The Next Anti-Union Myth: Obama Gave Them Chrysler

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Prepare to see lots more stories like this one–stories that suggest Obama, out of whatever good intentions, decided to "give" the UAW Chrysler even while he deprived banks of their rightful return on debt.

Regardless of its literary influences [in Machiavelli], the Obama administration’s decision to give unions a big stake in the ailing Chrysler while strong-arming banks into forgiving a huge portion of debt is a sign of the times.

A nearly bust carmaker, several lenders that owe the government billions of dollars (and, in some cases, their survival) and an interventionist president eager to be seen to be tackling the nation’s economic ills: welcome to the United States of America 2009.

I have heard the arguments supporting the decision to short-change debt holders and carve out Chrysler between the unions (which get 55 per cent but just one board seat), Fiat (up to 35 per cent and three board seats) and the government (most of the rest of the equity and four board seats).

They boil down to this: extraordinary times require extraordinary measures (the end justifies the means, if you like).

In other words, with Chrysler employing more than 50,000 people in the US and Canada, it was paramount to avoid a long bankruptcy that would have destroyed the company.

If that meant giving junior creditors such as the unions favourable treatment at the expense of senior debt-holders, so be it. As for those hedge funds that rejected the plan, they are nothing but “speculators” according to Mr Obama.

Absolutely critical to the myth of the poor little hedge funds being strong-armed by the evil union and the interventionist President is the conflation of "the union" with VEBA, the fund to provide retiree health care that is controlled by the union to which Chrysler actually owes the money. I know it makes Financial Times readers lash out to hear of an evil union budging ahead of productive hedge funds, but in truth this was a matter of dealing with Chrysler’s biggest creditors–whether it be JP Morgan Chase or a fund run by a union–and not a matter of class warfare. 

Now to be fair, there is a germ of truth in this article: the poor little hedge funds purportedly being strong-armed by the union do hold debt that takes precedence over the VEBA fund. In relative terms, a tiny bit of it. Read more →

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JP MorganThe Banks Forces Chrysler into Bankruptcy

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the end of Chrysler

photo courtesy of S and C

The UAW was willing to negotiate, but the banksters weren’t. So Chrysler will now enter bankruptcy.

The Obama administration will announce at noon today that it will take Chrysler LLC into a historic bankruptcy to force a cut in debt key to a partnership with Fiat S.p.A. after three firms refused a sweetened offer.

With the UAW late Wednesday ratifying cost cuts in its contract and cuts in the money due its retiree health-care trust fund, President Barack Obama will announce a Chrysler-Fiat deal and the government’s “surgical” bankruptcy plan later today.

The administration "was willing to give the holdout creditors a final opportunity to do the right thing," an administration official said. But "the agreement of all other key stakeholders ensured that no hedge fund could have a veto over Chrysler’s future success."

The lack of an agreement will not "impede the new opportunity Chrysler now has to restructure and emerge stronger going forward," the official said.

The Administration claims they’ll be able to pull off a surgical bankruptcy and still pull off the Fiat deal on the other side, leaving Chrysler with some lease on life. But meanwhile, the banksters get to collect on their bets against Chrysler and get rich rich rich! All while sucking at the Federal teat. 

Update: JPMorgan Chase may have been willing to deal. It was a couple of hedge funds that were the final holdouts.

The holdouts are no longer the big four banks (and TARP recipients) that together own 70 percent of Chrysler’s debt. Both the Journal and the Washington Post have fingered three hedge funds — Oppenheimer Funds, Perella Weinberg Partners’ Xerion Capital Fund and Stairway Cap Management — as the sticklers. The government is faced with the unenviable prospect of getting unanimous consent from all the bondholders to make a deal, which gives the hedge funds extraordinary leverage. In the parlance of Wall Street, taking a hit on what you are owed is known as a "haircut." The hedge funds seem to be allergic to the barbershop.

From Obama’s statements.

He starts by saying they get a new lease on life. 

Talks about its role in US history, and in building the middle class. 

It’s been a pillar of our economy, but a pillar that’s been weakening. Designing cars that were less reliable and less fuel efficient than competitors. As I’ve said from the start, we cannot keep this Read more →

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Ponzi Nation, TARP Edition

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Small potatoes, as far as Ponzi schemes goes–$4.9 million. But by making claims you’re investing in TARP funds? That’s gets you on the Ponzi nation list for sure.

Federal authorities this morning announced that Gordon B. Grigg of Franklin has agreed to plead guilty to four counts of mail fraud and four counts of wire fraud, after operating a Ponzi scheme that dated back to 1996.

Joining U.S. Attorney Ed Yarbrough to make the announcement was Neil Barofsky, special inspector general of the Troubled Assets Relief Program, which runs the financial bailout enacted by Congress last year. Barofsky came down from Washington to highlight the fact that part of Grigg’s fraud involved claims that he could get investors into high-yielding notes issued by the government as part of the TARP.

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Dan Quayle’s and John Snow’s Flunkies Putting Greed Ahead of America

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quaylegmcrop.thumbnail.jpg (Image by twolf)

Now for an update from the most loathsome intersection of the financial and the auto crisis…

You’ll recall that last we heard, Chrysler was hoping to stay alive long enough to have Fiat’s Sergio Marchionne swoop in and save it. Even if that happens, though, Chrysler will need to get some customers to buy its cars until such a time as Marchionne can do his magic.

And to get customers, they’re going to need to get credit to offer those customers. As a reminder, to get credit, they’re sort of reliant on Chrysler Financial, a separate company from Chrysler, the part Cerberus wants to keep.

Only, the flunkies that John Snow and Dan Quayle have running Chrysler Financial are refusing to take government money to get that credit because–you guessed it–they don’t want executive pay limits.

Top officials at Chrysler Financial turned away a $750 million government loan because executives didn’t want to abide by new federal limits on pay, sources familiar with the matter say.

The government had been offering the loan earlier this month as part of its efforts to prop up the ailing auto industry, including Chrysler, which is racing to avoid bankruptcy. Chrysler Financial is a vital lender to Chrysler dealerships and customers.

In forgoing the loan, Chrysler Financial opted to use more expensive financing from private banks, adding to the burdens of the already fragile automaker and its financing company.

Oh. And don’t wory. Jamie Dimon and Vikram Pandit are in on the act, too:

But by forgoing the government loan, the company must borrow money from a group of private banks, including JP Morgan and Citigroup, sources said. That line of financing had been arranged in August, when the company was on the brink of bankruptcy, according to an industry official. The financing from the private banks comes at a higher borrowing cost for Chrysler Financial, a source said. 

Because that’s what Michigan needs, to owe JP Morgan Chase more money.

Read the whole story. It’ll get you saying "loathsome" too.

So nice to see the guy who used to be Vice President and the guy who used to be Treasury Secretary showing such an interest in the future of our country.

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Ponzi Nation, Monday Edition

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Another day another Ponzi scheme broken up by the SEC.

The Securities and Exchange Commission has charged a Philadelphia-area investment adviser and its principal with misappropriating millions of dollars in client assets, and obtained an emergency court order freezing their assets.

The SEC alleges that through a commingled brokerage account, Donald Anthony Walker Young of Coatesville, Pa., and Acorn Capital Management, LLC misappropriated more than $23 million from investors buying limited partnership interests in Acorn II LP, which invested in publicly traded securities. Young used investor funds to pay other investors in the nature of a Ponzi scheme, and directly stole some of the money to purchase a vacation home in Palm Beach, Fla., and pay personal expenses related to horse ownership and racing, construction, boats, limousines, chartered aircraft and other luxuries.

Even with the two bank failures on Friday, Ponzi nation still appears to be leading Bank Failure nation this year (though I’m still working on guidelines for the definitive comparison). 

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Do CEOs Really Matter?

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There’s a BusinessWeek report that confirms two things I’ve been arguing for a while: that Bob Nardelli will be ousted no matter what happens with Chrysler in the upcoming two weeks.

Chrysler CEO Robert Nardelli confirmed in a letter to employees today that he will likely be replaced as CEO of the automaker in the coming weeks as the company faces either an alliance with Italian automaker Fiat or a bankruptcy reorganization or liquidation. The company’s board, too, would be replaced, he said.

And that one of the reasons the Obama Administration treats the Fiat deal as a viable option for Chrysler is that they hope to put Sergio Marchionne, the head of Fiat, in charge of the merged company.

In Nardelli’s letter to employees, the former Home Depot CEO said a new board of directors will have the power to appoint a new CEO. “The majority of the directors will be independent (not employees of Chrysler or Fiat),” Mr. Nardelli wrote. He added that the board “will have the responsibility to appoint a chairman and select a CEO with Fiat’s concurrence.”

Executives close to Chrysler say that it is possible that Fiat CEO Sergio Marchionne will hold the title of CEO, similarly to the way Carlos Ghosn was CEO of both Renault and Nissan for a few years after he was granted the job at Renault. Renault has a controlling interest in Nissan, and had sent Ghosn to Nissan to turnaround the then-ailing Japanese automaker.

 Now, Marchionne is a darling of the Wall Street types because he managed to turn Fiat around. 

"The turnaround he steered at Fiat was just as miraculous as what Carlos Ghosn did at Nissan," says Tony Faria, business professor at the University of Windsor. "Fiat was in big difficulty, losing a lot of money. He had them in profitability in less than two years. The turnaround he steered was just magnificent."

Fiat–one of the oldest industrial businesses in Europe–was on the brink of bankruptcy when Marchionne was appointed CEO in 2004. Less than two years later, the maker of such brands as Ferrari, Alfa Romeo and Maserati returned to profitability as a world leader in environmentally friendly vehicles.

Read more →

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The Big Banks’ FDIC Boondoggle

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In her post on the changing plans to release stress test results, Yves congratulated the Administration for planting a story that blamed everything on Goldman.

Back to the New York Times:

While all of the banks are expected to pass the tests, some are expected to be graded more highly than others. Officials have deliberately left murky just how much they intend to reveal — or to encourage the banks to reveal — about how well they would weather difficult economic conditions over the next two years….

Yves here. That means this is being negotiated. Wonder if the Times story was leaked to box the banks in and (as you will see later) blame it on Goldman. If so, this crowd would be playing a much smarter game than I have given them credit for (the "Goldman made us do it" part, the leak alone is a more predictable move). And this story was clearly planted. The Times reports it came from "senior officials"; as we noted, the Journal also has a story up.

Keep that in mind as you review coverage–both in Sanger’s story on the stress tests, and in a completely separate story–of FDIC backed lending. Sanger sort of throws the reference in at the precise point most designed to blame Goldman Sachs for forcing the Administration’s hand on the stress tests.

The Goldman move also puts pressure on the administration to decide what conditions will apply to institutions that return their bailout funds. It is unclear if Goldman, for example, will continue to be allowed to benefit from an indirect subsidy effectively worth billions of dollars from a federal government guarantee on its debt, a program the Federal Deposit Insurance Corporation adopted last fall when the credit markets froze and it was virtually impossible for companies to raise cash.  In ordinary times, regulators do not reveal the results of bank exams or disclose the names of troubled banks for fear of instigating bank runs or market stampedes out of a stock. But as top officials at the Treasury and the Federal Reserve Bank focused on the intensity with which the markets would look for signals about the nation’s biggest banks at the conclusion of the stress tests, the administration reconsidered its earlier decision to say little.

“The purpose of this program is to prevent panics, not cause them,” Read more →

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Grading on a Curve

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The Obama Administration has reversed its approach from earlier this week and last, and decided it will reveal the results of stress tests. But it warns that it will be grading on a curve to make sure all the zombie banks can pass into the next grade and eventually graduate (rumor has it that JP Morgan Chase also wants to be cleared to play football).

The administration has decided to reveal some sensitive details of the stress tests now being completed after concluding that keeping many of the findings secret could send investors fleeing from financial institutions rumored to be weakest.

While all of the banks are expected to pass the tests, some are expected to be graded more highly than others.

Understand, though, at least as David Sanger tells it, the Adminstration is not revealing the results of the stress test because it decided transparency is good. Rather, it is doing so because Goldman Sachs and Wells Fargo forced its hand.

The administration’s hand may have been forced in part by the investment firm Goldman Sachs, which successfully sold $5 billion in new stock on Tuesday and declared that it would use the proceeds and other private capital to repay the $10 billion it accepted from the government in October.

That money came from the Troubled Asset Relief Program, or TARP, and Goldman’s action was seen as a way of predisclosing to the markets the company’s confidence that it would pass its stress test with flying colors.

[snip]

Citigroup and Bank of America made positive statements about the current quarter weeks ago, and last week, John Stumpf, the chief executive of Wells Fargo, said the bank was in good shape and expected a $3 billion profit this quarter. The Wells Fargo statement appeared to frustrate some Treasury officials, and regulators clearly fear it will be more difficult for them to issue negative assessments of banks that have already proclaimed that they are in good shape.

A Wells Fargo spokeswoman, Janis Smith, said the company would not comment on interactions with its regulator.

At this point, the Obama Administration needs to realize something else about their plans to bring back the banking industry. These banksters believe they will be and can be immune from regulation. They are treating their gravy train and regulator like a doormat. 

So it’s probably a good idea to impose the new regulations now, before doling out more money in PPIP. Because until Read more →

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Ponzi Nation

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Atrios and others have been having some perverse fun tracking the number and frequency of banks getting eated. But there’s another disturbing trend passing largely unnoticed (save for its more spectacular examples): the number of Ponzi schemes the SEC busts up.

Counting just the schemes the SEC issues a press release on and labels a Ponzi scheme (and using the SEC’s most conservative estimate for the size of the scheme), there have been 19 Ponzi schemes in the last year, amounting to $17,848 million dollars in fraud (Bernie Madoff counts for the bulk of that–$17 billion–and I did not include Stanford’s scheme, since SEC has not used the word "Ponzi" in their public releases on it yet). 

Date   Name Amount (000s)
4/13/09   Maximum Return Investments 23,000
4/9/09   Richard Copeland 35,000
4/8/09   Shawn Merriman 17,000
4/6/09   Overseas China Fund 50,000
4/1/09   Gemini Fund 50,000
3/26/09   Millenium Bank 68,000
3/11/09   Equity Investment Management and Trading 40,000
2/19/09   Billion Coupons 4,400
1/15/09   CRE Capital Corporation 25,000
1/8/09   Joseph Forte 50,000
12/30/08   Creative Capital Consortium 23,000
12/11/08   Madoff 17,000,000
11/12/08   Biltmore Financial 25,000
10/30/08   Bottom Line and Summit 30,000
10/6/08   Norman Hsu 60,000
9/16/08   Cornerstone Capital Management 15,000
9/15/08   PIPE Investments 52,700
8/11/08   Wextrust 255,000
5/2/08   Safevest 25,000
      17,848,100

And in an April 1 press release, the SEC said it had shut down 75 Ponzi schemes in the last two years (it only released a press release for one more Ponzi scheme in that time). In other words, the SEC has actually been shutting down more Ponzi schemes than the number of banks the FDIC eated. 

Now, a lot of those schemes target a particular potentially vulnerable or trusting class of people. (One Ponzi scheme targeted the deaf, for example, and others targeted particular ethnic groups.) 

Even accounting for the ways these schemers have instilled trust among their targets, this is still a big number of Ponzi schemes. Doesn’t anyone look for the tangible product at the end of a money-making scheme anymore?

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Dana “Pig Missile” Perino to Do Crisis Communications for AIG?

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Hiring someone who doesn’t know the difference between the Bay of Pigs and the Cuban Missile Crisis to do crisis communications for big evil corporations?

I’ve got a feeling this may end badly. But we might get some laughs along the way.

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