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Cerberus Goes To Washington
Posted by: MichaelW on Friday, December 05, 2008

I think I've discovered why the dead are leaving Detroit at such a rapid pace. The guardian of the gate to the underworld has gone to Washington begging for table scraps.

This week, America's "Big 3" automakers again visited Congress, 34 Billion gallon hat in hand, seeking federal bailout money.
The Big Three automakers appealed to Congress for billions in emergency aid Thursday by touting overhauls to their business models, but skeptical lawmakers may be looking to impose even more-severe changes — possibly including a corporate merger — as part of the deal.

The latest developments come after a top economist warned that the $34 billion that General Motors, Ford and Chrysler are requesting is just the beginning. Lawmakers are divided over whether the government should intervene and how.
As dubious as the Wall Street bailout was, this request for corporate welfare is even more consternating. At least with the financial rescue orchestrated by the Fed there was a plausible argument that some mixture of questionable government policy, greedy loan originators, irresponsible rating agencies, and care-free counterparty insurers combined to create a poisonous elixir too powerful to be swallowed by the whole economy alone. Even if one does not agree with how the elixir's ingredients of blame are apportioned, there is little doubt that allowing the poison to run its course could have been (will be?) catastrophic to the economy at large.

In the case of the automakers, however, the fault clearly lies with them. Either produce cars people want at a price they will agree to or go out of business. That's how markets have always worked absent interference, and that's how it should work here as well. It's true that the Big 3 are hampered by sclerotic UAW contracts that raise their labor costs far above what non-unionized plants in America incur. But, again, that's the nature of the beast. Either find a way to deal with it or get out of the game.

A majority of Americans seem to get the point above:
The CNN/Opinion Research Corp. poll, conducted by telephone on Dec. 1-2 with nearly 1,100 people, showed that 61% of those surveyed oppose government assistance for the major U.S. automakers.

[...]

A full 70% of respondents indicated that a bailout is unfair to taxpayers.

In addition to being unfair, the poll showed that a majority of those surveyed think a bailout would not help the economy.
I wonder how many more Americans would oppose the bailout if they knew who they were really being asked to rescue.

The case of Chrysler is particularly galling. That ailing company is owned by one of the richest hedge funds in the world, Cerberus Capital, and is home to more than a few Washington insiders, such as former VP Dan Quayle, and former Treasury Secretary John Snow, who was elected chairman of the company in 2006. How many Americans think handing over their hard-earned money to political bigwigs and multi-millionaires is unfair? I'm willing to bet it's a lot higher than 70%.

Indeed, how high would the number climb if people knew how much money Cerberus claims to make each year? From it's own website:
Cerberus holds controlling or significant minority interests in companies around the world. In aggregate, these companies currently generate over $100 billion in annual revenues.
Certainly the hedge fund does not receive all of that revenue, but it earns a healthy enough portion of it to commit $7 to $16 Billion of it to save it's own subsidiary.
Chrysler now is seeking a $7-billion bridge loan from the federal government to keep its business going, as well as an $8.5-billion loan from the U.S. Department of Energy to help make more fuel-efficient vehicles.
Sen. Bob Corker (R-TN) has been thinking along the same lines and questioning why Cerberus refuses to use its own money to bailout the carmaking company it owns.
Corker spent much of his time sparring with Nardelli over the privately-held company asking for taxpayer help.

Cerberus invested $7.4 billion in August 2007 to acquire majority control of Chrysler from Daimler AG.

[...]

"Cerberus owns 80% of this company and has cash — lots of cash — that they are unwilling to put into this company," Corker said.

He also accused Cerberus of simply trying to buy time in order to merge Chrysler.

"It troubles me a little bit knowing that basically all we're really doing is providing a little capital for y'all to hang around long enough to get married," Corker said.
Strangely enough, begging Washington for money runs counter to Chairman John Snow's own prescription for Chrysler. Just last Summer, Snow stated:
Private investment is no magic elixir, but in certain cases like Chrysler, we believe it offers simply the best hope for restoring competitiveness to sectors of the U.S. economy that need it most. And stronger, growing companies are the best way I know of to provide job security, increase employment, raise living standards – and keep America’s economy strong.
Oh what a difference a year makes.


Cerberus Capital is named for the three-headed hell-hound assigned to guard the gates of Hades. In Greek and Roman mythology, the spirits of the dead could pass on to the underworld, but Cerberus stopped them from leaving and kept the living out. Hercules (Heracles), as the last of his twelve labors, was tasked with capturing the beast without weapons. Upon successfully doing so and presenting his prize to Eurystheus, "[t]he terrified king trembling with fear, asked Heracles to take the monstrous beast back to the underworld, and if he did he would free the hero of his labors." Most fittingly in these circumstances, Cerberus also appears in Dante's Divine Comedy as guardian of the gluttons confined to the Third Circle of Hell.

Who will play Hercules this time? Who will send this hound back to guard its gluttons and will Congress then release us from our labors on its behalf? If polls are to be believed, then the American people have no qualms about leaving beast to tend to the dead. Perhaps our leaders will show a smidgen of the same fortitude.
 
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Comments
There were ways the financail bailout could have gone down with a little more blood and humiliation. And for many, they were masters of their own destiny as much as the Big 3 were. Just like there was no hard and fast law demanding those firms get involved with bad mortgages, there were a lot of little laws and activism that gave groups like ACORN teeth, it made taking those mortgages on seem like a good idea at the time. Same thing with the UAW. So I don’t really see much of a difference between the Big 3 having entangled themselves in Union deals they couldn’t get out of from mortgages that these banks couldn’t get out of.

That aside, Cerberous took a dead body off Daimler’s hands. It was sucked dry financially by Daimler. It would be nice if they could find life, but the reality is that Chrysler’s fate was sealed the moment Daimler took them over.
 
Written By: jpm100
URL: http://
Your only hope at this point is to join the FReeper nuts on the birth certificate conspiracy bandwagon and depose Obama before he destroys America.
 
Written By: TomD
URL: http://
Your only hope at this point is to join the FReeper nuts on the birth certificate conspiracy bandwagon and depose Obama before he destroys America.
Ummm ... what? What does any of the post have to do with Obama?
 
Written By: MichaelW
URL: http://qando.net
MichaelW, it’s straight from the 90s playbook and will be a standard tactic for however long Obama is president.

Take a Clinton example.

You say, "His VP broke a law that he (the VP) sponsored when a senator thereby aiding and abetting our enemies in Iran."

The response is, "Oh, so do you think that Clinton had Arkansas troopers kill his ex-mistresses too?"

Derailing any meaningful exchange while attempting to get you branded as a wacko.

Get ready for it, it’s ugly annoying and stops any meaningful exchanges from happening.

Not to be confused with their tactic under Bush’s presidency where the more insane the charge the more likely it was to be thrown around and if you didn’t accept it you were a Bush-fellator.

I hate today’s left.
 
Written By: Veeshir
URL: http://
I’m against teh Bail-outs in general, but this one in particular. When Chrysler was bought by Cerberus, it was understood that their goal was bankruptcy and rengotiation of the UAW contracts. That was their business plan, in part...so let them continue with their plan, without MY money.
 
Written By: Joe
URL: http://
I meant to leave an on-topic comment but got sidetracked.

It’s funny but I read Heinlein when I was too young to understand much of what he said. He might have gotten technology wrong, but he got people right.
As I grew up, I was happy I had read him because I could see the truth in his statements.

One that really confused me was that the biggest danger to capitalism is a successful capitalist.

We see here that statement in action. They just saw the gov’t throwing billions around and figured they could get in on it too.
 
Written By: Veeshir
URL: http://
Does anyone have insight into production capacity vs. private demand for vehicles at this point and for the near future? I heard someone on the radio yesterday saying that our production capacity can produce 4 million more cars per year than there is demand for. He also spoke at length about the number of ’gently used’ cars that are out there. Why save the industry if it is only going to choke on itself again?
 
Written By: meagain
URL: http://
Meagain, don’t ask that question!?!?! We are on the verge of Depression II, UNLESS you want soup-lines and Hoovervilles, we MUST bail out these strategic and priceless industries...no matter if it bankrupts us all and forces us into penury and soup-lines, living in card board boxes...oh ehy I think I see a flw here.
 
Written By: Joe
URL: http://
How is merging companies that are to big to fail going to mitigate the need for future bailouts of the bigger company after mergers?
 
Written By: SkyWatch
URL: http://
SkyWatch, I am listing you as "Not a Team Player." Please refrain from commenting...
 
Written By: Joe
URL: http://
... UNLESS you want soup-lines and Hoovervilles ...
Given the money Congress is planning to throw at the Big 3 we may as well house those poor bastards in Dodge Caravans instead of tents.
 
Written By: MichaelW
URL: http://qando.net
How about Azteks, Micheal, they came with a tent...
 
Written By: Joe
URL: http://
Good thing I’m smart and always in demand. It will suck to be some of you though :(
 
Written By: TomD
URL: http://
"Does anyone have insight into production capacity vs. private demand for vehicles at this point and for the near future?"

I believe I heard something like that said by an economist testifying before Congress the other day. Similar to the housing bubble, low or no interest car loans and other inducements have led to more people buying more new cars than the normal equilibrium number (or something). Add to that the fact that demand will naturally drop due to layoffs, tighter credit, etc. (a recession, you know), and it looks like car sales will be worse than they are now for some time.

Since the auto companies are already losing big bucks, and sales (revenues) look to be even worse, I do not see how this bailout ’bridge loan’ can be anything other than another bridge to nowhere.


"soup-lines and Hoovervilles,"

At last! A national government nutrition program and low-cost housing for all!
 
Written By: timactual
URL: http://
Good thing I’m smart and always in demand.
Wow not compassion there man....and dude, we’re talking about UAW members, you know the guys that voted for hopey-change-tude...you’re saying that they can just go suck it, huh?
 
Written By: Joe
URL: http://
How about Azteks, Micheal, they came with a tent...
Even better.
Good thing I’m smart and always in demand. It will suck to be some of you though :(
Yeah, so smart you thought this was a post about Barack Obama. As for you being in demand, we have "pedro the illegal alien" around here to do the work you apparently won’t do (i.e. topic maintenance).

Oh well. As I always say, if you’re going to assume the world, you may as well assume it in your favor.
 
Written By: MichaelW
URL: http://qando.net
Well, I’m glad at least to see that a majority of Americans oppose bailing out the Big Three. It would be highly irresponsible to do so. The leftists in D.C. can protest all they want that it’s not the fault of the union - but, of course, they receive donations from the union, so of course they’ll defend them. It’s high time lawmakers, liberal illuminati included, "let the chips fall where they may" - Detroit got itself in this mess, and I believe they can get themselves out. A few chants of "yes we can" ought to help.
 
Written By: palinpal
URL: http://
My only twinge of regret about them going belly up is that I would love to see the Volt see the light of day. Timing and luck is important in business and GM just doesn’t have either.
 
Written By: Harun
URL: http://
Your only hope at this point is to join the FReeper nuts on the birth certificate conspiracy bandwagon and depose Obama before he destroys America.
The only one who has brought up the birth certificate nonsense here is you.
 
Written By: McQ
URL: http://www.QandO.net
Does anyone have insight into production capacity vs. private demand for vehicles at this point and for the near future? I heard someone on the radio yesterday saying that our production capacity can produce 4 million more cars per year than there is demand for. He also spoke at length about the number of ’gently used’ cars that are out there. Why save the industry if it is only going to choke on itself again?
Market demand in October and November choked for all auto makers due to the credit crisis and the screams of doom to sell the financial bailout. Drop in marketplace confusion due to the return to sub-$2 gas.

If it lasts, I’d be more concerned that farms have available credit to keep functioning.
 
Written By: jpm100
URL: http://
First off, I didn’t know anything about Cerberus, so thanks for that. I think that you would have to be crazy to bail these guys out, personally. It’s not gonna bode well for the dems when all the Toyota and Honda workers in the south realize that their money is going to pay for the competition’s retirees, some of whom have been retired longer than they worked.
 
Written By: slackathor
URL: http://downwiththedrivebys.blogspot.com
"My only twinge of regret about them going belly up is that I would love to see the Volt see the light of day."

From what I have heard, it will cost about $40,000 and have a range of about 40 miles/charge. It may see the light of day, but it will never see a buyer.
 
Written By: timactual
URL: http://

From what I have heard, it will cost about $40,000 and have a range of about 40 miles/charge. It may see the light of day, but it will never see a buyer.
It has a 40 mile range, then the engine kicks in. For the enviro-wackos who already live close to work to save the planet, it will be a decent fit.

And it is for image. The Viper didn’t directly make Chrysler a big profit, but it was an image thing that paid for itself in other ways.
 
Written By: jpm100
URL: http://
"but it was an image thing that paid for itself in other ways."

All things considered, I hope you will pardon my skepticism.
 
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URL: http://
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