Bailout Watch 298: Why Give Cerberus Federal Money?

Robert Farago
by Robert Farago
bailout watch 298 why give cerberus federal money

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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  • Rpol35 Rpol35 on Dec 20, 2008


  • Snabster Snabster on Dec 20, 2008

    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.

  • Mwwaters Mwwaters on Dec 20, 2008

    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.

  • Pch101 Pch101 on Dec 20, 2008
    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: 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.