The Opening Bell

The Audit's new daily column chimes in on monolines, cars, Paulson, etc.

Editor’s note: Welcome to the first Opening Bell, a daily look at the morning’s business press written by Ryan Chittum, a crusty-yet-youthful financial journalism veteran. Opening Bell is the newest feature of The Audit, the business-press section of the Columbia Journalism Review.

And now: “Ding!”

Markets have been sending up the Bat Signal for two months now to save the bond-insurance business (a.k.a. the monolines) from a collapse that could rock the foundations of the financial industry.

So the Dow Jones Industrial Average shot up after Warren Buffett swooped in on CNBC offering to save the day by reinsuring the troubled bond insurers. But Buffett isn’t going to put good money after bad—he wants nothing to do with the trashy subprime bonds that are the real problem, reports The New York Times on page one. He wants to reinsure the much safer municipal bonds in a “shrewd attempt to take advantage of the companies’ problems.”

While that would be a boon to cities and states whose ability to borrow would fall along with their insurers’ credit ratings, it doesn’t do much for the bond insurers themselves—or the banks who will take tens of billions more in write-downs if the bond insurers are downgraded.

The Financial Times, meanwhile, says the move puts more pressure on Wall Street to figure out a way to bail out their insurers. We’re still waiting for someone to tell us how banks on the hook for tens of billions in losses can bail out their own insurers to keep from booking those losses. That seems like some not-so-subtle financial sleight of hand to us. But we’re willing to be enlightened.

The Wall Street Journal, on C2, conjures an image of the country’s second-richest man as a hustler working door to door in Dubuque: “But shares of the bond insurers sank on the disclosure of the plan, as it became clear that taking up the Midwestern insurance salesman’s offer to hive away their low-risk muni businesses would leave them with little more than risky, complex debt securities backed by deteriorating mortgage debt.” Midwestern insurance salesman? That’s a step or two down from “Oracle of Omaha.”

As the CEO of Ambac, one of the biggest bond insurers, tells the Journal, “Ambac feels that acceptance of the Buffett offer would show a sign of absolute desperation for a financial-guaranty company.” It may be time for these companies to understand they are absolutely desperate. They’re an unnecessarily delayed downgrade or two from going under.

The Journal leads with more bad news from Detroit. General Motors posted a record $39 billion loss in 2007, something the paper says is evidence the company’s “turnaround plan is sputtering.” Despite higher revenues and slashed labor costs, U.S. economic woes and more-expensive materials are slowing down GM.

The Times leads its GM story with the employee angle, something the WSJ doesn’t get to until the twelfth paragraph of its story. GM is offering buyouts and early retirement to another wave of workers, this time 74,000 in all. The Journal says those the company hires to replace the early retirees earn an average $50 an hour less, including benefits.

For more car-industry woes, Delphi’s impending exit from bankruptcy is being held up by the credit crisis, according to a WSJ scoop on its Money & Investing front.

Delphi’s lenders are trying to sell off pieces of a $6.1 billion loan that would allow Delphi, the big auto-parts manufacturer, to emerge from bankruptcy protection. But the markets aren’t biting. “The credit market is impossible, just impossible,” the Journal quotes an insider as saying.

Nice scoop and all, but we’d like to have known what it means for the company, the car industry, and workers if Delphi can’t get the loan. That’s not explained here.

The Journal uses the announcement of the latest bailout initiative for suffering mortgage borrowers as a jumping-off point to examine the last, much ballyhooed plan launched late last year. Surprise, surprise, it finds that “Hope Now” hasn’t been worth a whole lot.

Despite administration estimates that the plan could potentially aid 1.8 million borrowers and a State-of-the-Union mention that it was “helping many struggling homeowners avoid foreclosure,” the program has recommended loan workouts for less than 10,000 people.

The latest plan is called “Project Lifeline” and the Times says it, too, will likely help few homeowners.

Oddly enough, neither the Times nor the Journal reports the quote of the day, something they leave to the FT. Treasury Secretary Henry Paulson, in a refreshing bit of administration candor, says “the worst is just beginning” in the crisis of resetting adjustable-mortgage-rate subprime loans.

In feature land, the Journal has a terrific front-page story on the revival of the railroad industry after decades of decline and disinvestment. The paper says the industry is in the middle of a track-laying, locomotive-buying spree, having spent some $10 billion since 2000 with another $12 billion in the works.

The upgrade is part of a railroad renaissance under way across much of the U.S. For the first time in nearly a century, railroads are making large investments in their networks — adding sets of tracks, straightening curves that force engines to slow and expanding tunnels for bigger trains. Their campaign is altering the corridors of American commerce, more so than any other development since interstate highways spread to the interior.

The WSJ says railroads are seizing the opportunity handed to them by high fuel prices, which are hobbling the trucking industry’s competitiveness, and increased environmental awareness, which favors it over dirtier, less efficient transport methods like trucking.

The Times recycles the always popular Wacky Southwest Airlines Story. Come on, there have to be other wild and crazy corporations out there to profile, though we admit it might be difficult to find ones whose male CEOs dress up like Edna Turnblad from “Hairspray”—prosthetic breasts and all.

The Los Angles Times has a follow up of a hard-hitting exclusive the day before revealing that Blue Cross of California, the state’s largest for-profit insurer, was sending physicians copies of health insurance applications filled out by new patients with an eye toward finding ways to drop them coverage for pre-existing conditions.

Doctors balked, and Blue Cross retreated this morning amid public outcry generated by the LAT expose. Read the stories. They’re worth it. The scoop is another example of the paper’s strong insurance coverage, one of the most poorly covered industry’s in the financial press.

And finally, file under “Here We Go…” USA Today reports that the first Baby Boomer gets her Social Security check. It’s all downhill from here.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.