It is agonizing to watch Congress publicly stumbling through its analysis and qualification of the auto industry, providing appearance that it is doing its homework on a bailout.
More than 40 per cent of Congress is made up of lawyers, with little grasp of finance, economics or business. Congress should not be negotiating the bailout.
Chrysler and Cerberus Capital Management are seeking an unholy bailout and Congress understandably struggles when Cerberus owned Chrysler CEO Bob Nardelli cannot explain why his bosses will not put up cash to bailout one of its many subsidiaries. Cerberus does not work that way, and it does not have to. Its political clout will do the heavy lifting on salvaging a failing investment.
Taxpayers won’t know any better since neither the current nor the incoming administrations will take oversight seriously and neither seems to understand Deal Structure. Unfortunately, neither will Congress which is simply lacking misunderstanding of some critical components of business, wealth creation and negotiations. Certainly its actions suggest absence of such comprehension.
In the shadows of enormous private equity investment firms lurk shareholders who remain anonymous, and directors, senior staff and advisers who have political connections deep inside the private rooms of Washington decision makers (Congress & Administration), enriching the deals and enhancing ultimate financial returns. John Snow, the current Chairman of Cerberus and Bush’s former Secretary of the Treasury before Paulson, has apparently been earning his employer’s favor by lobbying directly, and through influential lobbyists at Treasury and elsewhere for a Chrysler bailout.
The Cerberus investment of $7.4 billion in Chrysler is underwater. Their elimination of 30,000 jobs has not helped them or their former employees, so now Nardelli uses fear to energize congress into action. Most firms like Cerberus don’t acquire control of companies to turn them around, rebuild them and create wealth. They either acquire for position in an industry then apply and leverage influence in for strong ROI, or they pluck low lying fruit in the hope that political polishing and some finely tuned connections will enable a flip of the asset for a significant profit. Cerberus has for years had a nasty reputation on Wall Street as a fierce player and hard nosed negotiator, which is its right. Everything Congress is not. In this game of risk, connections and being ruthless make all the difference. In the Chrysler deal, these warm associations and substantial sphere of influence will bring access to taxpayer funds. Snow called his friend Paulson for the cash.
Should Chrysler take any money from the taxpayers as it now appears it will, structure can be simple and effective as noted in the above referred-to article and “…take preferred share positions at the current market value for funds provided as and when the investments are made.” This, and other suggestions therein like clearing all Boards of Directors, renders Cerberus shares inconsequential and provides taxpayer complete control over a company they will have funded, until all funds are repaid.
Congress, please pay attention. American taxpayers don’t need another blunder committed on their behalf.