The auto bailout

ESPN's Tuesday Morning Quarterback Gregg Easterbrook has some great discussions on the economy and bailouts spliced into his football column. My favorite part is at the end of the column regarding the government's negotiations with the auto companies.

Based on how poorly Washington has negotiated with General Motors and Chrysler, here's what it might sound like if Nancy Pelosi was buying a car:

DEALER: Yes sirree, I can let you have this cherry-red baby for $19,999.99! Plus undercoating and dealer prep.

PELOSI: I'll pay $50,000.

DEALER: For a limited time only, I can throw in remote-controlled eight-way power cupholders, for another $999.99.

PELOSI: I'll buy them at $75,000.

DEALER: Do you want the extended warranty?

PELOSI: No. But I'll pay another $25,000 for it.

DEALER: Aren't you worried something will go wrong?

PELOSI: If it does, I'll just send the bill to the taxpayer.

DEALER: So you are willing to pay $150,000 for a $20,000 car? I'll have to go ask my manager! (Disappears into back, pretends to talk to manager, returns.) Lady, you drive a hard bargain. He says that for $31 billion, we will give you absolutely nothing at all.

PELOSI: Sold.

Its funny and cynical and probably close to the truth. Earlier in his column, Gregg mentions it would have been better for the government to buy cars from GM and Chrysler, rather than just give them the money outright. Besides helping Detroit immensely, this is the kind of out of the box thinking that we desperately need.

How does this relate to investing? Well, over the past month, we've been looking at auto companies and their suppliers as potential short term investments; buy them low, hope for good news to drive stock up temporarily, and then sell. Obviously risky, but potentially very profitable. However I can't really see any of these stocks rising in a manner worth the risk, unless the bailout (or any major event) truly does something to improve the long-term fundamentals of the company. I could be wrong, but right now I will be looking elsewhere for short-term profits.

UBS, or how I learned to love the offshore bank account

Recently, UBS has been back in the news as the United States government is trying to pry loose the names of 52,000 account holders that are ostensibly using the Swiss bank as a tax haven.

This comes a year after UBS officials admitting wrongdoing (including criminal cases) for aiding in tax avoidance cases.

So why's this news to you or I who don't have Swiss bank accounts? The percentage of people who misreport their income in the US is between 7 and 15%. In this economic climate, when the government needs every penny they can get to finance the $787 billion economic stimulus, you can bet they're going to tighten up on tax enforcement to get some of what's coming to them.

Bush was lax for years on tax enforcement, but this UBS action may be a signal to tax cheats: if we can take down UBS, we can take you down too.