I’m not a big fan of Fox, but this blogger there believes that the bailout may be about preventing a meltdown of the credit default swaps associated with GM debt:

http://emac.blogs.foxbusiness.com/2008/12/19/auto-bailout-saves-wall-street-too/

Still, I’m not sure what to think of the Chrysler component. I have a feeling that the fed money may be a stall tactic and sweetener to induce others such as Nissan and VW to either take a position or else buy some or all of Chrysler. We’ll see how it goes, but Nissan’s elimination of US truck production is a big hint that they may be looking to Dodge to fill that gap.

The same goes for the other end of the equation, debtholders of the Big 3. The auto companies needed financing to build new plants and give us out huge over-capacity. Even if equity-holders are wiped out in a bailout, there’s still the issue of giving debt-holders a free ride.

So, I say let GM and Chrysler fail. Suppliers may have to go Chapter 11, but Ford and the foreign companies would probably keep buying from them enough to keep them out of Chapter 7.

Also, the LTCM bailout was brokered by the Fed, but it was with all private money. Other hedge funds knew that it’s failure could create runs on other hedge funds, effectively having the Russian sovereign default spread to America.

In an imperfect world, we talking about 50K direct jobs. You talking heavy losses on the dealership side (say another 25K) and suppliers (25K)? Wiping Chrysler out may impact Cerebus’s finances, and cause it to sell/liquidate other assets they hold. In a a deflationary asset environment, not desirable.

From a political perspective, best chance to do that was with Bush. President Obama will not allow a major corporation like Chrysler to disappear before his midterms. Obama needs to get card check to keep the unions happy. Allowing the UAW to be gutted like that (before card check is done) is not wise. Of course, Cerebus is stacked to the gills with Republicans, so Bush couldn’t let it fail.

Other option for Obama is outright nationalization. Erase Cerebus’s equity (and also Daimlers). Let the greens go crazy making electric cars that don’t sell but that are government supported. Sole source all GPO car purchases to neo-Chrysler, and give them several DOD contracts. Sell Jeep in a year where finance markets are working.

The best idea since the creation of the shoe spoon.

“Yes we can”!

PS: Rober Farago – why is the mail from jkross22 I quote above gone?
Are you becoming soft, mellow & scared?
Many hope not

However, I might be in favor of the U.S. carrying Cerberus a bit longer until the economy improves to withstand the shock of letting this leaky ship sail if Cerberus can’t find a buyer and doesn’t have a viable plan to refloat itself.

One cannot reasonably expect Cerberus to waste the money of its investors on Chrysler. Therefore, they will make the economically sensible decision, and have Chrysler go bankrupt without bailout, but I view this as normal. The real problem is that Cerberus is a secretive operation and lacks the openness required when having one’s stocks traded. We want accountability for our taxpayer money.

Yes, and this is why I have a problem with the Canadian government lending cash to all three of the Big 2.8. Yes, losing any of the assembly or parts plants, is a big hit to the economy but how can the govm’t say this is necessary when all the big 2.8 have been making profits in Canada (Except for 2002)??? Of course none of them will confirm or deny this.

Un-freakin’-believable.

Reminds of me CEOs saying jets are needed for security. Vetted by the board, of course, made up oof visiting CEOs and ex-CEOs.

On the other hand, its batshit insane; if they can’t spend the required money, why the hell did they buy Chrysler in the first place? They knew how bad things were and knew how much money it would take to fix it. (and don’t tell me that a firm made up entirely of analysts, economists, and investment specialists didn’t see the current financial storm coming)

I have no sympathy for Chrysler and Cerberus.

The financial bailout news was managed so well most US taxpayers do not realize the degree to which the deals to date have been structured to protect certain SWFs (Look at the (non)hit taken by AIG, Fannie and Freddie bondholders). The meme Saving Chrysler==saving American workers and American auto manufacturing might be harder to sell if it happens Cerberus has significant amounts of foreign money invested in it.

Disclaimer — I have no knowledge about Cerberus’s investors. It could be that substantially all of the money it manages comes from various pension funds and not from SWFs. Also I have nothing against foreign money being invested in the US — that is big positive for the country. The issue here is the size and nature of this bailout — and the fact that the odds of being paid back are slim to none. Wouldn’t it be interesting to know exactly who is being bailed out by the taxpayers?

Long-Term Capital (Management) was allowed to crater. ->If one of Cerberus’ investments goes Tango Uniform, let them eat it too -like any other hedge fund in the world.

Actually, LTCM was NOT allowed to ‘crater’. The Federal Reserve brokered a ‘bailout’ of the fund. Of course, that was back in the day before a huge percentage of the investment capital in the world (and the insurance backing it) was all bet on ‘22 Black’ (that house prices would never go down). So, the LTCM bailout didn’t explicitly involve taxpayer funds.

If LTCM had been allowed to crater, maybe we wouldn’t be in the mess we are currently in.

OTOH, the subprime/CDO/banking meltdown is simply the Enron scandal writ large, so clearly Wall Street and financial regulators are capable of enormous feats of amnesia when huge short-term profits are waved in front of their noses…:-D..

Perhaps the best thing for Chrysler would be some kind of merger with Nissan/Renault. I would really like to see them approach Ghosn and avoid this ‘merge with GM’ nonsense.

F Cerberus.

Cerberus’ spokesperson gets The 2nd-Smallest Violin on Teh Interwebs for using the Appeal-To-Sympathy fallacy of ‘retirees, teachers, municipal workers and ordinary citizens’. -blech!!!

Here’s a BW story on Cerberus. They had a Market Cap of about $85b+ and Sales of $30b+ in 2005.

Long-Term Capital was allowed to crater. ->If one of Cerberus’ investments goes Tango Uniform, let them eat it too -like any other hedge fund in the world.

With the economy as weak as it is that much extra slow down would be abysmal. Add to that the fact that the hit to the supply base might push the whole industry over the edge and it starts to look like the ‘least bad’ thing to do.

Nothing happens in a vacuum, and if you work out how the domino’s fall you get a different answer that just looking at the stand alone situation.