three if they are going bankrupt at current prices. But the whole point of bankruptcy is that it cuts your operating costs. This means that the Big Three should be able to dramatically lower their prices after a bankruptcy. Companies like Hyundai broke into the American market despite their previously bad reputation by dramatically improving their cars and selling their cars for dirt cheap. If the Koreans can do it, the Big Three can do it.

And if they can’t, why bail them out?

From the Economist….

Instead of glass prisms, Icelanders are looking forward to a different Chinese cargo in the dying weeks of the year: fireworks. They set off more per person each new year than any other country in the world. Such is the demand that the Chinese manufacturers are making a special loan to Icelanders to buy them, according to a local newspaper.

Almost no other private creditor is lending them anything; Iceland has turned instead to the IMF.

This little throw away line buried in a story about Iceland’s problems demonstrates how insane the Chinese business model is. As the broader article makes clear, the other shoe has not dropped yet as far as Iceland is concerned. Iceland owes the world a lot of money that is never going to be repaid.

So what are the Chinese manufactures dong loaning money to Iceland for fireworks? I can only think that they are determined to keep their exports from dropping off. But really, how short sighted can you get? There is a reason why nobody else is loaning Iceland money.