Friday, February 13, 2009
(Cont'd from above)...

Jim (cont'd):   

Of course, numbers don’t really tell the extend of the carnage… because of the average bank stock… if there is such a thing as an average bank stock these days… was down between 10% to 12%… you know what I really thought was ugly… I thought it was the insurers… these are household names, we are not used to doing anything other than putting claims in with them and get paid fast… I am talking about Pru, Allstate… they took it similarly on the chin… the household ring fence banks, those are the ones that Treasury Secretary Tim Geithner are counting on to pass his stress test… didn’t pass Monday’s stress test at all… with JP Morgan and Wells Fargo losing gobs of points… double digit % decline.

What is happening here… well you have got a couple of things going… you have got a global contagion… you know I could be doing this anchoring job from in pretty much every country on earth tonight… and I would be saying the same things… the same decline in the average… the same loss of faith in the administration… the same worries about the banks… everyone has the same worries global… we wanted something precise and tidy and organized from the government stimulus bank plan… didn’t get it… and how about this nasty auto business.. which grows nastier by the day.. if you are like me… which is 63... you remember that what was good for GM was good for the country… or how about the inverse… that doesn’t sound so good… you got oil down $2.50, back under $35... well, who thinks that would be bad news… I paid a $1.97 tonight on the way in… tonight I thought I would be home with the kids… no, not with this kind of news… I wish, of course, that I had had time to shave… but fortunately we don’t have that close up camera so you can’t tell the difference.

The averages are thick as thieves… with the oils… so even a hint of an oil hit… to the Exxon mid-drift can take us down pretty hard… and Exxon fell like Mr. T in the rematches… you can’t have the oils down these days and expect a rally in the market… let’s make matters worse, okay… a place that is an insult to the great Stanford University… some Stanford International Bank and its principal… maybe we should call him it’s dean… Alan Stanford got nailed by the SEC today… by another massive fraud of over promised and then over delivered returns that were impossible… sound familiar… alleged Madoff… I always like to use the alleged because they put me in the news game and I am not on the trading desk anymore… according to the newfound tough watchdogs in the government… Stanford did something real bad… you k now what, we have got them all tonight… we got the banks, we got GM, we got Stanford, we got the stimulus, we got the agony, and the agony… plus I got help tonight, Melissa Lee… because you know I am not much of an anchor person, I don’t know how to throw it to anybody… I am the cinema vertie real thing… and unless Chief of Mack called me, I don’t know where to go… so I am going to Melissa now to see where I am going…. Melissa.

Melissa: You are doing pretty well. But speaking of anchor like duties do want to bring the viewers to the attention of some headlines that we have been running across the screen. General Motors saying that it needs $2B in additional funding to avoid bankruptcy. They need this by next month, they are seeking up to $16.5B in additional government loans and it could borrow up to $30B in total. Jim, how much cash to you have.

Jim: I got a lot of ones. I didn’t get to the ATM. This is really bad, there was a guy named Everett Dereckson when I was growing up, actually I think I was his grandfather, and he used to say a billion here and a billion there and it starts mattering. Frankly, $2B, it doesn’t matter any more. That is a little bit of money to pay. But I guess we got, we got Phil on that story, he covers it like my suit.

Melissa: He has got the story right now. Phil, what is the latest.

Phil: Well, Melissa we have seen some of the headlines and let me give you some of the context of what General Motors is asking. Overall the company needs another $16.5B that is the worst case scenario. The company outlining to me today, that if things remain as poor as they are in terms of sales, General Motors will need to borrow up to $30B thru the end of 2010. 2011 they project to be a break even year. And then they project to start selling or repaying some of their debt to the government in 2012. A couple of other headlines that are important that people need to keep in mind, this is a company that will be phasing out the Saturn brand if they cannot sell it, or do something with the brand by 2012. We saw the reports from the Wall Street Journal earlier, quoting a Saturn dealer as saying that perhaps they will be sold, the dealers will be sold into a separate corporation. The Hummer brand is going to be sold by the end of the first quarter. Two important areas that people are going to be focused on, has General Motors made progress in terms of restructuring, or how it is going to pay for the health care, retirement healthcare fund for the UAW, what is know as the VIVA, they owe $20 million dollars to the UAW. They are making progress there, but there is no final agreement. There is a new labor contract agreement, at least a tentative agreement, according to the UAW that has been reached. One other interesting note, General Motors says that it has made progress with the bond holders. But, Jim, you are well aware of this, getting those bond holders to go with a debt exchange, that is going to take a lot more work. And remember, General Motors does not need to begin a debt exchange until March 31st, it doesn’t have to be completed by then, simply has to be started by March 31st. So General Motors saying it is making progress with both the VIVA and with the bond holders, but the big news today guys, is GM want $2B next month, it is going for another $2.5B in April, and this is a company that may need up to $16.5B, in addition to the $13.5 it has already received, in order to fix things. So we are looking at a grand total of potentially, potentially $30B.

Jim: Alright Phil, I mean you have just owned this story and I appreciate it. But there is one thing that you mentioned and I am trying to figure out Mad Money style. Who has got the cards here? The government? The unions? GM management? or Bill Gross and his bond holder vigilantes, who I think at any given time could pull the rug under every single person.

Phil: Yeah, I would agree with you there. I think the government, they are holding the cards here. Listen, we were going over the numbers with GM executives this afternoon, they were briefing us on what was happening. And it is clear, this is a far more detailed report than they have filed in the past. They realize that there is a very good chance that if they do not show that they can make this work at a lower run rate, in terms of auto sales, that the government will say you know what, let’s restructure the whole thing. And Ron Bloom, and you are familiar with him Jim, Ron Bloom is somebody who will think outside the box. Who will sit there and say, well why don’t we take this part of General Motors and we will restructure it this way. And what if we do this this way? And maybe we split up Chrysler, and sell off a piece here and a piece there. He is not somebody who is going to go with conventional thinking, and I think General Motors realizes that it has to be as aggressive as possible.

Jim: Phil, thank you so much. Stay on the story. Because this is the story that I think had a big hand in bringing us down today. Melissa, I think we should go to Bob Bozania, who by the way on his blog today, had a really tough closing note and it really scared me. It said trading today, anxiety with no panic. Bob, until we see panic, we aren’t done, are we?

Bob: That is the frustrating part of this whole thing. There were parts of the day down here where it was positively quiet on the floor, despite the fact that people were fearful of what GM might say. Fearful of what Obama might not say tomorrow. Let’s take a look at what happened. It really was a buyer strike, in a way, Jim, there was a sense down here that volume was not particularly heavy and the traders actually had some time on their hands in the middle of the day. Now, we did close essentially at the November lows, a quarter of a point above it, let’s not nit-pick about it, we are at the November lows on the Dow Jones Industrial Average, not on the S&P and on the NASDAQ. Financials led the way, but energy and commodities were also weak. And I will tell you what is interesting, Jim, I am shocked at how readily people are willing to talk about this so called “Swedish model” these days. The “Swedish model” being essentially, nationalize the weakest banks and then auction off the assets after cleaning up the balance sheets. This was a nathama a month ago, two months ago, but traders down here are so frustrated about by what is going on. They are actively talking about it, and they are even saying that some of the Republicans over in the Senate are going to be supporting it. Take a look at the financial, and you little wonder why they are so frustrated, when you hit new lows here on all of the big regional banks here. Remember, all this talk from Geithner about a stress test last week, that would have effectually nationalized a lot of banks anyhow, so you can see why the “Swedish” idea as they call it, is gaining adherence. Elsewhere, take a quick look here at some of the commodity stocks, because as the dollar rallied, we got a very familiar trade here. Sell off the market, sell off the commodity stocks. Also, of course, weak demand going in here, look at those, not new lows but big declines in the major names. Finally, the only thing moving up here, Jim, is the gold stocks. Gold has hit essentially near $1000, that will be a minor media event when gold goes over $1000.

Jim: Bob, can you stay with us. We want to bring in the Fast Money people, and I know, can I just tell you when I read Bob’s blog, my heart sank. Because I wanted more than anything else in the world to read that there was just a tremendous blog letting, it was a furious decline. This was so not a capitulation. You play with the Fast Money guys, I turn it over to you Melissa.

Melissa: We do want to bring in Dillon, Karen, Pete, Guy and Tim. It is Mad meet Fast, a rare treat tonight. Dillon, what are you guys down there making of today’s action.

Dillon: I have a question for Jim. If the stock market takes no prisoners, Jim, am I wrong to conclude that the stock market will lean on the value of every equity in America until they force the truth out of the bank CEO’s?

Jim: I don’t think you can possibly get a bottom without the banks and insurers bottom. I know that there was a percentage trade…

Dillon: But how can I get a bottom in banks and insurers if I don’t know what the assets they are carrying are worth? And how can I find out what the assets are worth? Unless I force them to do it.

Jim: Well, I think most of us are saying the same thing, which is there is no bottom, because you can’t get what you want. I know that when I did the chart work before I came in today, Dillon, I could see 6000. I thought about maybe a repel of everything down to 1994 levels, these are the types of things, the scenarios that play in your head, when you watch the tape. And you listen to what people are saying, and you recognize that we don’t have any firm grounding. And seven of the Dow Jones stocks, I don’t even know if they will be Dow Jones stock by the end of the year.

Tim: Across Europe I actually think we did see some of that panic and some of that huge deleveraging. I talked about how the Eastern European banks or the exposure from the Western European banks, they are enormous deleveraging. We are hearing that at least some of the insurance companies and the guys who have capital that they have got to free up, are in the market selling. And I think that you are getting some of that panicking across the seas.

Melissa: And we should note that Finch came out with a note after the bell today saying that a lot of European banks and some sovereigns are actually at risk, Tim. What does that do the picture in terms of flight of assets out of Europe, where do they go?

Tim: Well, I think you are going to continue to see guys getting back into their own currency, but in a lot of cases a lot of these guys need to raise dollar cash because they have dollar debt. So I think there is going to be more pressure on first of all the emerging currencies, and I think the dollar continues to break out here.

Jim: I don’t want to lean on you to have something positive, especially when The New York Times says that all we do is talk about the positive… as if that is pretty funny. But was there anything… oh, I am not supposed to do that… well it is Mad Money, for heavens sake, I do what I want… Guy, was there anything that you saw today that would make it so that someone could say at the end of the day, hey listen you know we held, and all you guys are being so gloomy… you don’t realize there is only 3 points left to Citi, and 2 point to GM… move on.

Guy: No, Jim, the only thing that we held today is something that I can’t mention on national TV, that is live. I was going to push back to you and say, but there are some good spots. You have been talking about dividend trades, and trading this market. And I go to like an Abbott Labs, who is only 8% o 9% off of their 52 week high. They don’t have the patent exposure that a lot of the other major pharmaceuticals have. Humira, I think is their biggest drug, it doesn’t come off patent until 2016. Would you, JC, dip your toe into a stock like ABT?

Jim: I think that this was a Boston Scientific, ABT, I own it for my charitable trust, ActionAlertsPlus.com. General Mills, Wal-Mart nice today. Look all those things have one thing in common, they are the new banks Guy. They have a lot of money. People would throw money at them if they could issue any paper. They can pay off their debts. What I am thinking about, and I know that this is apropos of what Dillon is talking and about what Bozonia was talking about, which is the notion of Sweden and where we are. Maybe we need to be thinking about the market in a totally different way. We go back and maybe we just say look, it is a do over. We had 8 years where we took down too much debt, no that is being repealed. Let’s go back to where prices were for soft good stocks, stables, and just kind of erase the banks. Now that is a not a Pollyanna thing if I am talking about erasing 4000 points.

Melissa: But aren’t we essentially doing that? I mean we are saying it is a do over for 5 and half years on the Dow.

Jim: Bob, judging by what you saw on the floor. It is really, it would be wishful thinking to think that it could happen quickly, right?

Bob: Right, but the important thing is that, and the reason that the “Swedish model” is gaining adherence is that there is no other way they can find to get the finality that Dillon was talking about. So we have the precedent, we have an RTC style thing that was somewhat related to what happened in Sweden. That worked in the past. We have the Swedish model, and we have the inability of any other model that seems to be working at this point. That is why this whole thing is gaining some adherence at this point. And believe a month ago they would have stoned you down here, because they believe the government can’t run anything. At this point, though, as things have continued to deteriorate, this looks like the best possible option at this point, for at least some people down here.

Melissa: Karen, when you take a look at the banks stock, today we saw the bank stocks before the Dow reached the November 20th low, we had the bank stocks reach that low ahead of the stocks. And I am just wondering at what point do you think that perhaps all of this is priced in? I mean, how much farther can we go here?

Karen: Well, we have a really, really levered entity. How much farther you can go is to zero, and I think that is what Bob is getting at with the nationalization. But as we talked about on our show, the American Express numbers were really terrible. And I think that votes very poorly for consumer credit, which is pervasive in the big banks. I think we will see more down side to come on those names. And it is really hard to get excited about. The only thing that I see is that so many people are bearish and we do have S&P expiration on Friday, I have seen a lot of times the market bounces for the two days before that expiration. But looking beyond that, not good news.

Jim: Now wait a second Karen….

Melissa: But not just American Express, there is Capital One Financial too. There is a whole credit picture is dismal.

Jim: 8.2% of delinquencies, that is an issue when you have a small business. But Karen, you know I am listening but I am not buying, I am not buying. And I should have spoken up about this earlier, oil is at $34, $35... anyone who was on the Trans Ocean Drilling call today, symbol RIG, knows that drilling has basically stopped domestically, that it has stopped on land. That it is only a matter of time. But the big drilling programs international have not stopped, and the reason that they have not stopped is everyone is darn sure that is in the oil business, knows that just like $147 wasn’t right, $35 isn’t right. I think you can buy the oils that have good yields because they are selling at 3 ½ to 4 times earnings and have the ability to be able to replenish, Exxon replenished. They have financial strength, I don’t want anyone to leave this first block to think that there is nothing to buy. I think there is a lot to sell, but there is some things to buy.

Melissa: The drillers vs. the integrated, because Exxon came out today and said that it is not going to cut back on drilling spending.

Bob: And that is why you have got a lot of strategists that are $50 to $70 in oil, and almost none of them are at $25, exactly for what you were just saying Jim.

Jim: Right, I mean if they were drilling it would be different. On my show, I tell them when to take a break, on this show they tell me when to take a break. Thank you everybody.

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Melissa: Latest filings from Berkshire Hathaways holdings, crossing the tape right now, it is the stuff that Warren Buffett bought and sold in the fourth quarter of last year, so guaranteed you will want to hear what it is. Rebecca Jarvis at the breaking news desk with the names as well as the numbers.

Rebecca: Hey, Melissa and the numbers are pretty stark contrast from the quarter before. The portfolio suffered some pretty hefty losses, in the fourth quarter falling about 26% from the third quarter to close out 2008, at $52B. One of the biggest standouts from today’s SEC filings, what Berkshire Hathaways sold, Berkshire dumped more than half of its Johnson and Johnson stake, bringing its holdings in the healthcare consumer products giant to just 28.6 million shares as of December 31st. That is making Berkshire’s stake in J&J at 4%, that is down from 8% previously. Berkshire also sold a portion of its stake in Proctor & Gamble, and decreased fractionally its CarMax, its ConocoPhillips, its US Bancorp, and its United Health holdings. At the same time Berkshire increased its stake in electronically components maker Eaton, diversal industry supplier Ingersoll Rand, and also power generator NRG.

Jim: I have got to tell you, I listened, and I know that he is a great man.. and there is no doubt about it he is a great man, and I know that people love to see what he is doing. But I have to tell you when I listen to what he sold and what he bought, he is continuing to make a gigantic bet. And the bet is that everything is alive and well and good, and every since he wrote that New York Times piece, what about 25% ago… look no one is ever going to say that the man has lost his touch, I do not have that kind of arrogance on this show… I will tell you that people are now going to sit there and buy in the after market tomorrow morning, and buy the things that he bought, and sell the things that he sold, are not people that are going to profit perhaps within the time frame that they care about. Perhaps the time frame that Buffett cares about…

Rebecca: He said that he will hold onto it forever, Jim.

Jim: That forever thing is so bad. I was at the Chase the other day, and they wanted to know when I wanted to pay my mortgage, and I was going to give them some forever rap. America ain’t used to the forever game, America is about trying to put food on the table and pay the mortgage. And we just don’t have the luxury of being wrong. And I think that that is what Buffett is doing, he has the luxury of being wrong. The rest of us, thank you Rebecca Jarvis. Melissa, what have you got for me.

Melissa: Well, Jim, gold. We saw the flight to safety today. Gold closing at a 7 month high, Bertha Coombs is live in New York with that part of the story. Hi Bertha.

Bertha: Yeah, a 7 month high today, the last time gold was at these levels back in July. But it is a very different picture right now in terms of where gold is and the rest of the commodities market. Gold vs. oil, we have seen a big pullback obviously in oil. And gold has been attracting a lot of people to this point that do not have faith in currency, do not have faith in the market. And also seeing that basically that number 1000, George Karrow over at RBC said that becomes a media event, becomes a self fulfilling prophecy. And it is something that we are going to be watching this week. Very interesting when you look at the performance of gold vs. oil, obviously gold is surging here. And it is has things started to turn, as all the funds got out of oil, they started going into gold. And one of the things that is propelling that is ETF buying, so even if the hedge funds get out, Jim, a lot of people are saying that those ETF’s and retail buyers keep piling in.

Melissa: Alright, Bertha, thank you so much. And you know what is positive for the gold stocks, Jim, and I know that you know this. Oil is going down. It is the number one input cost, so the margins are just exploding right now as we see the price of crude decline.

Jim: I know, we used to hear that they traded in Kansas, that was just another canard that people tried to fool us with. By the way, gold did not finish at the high, that reversal at the end of the day, I thought was critical.

Melissa: Good point. Federal authorities say that they have broken up a massive fraud in progress. Details on that and how that will impact investor confidence when the CNBC Special Report returns.

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Alright, this is a very special edition of Mad Money. I am not even at my set, I haven’t shaved. But the market, I am with my friend Melissa Lee, but you know you have to come to work on days like today. I wanted to take a day off but that is the wrong signal to send to people who want to watch my show, so I am here. We have a lot of stuff, look the market was just awful… that is another reason, I wouldn’t have come in if it was just another garden variety day… not like we had a lot of those… we got one scandal going to another… today we got the SEC charging… this guy looks like the alleged Madoff… charging R. Allan Stanford and three of his companies… like he has three companies… unbelievable… with a multi-billion dollar fraud revolving around high interest rates CD’s… meaning that you can’t get that kind of return… but he gave it to you… CNBC’s Hampton Pierson is all over this thing. What do you have Ham?

Hampton: Jim, I am going to follow your lead, the heart of that alleged fraud a $8B scheme revolving around the sell of high yielding certificates of deposit, specifically with a lot of that money in the firms bank in Antiaga, offshore in the Caribbean. Now today Federal authorities were executing search warrants at the Houston headquarters of the Stanford firm, the SEC basically saying that this is where those CD’s were sold to investors. Among other things, claims of double digit returns on investments for the past 15 years, what the SEC characterized as “the improbable and unsustainable promises made to investors by the firm.” An investment advisor that is familiar with the Stanford style of wooing clients, said that they pitched snob appeal, targeted high net worth individuals, and it was not uncommon that some of those clients were flown down to the Caribbean in private jets to help set up some of those accounts.

Jim LaClamp/RBC Wealth Management clip: There were private plane trips down to Antigua, their own banks, put you and your spouse up in a hotel. It was very much luxury, boutique upscale.

Hampton: Now, Robert Alan Stanford was interviewed last spring on CNBC about the sub-prime mortgage melt down. He ranked about number 205 of the Forbes 400 list, of wealthiest individuals with a net worth in excess of $2.2 billion. Stanford had promised investors that his firm was not touched by the Bernie Madoff Ponzi scheme, but in fact, Stanford suffers some $400,000 in losses thru a parent investment in Theatre Funds. Now Stanford Bank claims $8.5B in assets, with 30,000 clients, in 131 countries world wide. The brokerage unit had about 30 offices and was advising at about $50B in assets, tonight those assets have been frozen. And a federal judge has appointed a receiver to manage the business, Melissa.

Melissa: Hampton Pierson, thanks so much. It just shows you that if it sounds too good to be true, probably is too good to be true.

Jim: Right, I was thinking about Textron in the middle of that thing. No one is using any private planes, Textron is on the ropes. Good to see someone use them… but, certainly wasn’t a good guy. But it is nice to think that the industry could be in good shape… but listen, this GM story… I want to ask you a question… you are a hard working person, you went to college to me, you have been around but you have worked all your life… and you read about the GM unions… today I was reading about how the unions have a special legal counsel… they have their own 200 person firm that works for them… aren’t you continually amazed at what you hear about what the unions got… and whether that package is now revolting to Americans… as revolting as the Mambo kings at the head of Merrill Lynch.

Melissa: I am sure if you are an American and you are out of work, and you are not getting health insurance right now, and you are not getting unemployment insurance because you have been out of work too long, then you are outraged. But right now, this is a live picture in Detroit of Rick Wagner, after releasing some of the details of his liability plan. Again, GM says that it needs $2B by next month to avoid bankruptcy, it needs $16.5B in additional government loans, and may borrow up to $30B in total. We should note also that we got some headlines from Chrysler CEO that bankruptcy would cost $20 to $25B, Chrysler is also saying that it need $2B more in funding. And so we are still awaiting comments.

Jim: I do believe that when I listen to the resentment of the man and woman on the street… it doesn’t just extend to management, it extends to unions… people are literally just putting the unions together with the John Thain component… and are just wondering, who is going to come town with the Czar… obviously Obama, he rejected the Czar… and I keep thinking, it is $2B, and then $2B, and then $2B… and people wonder why gold is going up… I mean, if you are going to print $2B for every single company in the universe… then there is ultimately, and we are in a vicious deflationary spiral, but ultimately I think that the gold bulls are going to be right… there is a lot of people talking about a gold bubble… when I listen to how much GM and Chrysler, Ford has been kind of mum, need…. it does concern met.

Melissa: Take a look at this chart… this is today’s action alone.

…

Rick Wagner live: Earlier today, this evening we submitted to the US Treasury a comprehensive and bold update to our corporate restructuring plan. I want to take a few minutes to review those highlights. But first, as we get started, I want to take a second to thank a lot of people who worked hard to pull this revised plan together. Our employees here in the US, and actually a number of employees around the world, have been engaged in preparing the plan. The UAW and UAW leadership has been very actively engaged, and a lot of advisors, many of who have worked numerous all-nighters, so I want to thank all of them. I also want to take a minute to acknowledge our dealers and suppliers who have continued to be very supportive, despite facing very difficult times themselves. The administration and the US Treasury department, which have supported us extremely well since we last talked. Our elected officials, particularly Michigan officials, have been very supportive. The governor and all of the elected official. And I would also like to mention that we have had a chance to interact with a number of officials in governments in other countries, a number including especially Canada, Germany, Sweden, and others, who have been very helpful and responsive. And we want to thank them for those efforts.

But today’s submission is the first ..

Melissa: And, of course, you have been listening to CEO of GM, Rick Wagner, making his comments at a press conference after submitting a liability plan to the Treasury. We will continue to monitor these comments…

Jim: He did a lot of thanking.

Melissa: He did thank a whole lot of people.

Jim: Did he thank the American people for sending him another check for another couple of billion? I didn't hear that.

Melissa: Thank you for $30B, that will come during the commercial break.

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Okay, listen up… I know people… I am getting a tone of email… what is Cramer doing with these other people… where is Mad Money… why isn’t he on the set… why isn’t pushing buttons… you know what, I am a huge believer in the truth… which we know that no one can handle… and the answer is, I was at home with my kids, it was my day off… but the market was down… I didn’t get a chance to shave… I jumped in my car… ran over here… they had the show all set up for me… because I don’t have my regular crew… because know, people tune into my show… and they listen to pod cast, hey in the top 20 on Amazon every single day… and hey they deserve to know whether I just got fired and they blew up Mad Money… or whether I am just kind of doing this new rip with this really cheap shirt that I just happened to have in the office… so that is what we are doing… so we are still going to use the experts… but I wrote some of the show… that is enough about me… Michelle Caruso-Cabrerra, whom I love… and I did this terrible meeting with last week… that was a lot of fun… you probably didn’t watch it cause you are too busy working… she has got the story on the GM bond holders… who by the way, I think hold every single card including the Joker, and if it is a pinochle deck, they have got that too.

Michelle: There is so much focus on getting some kind of agreement with the labor unions when it comes to this whole thing. But remember one of the conditions that the government said is also that you have got to get the debt holders to come on. So GM owes $27B to debt holders, they want them to take only $9B, in the terminology in the debt world that is .30 cents on the dollar. Tonight they said, really essentially nothing about the debt holders, whether they have made any progress, very little. Here is the reason why. We have heard a lot about the fact that the UAW has made an agreement on future costs, future labor costs. But the other issue is the legacy costs, you are going to learn a new acronym, VIVA. The employee benefit, blah, blah, blah. This makes GM a car company with a big health insurance company strapped on their back. But anyhow, the union, so far on that, kind of back on the envelope plan, back in December, they were going to get .50 cents on the dollar for VIVA. Well, bond holders are saying why are the unions getting .50 cents on the dollar, and we only get .30 cents on the dollar. That is the problem.

Jim: Michelle, can you explain, because I think a lot of our viewers, especially Mad Money viewers, are equity holders. They tend not to be bond holders. Can you explain the pecking order after the IRS, which is always number one, of who gets to own a company when it is in a real jam?

Michelle: Well, to be really blunt, the people that get screwed first are the stockholders.

Melissa: Hold on… we want to go to Phil Labelle.

Phil: You know just listening to what Michelle has been talking about, and she has been following this from the beginning, not only with GM, but GMAC as well, and she has been spot on in terms of making it clear to people. The bond holders do hold the power here. It doesn’t mean that they can’t work out a deal with General Motors, especially not that you have Ron Bloom, and his experience with the steel workers. We heard the same thing when the steel workers were going thru this, people were saying hey listen the debt holders are never going to rework their debt with the steel companies as they go thru bankruptcy, they worked things out over time. And many believe that that will happen again. What you are looking at here is Rick Wagner, the chairman and CEO of General Motors, who is currently briefing reporters inside the GM headquarters over my shoulder. And essentially is running down the fact that this is a company, that at one point said, listen we think at most, in a worst case scenerio we might need $18B to fix things. Now, the company is saying guess what, we may need up to $30B to fix the things at General Motors. And this goes right to the heart from the main complaint that you hear from people when it comes to whether or not General Motors or Chrysler should be bailed out. Nobody knows where the bottom is. Now GM laid out for me today, exactly what they plan to do and how they plan to break even in 2011. Start to repay the loan by 2012. But the fact that they have increased the amount of money, potentially, that they may need to borrow from the federal government, that is going to bother a lot of critics out there.

Melissa: It certainly will. Thanks so much, let’s go to some of those critics and experts out there. David Kiley, senior correspondent at Business Week. Peter Delorenzo, editor at AutoExtremists.com. Great to have you both with us. David, Phil makes a very good point, if you are sitting in Congress how can you write a check not knowing if that is going to be the final check that you issue to these auto makers?

David: One thing that is lost here, I happen to believe the estimates that the cost to the tax payer could be an awful lot higher than the $30B extra GM is asking for, and the $2 to $3B that Chrysler is asking for. Because if these companies go down, if they go into chapter 11, you are talking about a cascading wave of bankruptcies and unemployment in this country. And I believe the estimates, that it would be well in excess of $100B. Plus, you have that sort of moral cost in the country of all of those, hundreds of thousands of more people out of work and not paying taxes. So I think you have to keep the prospective.

Jim: Alright, Peter, look the American people are fed up. They don’t even care anymore about the bankruptcies. But when we get to 10% unemployment, it is going to be pretty nasty. What do you think is the percentage of unemployment that goes in this daisy chain if GM goes under?

Peter: Right now in the state of Michigan we are pushing 13%. And I think really if the Detroit auto makers go down, the national unemployment rate will follow suit.

Michelle: Well, you know Jim, here is what I can never understand. We have gone from 17 million cars a year to 10 million cars a year, nobody can even tell the difference. People are going to lose their jobs, when you have a 50% reduction in consumption, jobs are going to be lost. Nobody seems to be able to tell though if we have a bankruptcy vs. a 50% decline, what is the difference in unemployment. I mean it is going to be huge either way, right?

Jim: Well, the difference is if you are a banker… David and Peter thank you very much… we are doing a lot in this show… it is a special edition of Mad Money where we wing it every night, so why should tonight be different… one of the things, and whether you are at Capital One or whether you are at American Express or whether you are at JP Morgan… there is models.. everyone uses models… now the models did go very wrong when it comes to housing… in that people always felt that you would not have house price depreciation unless you had unemployment… that skyrocketed… and that didn’t happen that time because of all the things that David Fabor talked about in his excellent special… and all the things that happened in terms of the fraud, and sub-prime… but there is another set of models that says that if you get to 10% unemployment in this country almost all of the loans that were predicated on a decent economy go belly up… what would you do right now if you were President Obama… which he has not figured at all into this show… which was a big mistake… because a lot of people 3 weeks ago were thinking that this guy was going to solve the problems… he would address unemployment… he would address the stimulus, which is not going to put, my own view, that many people to work… what is the sequence if you were Obama… don’t tell me that you would tackle them all… because nobody is that good.

Melissa: Well, hasn’t he laid out the sequence. I mean the stimulus is the first thing. That is what he grabbled with. You know Geithner goes on the hill and unveils what the Times called a “bank bailout higou” because of the lack of details. So clearly we are not going to get any answers on that.

Jim: He can’t give details. He had a major transformation, the Washington Post had a terrific story today. Talked about how wrong Geithner was, he got to be right. Now all the… the black swan guys… the guys who really think that it is the end of the world… the nationalization, I will tell you, I put pen to paper… it is a $7 trillion issue… Geithner’s plan is a $2 trillion issue… I know that the defense budget is a $800B budget… so this think is blowing away everything… but you take your pick between $2 trill and $7 trill… I am going for $2 trill.

Melissa: Okay, let’s bring in former Treasury Press Secretary in the White House, Deputy Press Secretary Tony Fratto. You know Cramer makes a very good point here, Tony, and that is where are Obama’s priorities? And where should they be? From your stand point, where should they be?

Tony: Well, that is a good question. I mean obviously he needs to solve the credit problems, and deal with financing and credit. If we do not get credit flowing again, I do not care what you do with these autos, there are not going to be people out there to get those cars, so that has got to be job number one. The stimulus is going to happen, I agree with Jim, I don’t know that it is going to have that big an impact, but it is done now, he has signed it. And we will see what it does. But we have to solve the financial mess that we are in and get banks back to the job of lending, and they feel comfortable enough, and have the animal spirits to go back out there and take on risk. This is what we are looking at.

Jim: But Tony, why should they ever make a loan… I will pile on the bankers like every one else, they are overpaid, blah, blah, blah… but you know Tony you don’t make a loan in this environment… you don’t make a loan because the next day the collateral is going down… these guys will be the most foolish… we are asking them to take a lot of risk… but we are also telling them to not screw up… I mean if I were a banker, I would just sit on the sidelines… I think that they have no incentive to loan… other than the fact like guys like me come on and beat them up.

Tony: Jim, I agree with you. I don’t blame them for not making loans. I mean, they have the capital position that they really have to deal with. And that is why they have to make that healthy again. But they need to look for good bets out there in the economy, and today you are not seeing that. Now they are still looking for loans, now I have not seen a business model for a bank that involves not lending. Banks want to lend.

Jim: I tell you if I were running a major bank right now, the only thing that I would do is look for people that do not need money, and I would give to them. And you know, even that doesn’t work. The Cisco bonds are trading down 3%, down 3 points already, and everybody was so excited about the Cisco credit. Even that didn’t work. Melissa, go ahead.

Melissa: Tony thank you so much for your thoughts tonight. And, don’t forget tomorrow on Squawk Box, GM’s Rick Wagner, it is a Squawk exclusive, an interview that you do not want to miss. Big show starts, of course, 8 am eastern time.

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You got Cramer… yeah, this is a special edition of Mad Money not from my usual desk… the reason is pulled in from vacation… why do you pull in from vacation… because people tune into CNBC and what to figure out what the heck went on… it was a brutal day, down 4.5%… Dow Jones real bad… you know what, it is time that we took a look at a little historical perspective… not that long ago the Dow was 11,000... that is big in points but short in time… let’s figure out where we are… what I think is happening is that the whole BRIC (i.e., Brazil, Russia, India and China boom) period is being rolled back… that is Brazil, Russia, India, China… in non-acronym speak… the notion that everything that we have gained in this market, being it exported to China, and the ROW, the rest of the world… seems in danger of being repealed right now… and that is huge hard forth gains… because it was tough for us to get into Russia, Brazil, India and China… and now I see these gains being completely obliterated…. as of today… as of the close… I can’t find any industrials where we have not repealed the entire gain of the last five years… that is part in parcel with the precipitous decline that I see happening in the averages overall… what I didn’t count on is how it would be so much more vicious than I ever thought in this bear market… with the Deere’s, and the Cat’s, and the Ingersoll Rands, and yes, GE, the parent company of this network being ripped to shreds… the slashing is across the boards for the companies that have come to benefit from being international… here I am speaking about Emerson, about NCR, under $10... Illinois Tool Works, I wasn’t happy with that quarter today… United Technology and Honeywell, they actually made their quarters… doesn’t seem to matter… you name it.

The tech names have been even worse hit, some back to where they were in 2000, 2003... let’s call the exceptions…. that is Apple, Google, Amazon, maybe RIMM… let us give you a token that hasn’t repealed everything yet… CSX, BM… I can’t use the symbols this is a 6 o’clock show… Burlington Northern, Union Pacific, Norfolk Southern… but they would have a whole leg of 25% to fall if they were to follow everything else… and remember I am not speaking about the banks or insurance… because those are to the most parts, single digit midgets or headed there… these possible declines are the main reason that I believe, short of liquidations where people are margined out, people want to get out… you have to figure out who is trying to sell here… the people trying to sell don’t want to be in there for the levels that take out this whole period of resurgence… if that isn’t the case… why not accept the fact that most stocks are already down 50% from their highs… and must represent some ongoing value… some present value of the earnings stream… some dividends stream… we know on Mad Money we think dividends matter… we still haven’t caught a lot of the dividends of solvent companies.. and they are still boosting a lot dividends… Transocean, big driller, came out today and tried to figure out if they should do a big dividend or a buy back, now it is a buy back.

I also believe that the an emerging majority of the people think that the bottom cannot be reached… until the declines take away the next leg… let’s talk about what the next leg is down… if we penetrate the 7500 level… the next leg would be 2001, post 911... that was a brutal period… it looks like we are headed for that… if we cut thru that period and I like to think about it in times not price… then we would probably head to the 1994, 1995 region… that is not Dow points, that is years… let me give you an example of United Technologies, it is a great company, it has got multi billion dollar businesses all over the place… it is a company that has made its bones selling stuff overseas… more than 50% overseas… the first dip down from here for that stock if we went back to 911, and it is in the $40’s, it would be $24... to go back 13 years the stock would be at $13... $13... now I know these levels seem down right impossible, fanciful even… but do you have any doubt that this market has any ability to keep stocks at these levels… with this amount of selling… in other words, there would have been another time when I would have said that it is inconceivable that those levels would ever hit… but these days though, the why not factor is truly imbedded into the trajectory… point blank… I want to say that both 911 and 1996, would imply monster dividends and great opportunities that would never come… in other words, the stocks would have fallen so much that the yields would have just skyrocketed.

It would also mean that basically you would have big caps stocks turned into small ones… household names that we would think of as names that should have traded on the small NASDAQ off board… so what is my take away here.. I think of it like this… if the world is coming to an end… these are the end prices… I don’t think that it is coming to an end… but that does not give me a reason to buy.

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If you are just tuning in you are probably wondering… Cramer where is the set… what is my friend Melissa doing here… Melissa on my show… I am in from vacation… I just didn’t want to let people down… I actually felt like its down real bad, get your butt in… I don’t like to leave people on my show in total despair… because that is not right… I got involved in this market when the Dow 1300... I made a lot of money by being more positive…

Melissa: Where is the silver lining?

Jim: I don’t want to do silver lining because I think that there are two streams of thinking that you always have to have… there is capital preservation and there is capital appreciation… there are times when you have to worry about capital appreciation, this is not one of them… it is about capital preservation… it is about good dividends that are solid… it is about having some cash… it is about having some gold… and most important it is about keeping your head… remember it will get better… I don’t know when it will get better but it will… thank you for joining us in a very special edition of Mad Money… darn, I will be back to my regular set tomorrow.
 

[verbatim recap]

[end of Special Report show]