If the Big Three automakers were to fail, unemployment would spike to 8 percent or above, from a current rate of 6.5 percent, says Deutsche Bank economist Joseph A. LaVorgna.

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If the Big Three automakers were to fail, unemployment would spike to 8 percent or above, from a current rate of 6.5 percent, says Deutsche Bank economist Joseph A. LaVorgna.

The output of all the nation’s goods and services, or GDP, could sink 4 percent based just on reduced auto production, but that estimate could be conservative, he adds.

“Suffice it to say, as bad as the economy is right now, it could get significantly worse,” writes LaVorgna in a note.

Chief executives of General Motors (GM), Ford (F) and Chrysler last week appealed to Congress directly to ask for loans, saying their industry is on the verge of collapse.

On a Web site created for public lobbying, gmfactsandfiction.com, GM says: “What happens to the U.S. auto industry matters on Main Street.”

Oracle under pressure

Given Warren Buffett’s penchant for long-term-value investing, he may not be too bothered about Berkshire Hathaway stock being down about 40 percent this year. But Jeff Matthews, founder of hedge fund Ram Partners and author of “Pilgrimage to Warren Buffett’s Omaha,” notes on his blog that other parties are very worried about Berkshire debt.

He points out that the cost of insuring against a default on Berkshire bonds jumped recently. As of Thursday, the cost of credit default swaps to insure $10 million of Berkshire bonds rose to $475,000 a year, according to Bespoke Investment Group, compared with about $100,000 at the beginning of September. Similar insurance on Morgan Stanley’s debt costs $456,000, “the highest of the big banks and brokers,” according to Bespoke.

Matthews writes that Berkshire’s long-term derivative bets on global stock markets are under pressure, partly explaining the increase in costs of insuring against default.

Berkshire did not respond to a request for comment.

The Associated Press