By on December 19, 2008

As we’ve pointed out ad infinitum, Cerberus is a deep-pocketed private equity firm with assets out the ying-yang. Why should Uncle Sam send their ailing automotive arm a $4b Christmas present? “In a statement today, Cerberus responded to that criticism,” Automotive News [sub] reports. “The company said it manages and allocates capital on behalf of its investors — including ‘retirees, teachers, municipal workers and ordinary citizens’ — and its charter limits how much it can put in any single investment. Said the statement: ‘Cerberus is not a deposit-taking institution that can act as an ATM machine for its portfolio companies.'” So now you know.

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30 Comments on “Bailout Watch 298: Why Give Cerberus Federal Money?...”


  • avatar
    grifonik

    In Soviet Russia, bailouts is economy!

  • avatar
    PeteMoran

    ‘Cerberus is not a deposit-taking institution that can act as an ATM machine for its portfolio companies.’

    But it is a highly geared risk taking machine who has found a way to have the taxpayer help them with the FAILED business division (Chrysler) and the associated losses at the track.

    Smartest guys in the room eh? You betcha.

  • avatar
    CarnotCycle

    Cerberus is quite a low-balling type of organization if they’re already maxed out on Chrysler investments. So actual external investment into one of their on-going concerns is zero by corporate charter? But four billion from someone else is just fine, thank you.

    They also have no trouble taking the money their portfolio of companies earns and sucking that up to the mothership.

    Oh wait I get…its an ATM in reverse. Now it makes sense. I want one of those for my house.

  • avatar

    Well, that certainly explains it.

    And they’re going to be a real auto company again how?

  • avatar
    AuricTech

    I’ll accept that argument, as soon as the Cerberus lawyers point out exactly where the U.S. Constitution’s text explicitly authorizes any sort of bailout. After all, fair’s only fair, right?

  • avatar
    joe

    We’re bailing them out because it’s better than the alternative.

    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.

  • avatar
    Robbie

    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.

  • avatar

    Good Lord, how many different languages can I say, “BS!” in?!!!

    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.

  • avatar
    fisher72

    Bailout or not probably 30% of the American auto industry is going away (jobs, cars, factories, suppliers, and eve more dealers) since it is simply unnecessary. I would have liked to seen Cryseler be that 30%.

  • avatar
    Nicholas Weaver

    Didn’t Cerberus manage to make money on torpedoing Mervyns into Chapter 11?

    F Cerberus.

  • avatar
    picard234

    I agree with Weaver. F Cerberus.

    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.

  • avatar
    Eric_Stepans

    wilman wrote:

    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..

  • avatar
    michaelC

    Why don’t we get to know exactly who is invested in Cerberus? Is it really just pension funds and widows and orphans?

    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?

  • avatar
    Droid800

    On the one hand it makes sense; they probably can’t spend an inordinate amount of other people’s cash just on one company. (chrysler)

    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.

  • avatar
    Samir

    Hiding behind rules they came up with themselves.

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

  • avatar
    Cicero

    Read: “Cerberus won’t put its own money into its own asset to save it (rules are rules, you know), but taxpayers should be forced to.”

    Un-freakin’-believable.

  • avatar
    rcguy

    Robbie :
    December 19th, 2008 at 9:46 pm

    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.

  • avatar
    Strippo

    GM failing scares me. Chrysler/Cerebrus? Not so much.

  • avatar
    guyincognito

    I would like to say to Cerberus that I also have a charter that limits how much I can put in any single Cerberus investment. That investment maximum is $0. Therefore, in response to this statement, I would like to say, FAAAUUUUCK YOOOOOOOUUU!

  • avatar
    Dr. No

    Cerberus has leverage on the health of the U.S. economy. Cerberus knows it and is taking advantage of it. Chrysler’s plan for recovery should receive heightened scrutiny before any additional funds are advanced.

    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.

  • avatar
    John Horner

    Keeping Chrysler on life support is bad for GM and Ford. Chrysler is by far the worst of the three, and the industry needs capacity to GO AWAY. Better to have it go away in a big chunk then to spread the pain around. $4 billion would have been better spent on Chrysler worker unemployment benefits, health coverage and retraining.

  • avatar
    Robert Frankfurter

    jkross22 :
    December 20th, 2008 at 2:27 am
    “Each time you get one of those emails about someone in Nigeria wanting to give you $1.5mm ….Say you work for Cerberus. “

    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

  • avatar
    Hippo

    Does a three blade guillotine require three executioners?

  • avatar
    ronin

    I’m sorry, Chrysler, I can’t make my car payment this month or next or the next. Oh, I do have the money and all, but I need to use it for other things, such as to pay the pensions of retired teachers and autoworkers, on the tuition and housing I am responsible for. It’s not like I’m an ATM machine.

  • avatar
    ronin

    Dear IRS, I’m sorry but I won’t be paying my taxes this year. It’s not like I haven’t got, but I need to use that money for other things like to make my car and house payments, to save for my retirement and so on. I’m not an ATM machine, you know. In fact, how about a rebate.

  • avatar
    Ryan

    fisher72 – your comment stopped me from typing the same thing. What a crock. I am furious that we are bailing out Crapsler, FOR THE SECOND TIME. Let the weak little P.O.S. company die already. Nobody with an ounce of sense will miss them.

  • avatar
    rpol35

    BULL$HIT!

  • avatar
    snabster

    In a perfect world, Chrysler should be allowed to fail.

    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.

  • avatar
    mwwaters

    Let me turn the headline’s question on its head: Why give Ford and GM shareholders federal money? Like Cerberus, GM’s and Ford’s stocks are in brokerage accounts for pension funds, retirees, foreigners and other people with money.

    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.

  • avatar
    Pch101

    Even if equity-holders are wiped out in a bailout, there’s still the issue of giving debt-holders a free ride.

    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.

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