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View Full Version : Everyone Wants A Piece Of The Action --Get Mad!


Guest
10-20-2008, 07:20 AM
You may have read about GM's proposal to buy Chrysler. Today;s Wall Street Journal reports that the deal is floundering because GM doesn't have the capital, equity investors who might provide more aren't interested, and the banks are hesitsnt to lend the $10 billion needed to complete the deal.

So who's got the big pocketbook that could get the deal done? Us, of course....

"You have to think a government role would be important," said one person involved in the talks. "That role could take a lot of forms, but it would be very important. The government may need to make it happen."

Now for the even more offensive part of this proposal. Remember who owns Chrysler? It's a very aggressive leveraged buyot firm from Wall Street named Cerebus Capital. When they bought Chrysler from Daimler-Benz, I wondered how they could ever make a reasonable return on their investment. Now that the stock market has crashed there is zero chance they could take Chrysler public and get a return that way. And with the credit markets almost non-existent, any other potential buyer, like GM, wouldn't be able to raise the money. Cerebus is stuck with Chrysler with no way to get rid of it.

It's an LBO firm's worst nightmare--being stuck with a poor-performing investment with absolutely no way to sell it and get even a portion of your investor's money back.

But now that "big daddy" has the money, why not get the taxpayers to pay us back, Cerebus asked? This is as offensive a proposal as I've ever heard. The $10 billion, or a very large portion of it, would go directly into the pockets of Cerebus partners and their wealthy investors. If you recall, Daimler-Chrysler agreed to the sale to Cerebus, nine years after Daimler acquired Chrysler for $36 billion. Dailmler sold 80.1% of the ailing U.S. auto maker to private equity firm Cerberus for a fraction of the price, $7.4 billion in May, 2007.

But it gets better. Let's revisit how much money Cerebus really put on the table to buy 80% of Chrysler. Cerberus paid $7.4 billion, $5 billion of which went to affiliated companies Chrysler Corporation LLC and $1.05 billion to Chrysler Financial Services; Daimler only got the remaining $1.35 billion, but but then loaned back $400 million of it to Cerebus to finance the deal. Daimler also retained all the debt from Chrysler Group, costing Daimler a net $650 million plus prepayment compensation of $878 million and transaction costs. Chrysler’s pension fund was overfunded by about $2 billion at the time, and as I recall Cerebus used that overfunding to help pay for their aquisition.

Let's sum it up--Daimler sold 80% of bow-wow Chrysler for $7.4 billlion after paying $36 billion for it nine years earlier. But of the purchase price Cerebus only really put up very little.It's hard to figure out without being part of the deal because Cerebus is a private company and Daimler is German and not subject to U.S. reporting regulations, but it's pretty clear that what little Cerebus put at risk may have actually been funded by them raiding the Chrysler pension fund after they closed on the purchase. So, if the parties are successful in getting the good old U.S. government to give GM the money to buy Chrysler, it looks like Cerebus would get the better part of $8 billion, Daimler about $2 billion and somewhere in the deal the investment bankers and lawyers advising them both will get some pretty handsome fees.

So Cerebus would get a huge percentage return on their negligible investment in Chrysler only a year ago and GM would wind up being an even bigger poor performing U.S. auto company--all financed by mom's and pop's across America. Does this make you mad? It sure does me.

And, oh, the records show that Cerebus has been a huge financial contributor to both George Bush and the Republican party--in the several hundreds of thousands of dollars. Why am I not surprised that Cerebus wants to get some payback before the election?

Guest
10-20-2008, 09:45 AM
:cus:"and the banks are hesitsnt to lend the $10 billion needed to complete the deal".

Yes I'm mad as H-ll but I'am also very confused. Didn't Big Daddy dole out
250 billion to some of our esteemed financial institution last week to ease
the credit markets?

Guest
10-20-2008, 11:05 AM
...as an ex-banker, I can assure you that the additional capital reserves resulting from the Fed's purchase of preferred stock of the banks will be used only to make loans to the most creditworthy customers.

I don't think you have to be a registered financial analyst to figure out that none of the auto companies would fall in the category of "most creditworthy". I'm pretty sure that you won't find any of the banks making loans for "relationship", "for the good of the community", or for "the good of the country" reasons for a long, long time, if ever again.

Our auto companies do not have competitive products when compared with foreign competitors. (I hate to say that because one of my sons and three grandsons rely on the success of Ford.) Personally, i don't think it's the responsibility of private companies--banks--to save them if the teeter on failure. If the companies are so large that it is felt that they should be propped up financially, then I think it's the government's role to do so.

Having said that, and returning to the original subject of this thread, the government may again be faced with a decision with some bad elements. If the decsion is made to inject money to permit GM to buy Chrysler, then the outcome will be survival of both companies--but some already rich LBO/investment bankers will become incredibly richer with "our" money.

It really raises a more important question--should we simply let capitalism and the free market work, probably resulting in the failure of our auto industry and hundreds of thousands of people out of work? Or should the government get involved to nationalize the industry like they did to the banks, investment banks and AIG?

Free markets or socialism?--it becomes a more difficult choice when real companies, real people and our very real national economic future is involved.

Guest
10-20-2008, 03:01 PM
...as an ex-banker, I can assure you that the additional capital reserves resulting from the Fed's purchase of preferred stock of the banks will be used only to make loans to the most creditworthy customers.

I don't think you have to be a registered financial analyst to figure out that none of the auto companies would fall in the category of "most creditworthy". I'm pretty sure that you won't find any of the banks making loans for "relationship", "for the good of the community", or for "the good of the country" reasons for a long, long time, if ever again.

Our auto companies do not have competitive products when compared with foreign competitors. (I hate to say that because one of my sons and three grandsons rely on the success of Ford.) Personally, i don't think it's the responsibility of private companies--banks--to save them if the teeter on failure. If the companies are so large that it is felt that they should be propped up financially, then I think it's the government's role to do so.

Having said that, and returning to the original subject of this thread, the government may again be faced with a decision with some bad elements. If the decsion is made to inject money to permit GM to buy Chrysler, then the outcome will be survival of both companies--but some already rich LBO/investment bankers will become incredibly richer with "our" money.

It really raises a more important question--should we simply let capitalism and the free market work, probably resulting in the failure of our auto industry and hundreds of thousands of people out of work? Or should the government get involved to nationalize the industry like they did to the banks, investment banks and AIG?

Free markets or socialism?--it becomes a more difficult choice when real companies, real people and our very real national economic future is involved.

I hope in the long term that we didn't Nationalize banks, investment banks or AIG (the children), but gave these errant children a chance to turn their behavior around. Maybe they will pay Mom and Dad (the taxpayers) back buy becoming better people or actually pay back what they received, either through direct repayment or just straightening out their own life so that we don't loose them entirely.

My vote is for Free Market, not Socialism. but I don't want to throw the baby out with the bath water just so that it doesn't cost me money.

Guest
10-20-2008, 03:54 PM
Short and to the point!





Gentlemen,

In view of the current crisis throughout the international banking
community, I am writing to solicit your advice.

Specifically, one of my cheques was recently returned marked
"Insufficient Funds".

How do I determine if this refers to me or to you?

Sincerely,




------ End of Forwarded Message