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On Thursday October 8, Morgan Stanley shares dropped by 26% to $12.45, the lowest price in a decade. And fears swirled around possible reconsideration by Mitsubishi UFJ of Japan of a $9 billon investment in Morgan Stanley. This put Morgan's head John Mack in a busy day dispelling rumors about Morgan.

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Sinn Fein wins the largest share of votes in Ireland ahead of the two main parties Fianna Fail and Fine Gael. It wins about 25% of the vote but needs to form a coalition as it has contested only 42 seats. 80 seats are needed for a majority. Sinn Fein will make plans to stage a referendum on Irish reunification if it forms a government in coalition with other parties. This also complicates negotiating a trade deal for Britain's Boris Johnson after Brexit. Sinn Fein is likely to take a tougher line on the issue of divergence from EU regulations for the UK. All 27 states of the EU have to approve any deal negotiated by Mr. Johnson.

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The Wall Street Journal in a recent editorial called the European Union's June 2011 plan for Greece "the French Deception," because it favored French and German banks but made Greece's debt burden even less manageable. The Economist views the European Union actions with disdain and says they are sure to fail. It is skeptical whether the spending cuts will work because Greece's politicians are not likely to address the problems of poor tax and other payments collection, and is too interconnected with favored groups and lobbies to be able to take the needed actions. And spending cuts will fall hard on ordinary Greeks. Even with job cuts the sense is that it will fall not on full time civil servants with permanent contracts but people with temporary contracts. The Economist cites the example of items such as the overgenerous markup allowed for pharmacists that adds another 1.5 billion euros to the budget which will remain untouched as an example of many such items where the cuts will not fall because of strong lobbies and favored interests. The privatization scheme is deemed unrealistic because it expects to raise 51 billion euros in a crash sale of assets, which only makes it more likely that assets could fall into the hands of cronies with the right connections. The current efforts only make ordinary Greeks worse off with spending cuts and new taxes. The negative impact on economic growth of the austerity cuts creates the prospect for a deeper recession, political turmoil, and a debt default....

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Inventories of foreclosed homes are going down, because of the moratorium on closures by the banks, in areas like California, Arizona, Nevada, Florida and Michigan. But buyers are concentrating on foreclosed homes so ordinary properties with higher prices are not seeing buyer demand. But this is temporary as the moratorium has expired and banks are foreclosing on homes just like before, which will create a large flow of foreclosed homes on the market. This will continue to depress housing prices. And with firsttime buyers getting skittish because of the fear of a job loss, this demand is not on a strong footing. And other than California and Michigan, these states that include Arizona and Nevada, don not account for significant economic activity of the country. South Florida has such ahuge backlog of unsold home and condominiums that the sales of foreclosed homes won't make much of a dent in the backlog. The rest of the country has a glut of homes on the market. For these reasons it would be dangerous to interpret the rising sale of foreclosed homes in ahandful of states in the west as helping clear up inventory of unsold homes, and risky for the government to let this tidal flow of foreclosures to continue. Significantly reducing forecloures with government action may be essential for economic recovery, as otherwise the housing market may take years to recover. This is something Martin Feldstein, adviser to McCain and now adviser to Obama, has advocated all along from the early days of this crisis in 2008....

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Today GM announced that it is eliminating lifetime health coverage for about 100,000 white collar salaried retirees, as it is rapidly running out of cash to run operations. Also white collar salaries of current employees will be cut by 20 percent and the $1 a share dividend eliminated. This with other savings will save $1.5 billion annually GM estimates. Union contracts prevent this from taking effect for former factory workers even as the company is truly running out of cash. In paying the lifetime costs of hospital stays, surgeries, expensive drugs for retirees GM spends$4.6 billion in 2007 on health care for its one million employees and retirees and their dependents. This is larger that GM's entire active work force and a big reason GM has got into trouble. It also skewed management decisions in the wrong way. Management let it affect their strategy in the marketplace, they continued to run the company by emphasizing sales volume with frequent sales and discounting in the belief that the size was needed to support all these retirees goldplated medical care, care which does not exist in other industries and companies, even when GM coud least afford it. By carefully shutting down plants earlier as demand for some of its cars and vehicles was shrinking, and closing down some brands, GM could have focussed its efforts on the areas including smaller passenger cars and midsized cars and other models which were gaining popularity, and shifting ahead of the curve out of pickups and large SUV's in the face of higher gas prices. Its the collapse of the pickup and SUV market that exaggerated the impact even in October 2008, instead of the about 30% decline that the industry faced and GM faced in its cars, GM's dramatic drop in pickups and SUV's gave it an overall loss of 45% October 2008 over same month 2007. Without this aberrration of health care benefits from a previous growth era and a dominant GM - an anachronism in the present when GM was in decline and health care costs had mushroomed and company health care benefits cut back in industry after industry- and without the intransigence of the unions and the failure of management to build credibility, share the pain and convince the unions in good faith that this was unsustainable, GM could have had a much better shot of developing a strategy for renewal. Instead it sealed GM's fate, along with lack of foresight in taking decisive action to shift to higher fuel efficiency cars early in the curve, and closing unneeded plants and brands to focus on this task. In the end the gold plated benefits which were terminated today are lost for salaried retirees, and sooner or later the same is likely to happen inside or outside bankruptcy for union workers. Union workers who might then say what the salaried retirees are saying now, that if the company goes out of business, they would lose everything anyway, and could not blame GM for cutting them off. If only they had understood this earlier and accepted these facts, and if only managment had built the credibility and shared the pain so that company's interests came above union or management interests, as they should be for a company to grow or renew itself and grow. In the end union workers in the auto industry were living beyond their means, just as consumers in the USA were living beyond their means, and the outsized executive compensation also a kind of grab from another era. Renewal starts with getting a grip on reality, and reality slipped away from their hands....

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Hyundai is benefitting from the popularity of small cars. Hyundai increased sales in June year over year by 14% when USA auto sales declined by 8%. Its Elantra compact sales went up by 69%, its Accent subcompact sales increased by 91% and sales of its midsize sedan Sonata went up by 24%, according to Autodata. Hyundai which was trying to go upscale with the sedan Azera and the Genesis which was designed to compete with Lexus, is now focussing on small cars and trying to increase its share of the market with smaller cars. It will introduce a new Elantra wagon for the USA this year, the first of about 6 new small car models it hopes to bring out in the next 5 years. Hyundai is also considering manufacturing the Elantra at a new plant in West Point, Georgia, which was previously going to make a pickup and a SUV for its affiliate Kia Motors. The popularity of its small cars and the weaker Korean currency are helping Hyundai post large operating earnings with estimate of $2.3 billion this year, up 25% on sales of $33.7 billion, up 11%, according to brokerage Korea Investment and Securities. Sales of Hyundai SUV's are suffering the same fate that other SUV's are facing, down 41% in June 2008....

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The private sector ignores health insurance. And state coverage in China is inadequate. More than two thirds of China's 1.3 billion people have no health insurance at all. If you have insurance you still pay up front in cash, if you do not have the cash up front you cannot get a surgery, treatment of any kind or any drugs, even if the insurance will later reimburse you. The Chinese health care system is dysfunctional and in a crisis because of the way it is structured, and the faulty policy incentives. It caps prices for basic drugs and procedures at below market rates, yet it lets hospitals profit from everything else from advanced drugs to sophisticated diagnostic tests. So hospitals invest heavily in technology and expensive testing. and drug sales account for 45% of revenues. And enforcement is lax. Doctors in Shanghai make monthly incomes of about $400, about what a taxi driver makes, so they supplement their income with bonuses earned by prescribing more expensive tests and drugs. There is no utilization review so the state reimburses for whatever the hospitals charge regardless of whether the test was needed or not. So the system is dysfunctional and lurching towards a crisis. In fact heavily burdening the middle class. The private outlays and burden of total health care spending has increased from 20% to 60% of total health care spending from 1978 to 2003, as the the health care system got the same dose of unfetterred capitalism as the rest of the system. The Government's share of total health care spending has dropped sharply. In addition there are design flaws that push expensive care and build in incentives for expensive care at the expense of good medical care. The government recognizes this problem and sees it as athreat to social stability. It has committed to increase spending on healthcare. ...

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Interview with Jim Press by Michelle Krebs of Business Week. It gives deep insights into the thinking of Toyota- its approach to the automobile business and the marketing of its cars. Being admired by the new generationof buyers, the perception of Toyota in the mind of buyers is important to Toyota. It will try to be strong in each community. The example of San Antonio is given so its roots will stretch deeper. Press tell Krebs that being part of the community is important for Toyota. See the related article by Ed Wallace, Business Week, May 25, 2006. Press says attrition is one of the reasons GM lost its high regard and perception with buyers. By that he means the older generations, two generations, that respected General Motors for its innovation and contributions, has passed away. This is replaced by younger people and a new generation which does not have the same recorded perceptions in its memory. In fact it may see just the opposite, in terms of Detroits attitude perceived as arrogant, in terms of fuel efficiency perceived as wasteful, in terms of quality perceived as not upto the higher bar set by the Japanese competition of Toyota and Honda. Toyota does not look like a pioneer in the ethanol vehicle field, so GM and Ford have a opening here they can use. Toyota will continue to set the bar higher on Quality. And this is not a company about to be complacent about its success . Press sees Toyota's success stemming partly from the failure of GM and Ford to maintain market share and only partly from its own better qualities. One of Toyota's goals is to keep increasing local content so it can show that its a truly American company to this new generation....