Just another Reality-based bubble in the foam of the multiverse.

Sunday, December 07, 2008

Bailout on the Half Shell

Congress wants to bailout Detroit to help the American Worker.

Well, maybe you know better. But maybe Obama doesn't, and that has led a few cognizant insiders to call for a Stabilization Oversight Council (SOC) to oversee the process. It's not just sloppy business plans in making and dealing cars that have screwed up the Big 3.

...While the bailout of several of our largest financial institutions have been rife with conflict and undue political influence, my hope was that Congress and the Administration would learn from its mistakes and not repeat them with the auto industry. Unfortunately, it appears that my hopes were unrealistic. Because if temporary steps are taken to bridge the auto industry until early 2009, without an appropriate restructuring of the businesses which are, for all intents and purposes, bankrupt, then one of the largest buyout firms on the planet will be (at least temporarily) bailed out with taxpayer money. The fund in question? Cerberus.

Make no mistake, Cerberus has friends in high places, and is throwing around its influence (and its cash) in order to protect its ~$2 billion investment in Chrysler and GMAC. According to the New York Times, Cerberus has spent $2 million of its own money this year lobbying on behalf of its auto interests while Chrysler itself has ponied up $5 million to play the influence game. Given that the industry can't pay its bills, this money by spent by them to get more money out of us that is essentially paid for - by us. This simply doesn't compute. Further, they have the nerve to intimate that their actions, which do not include putting in more cash to support Chrysler, are for the benefit of the employees and their investors...

...Cerberus's official position is so transparently self-serving as to border on inane. However, their operating assumption is that US taxpayer money is dumb money, and the way things seem to be going they appear to be right...

...How could Congress expect (the US taxpayer) to foot the bill if Cerberus itself isn't willing to pay-to-play? Answer: it's can't. And if it does, it is not representing its constituents best interests. Let's be clear: Detroit is bankrupt. It has been for quite some time, but the decades-long game of raising money, having a few good product cycles and delaying fundamental restructuring is finally over. There are no more "Hail Mary" passes to be caught; the embedded burdens of legacy pension and health care costs are simply too great, and the lack of adequate innovation and investment around fuel-efficient vehicles and technologies has doomed its product lines for a generation. Tossing more money into the auto industry without forcing a wholesale restructuring (that deals with the unmanageable costs and spurs innovation) is akin to handing Citigroup $25 billion without requiring transparency in its financial reporting (this was done already, of course). It is money that is simply wasted, fund that could retrain, retool, and educate hundreds of thousands of workers who would otherwise be displaced by an entire industry's failure. But this is not the discipline with which our various rescue programs have been implemented, to the peril of both the US taxpayer and employees of companies that are the "walking dead..."

...Stockholders and many debt-holders of the Big Three would be wiped out in an industry restructuring. Costs would be slashed. Health care and pension plans restructured. The emphasis would be on the workers, getting them prepared for new jobs in growing industries, and employing a portion of them in essential infrastructure projects to build US competitiveness. Existing assets would be sold, re-purposed, and re-used in a slimmed-down US auto industry that is focused on and motivated to bring new, fuel efficient cars to the global marketplace. It would leverage the tens of billions of dollars in venture-backed R&D that has gone into cleantech, and develop strong working relationships with the technology transfer areas of leading research institutions focused on green automotive technologies. And the US taxpayer would fund this transformation with an expected return on investment that an arms-length, "smart money" investor would require. This is a high-risk, growth capital play. Anything less is subsidizing those who don't deserve it and shortchanging our citizens. And this cannot happen...

Cannot? Well, Cerberus has been on these pages before.

Congress might give the CEOs the Spanish Inquisition, but you can bet it won't give the big money behind the Big 3 any examination whatsoever, because Citigroup not only has a piece of Bu$hie, it has a back door to program the Oborg.

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