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Cerberus Revisited

By Larry Doyle on February 23, 2009 at 9:55 PM in Auto Industry, Current Affairs

With so many dramatic events happening so quickly in the global economy, it can be daunting to keep things straight. Banking, housing, autos, regulatory structure, global trade, employment. The stream of dramatic developments is breathtaking. In times like these I think it is critically important to remain very focused and disciplined. The ability to compartmentalize is vitally necessary.

In that vein, I find it very interesting that the lead editorial in today’s New York Times, Why Can’t Cerberus Foot The Bill, addresses the topic I broached on December 11th in Who and What is Cerberus…?.

Private equity is not supposed to benefit from taxpayer bailouts!!

Our public representatives need to work a little harder on the taxpayers’ behalf.

It’s called capitalism. Let it work.

LD

  • sowsear

    In that vein, I find it very interesting that the lead editorial in today’s New York Times, Why Can’t Cerberus Foot The Bill
    ————————
    I remember when that article was up, and I posted the link to some of the media addresses that I keep handy. No one seemed to take notice. I’m surprised that the NY Times, of all papers, finally got the message.
    I don’t think Cerberus should be able to say that they need their money for other projects. Wish we could tell the government that when we have to cough up our taxes.

  • I’m a Linda too

    Woohoo! Yep. Thank you.

  • TeakwoodKite

    Ok LD …how does one compartmentalize this?

    But Cerberus said giving fresh money would violate its fiduciary duty to investors, breaking company rules limiting how much it can commit to any given investment.

    When in the preceding paragraph the author states this company has an 80% share?

    Like gee.. the other 20% would not be prudent? At a minimum, one needs a sense of humor. 2 years ago I was saying the market would bottom at 7500, but I was wrong. It is more akin to “alice down the rabbit hole”

    Either the well was very deep, or she fell very slowly, for she had plenty of time as she went down to look about her and to wonder what was going to happen next. First, she tried to look down and make out what she was coming to, but it was too dark to see anything; then she looked at the sides of the well, and noticed that they were filled with cupboards and book-shelves; here and there she saw maps and pictures hung upon pegs. She took down a jar from one of the shelves as she passed; it was labelled `ORANGE MARMALADE’, but to her great disappointment it was empty: she did not like to drop the jar for fear of killing somebody, so managed to put it into one of the cupboards as she fell past it.

    `Well!’ thought Alice to herself, `after such a fall as this, I shall think nothing of tumbling down stairs! How brave they’ll all think me at home! Why, I wouldn’t say anything about it, even if I fell off the top of the house!’ (Which was very likely true.)

    If it was not for national defense I would say let ‘em fail. Frustration and anger at the intangable “they” is pointless, but so difficult to contain.

  • Mandelay

    LD, you continue to connect the dots … thank you much!

  • Docelder

    I just get the feeling that we are rolling a giant snowball down a snow covered hill in the hope that by some divine providence it will all just melt and not make an even bigger snowball at the bottom of the hill than the one we started with? We have to have smarter people than this somewhere that can be in charge? Don’t we?

  • Ellen D

    I handle my company’s 401K and have a fiduciary duty to the people who entrust me with their money.

    Why do our representatives in Congress never say they have a fiduciary duty to us in handling our money?

  • Peggy Sue

    I’m beginning wonder if anyone in the administration really believes in capitalism. Maybe I’m wrong, but it sure doesn’t look like it.

    We are in deep trouble. I’m passing on the State of the Union [or whatever it's called] tommorrow night. My husband and I are going to the target range. Somehow, I think it will be time better spent.

    Oy!

    • andrew191

      This administration knows capitalism, don’t think that it doesn’t. They want to destroy it by blaming the current meltdown on capitalism. Everything this administration has done thus far has been done in an attempt to discredit, undermine, and blame capitalism as the cause of all our woes. Very few people truly understand the virtue of unfettered capitalism and favor the more superficially attractive socialism, and this will be our undoing.

      Go to the target range Peggy Sue, I hope you use Karl Marx as a target! Please put one between his eyes for me.

  • Seattle Moss

    My beloved Chrysler…
    First Daimler comes in screws up and only halfway changes things…
    Then Daimler sells it on the cheap to these predators that only care about making a buck off of dismantling good companies. Well this time they got caught and are in the position to lose it all.
    We also lose an American icon…I hope I can still get parts for my 300 in the future.

    I will keep my big Chrysler clean at all times with an American flag bumper sticker

    I don’t care if I’m the last one driving one
    Go America!!

    • Peggy Sue

      My husband is driving a 1994 Oldsmobile Cutless, a rent-a-wreck with 185,000 miles on it. The plan was to buy a new car this year. But honestly, I don’t think he wants to part with it and right now–who wants to buy any car anyway? Which car and where are we will we go for a car loan? And who wants more debt?

      He took the car in for an oil change over the weekend and one of the service guys said, “You know what? This baby won’t die until you shoot it.”

      Trust me, I’ve been tempted.

      Another mechanic quipped, “Yeah, they run badly for a really long time.”

      Really made me laugh.

      But to run back and forth to work, the old wreck serves its purpose. As I said, I think my husband has a soft spot for the vehicle. As long as they can find parts at the junk yard, he’ll keep driving it.

      And no car payments! Sweet.

      • Seattle Moss

        My wife’s lease car is up for trade.
        Now I know why sales are down 50%.
        The only bank willing to come forward with a loan to buy the car was our local credit union. Nobody else even tried and cars that are traded in now have lost two thirds of their book value and car dealers don’t want to take them back..
        A very bad situation.

        • Docelder

          I think the banks are expecting hyperinflation and they are content to take government money to acquire more real assets and to sit with what they have and not make any new loans. I don’t think they want promissory notes to repay “x” dollars in three years time when in three years time that money will be worth one-half of what “x” is today.

          • Seattle Moss

            I think the banks are expecting hyperinflation

            I know that you and me both expect hyperinflation later this year

            When you can put the words deflation and inflation in the same sentence you know you got big problems.

        • Cubs in 09

          Hey, SM…

          Just popped in before hitting the hay:

          http://www.imperialclub.com/Yr/1956/SpottersGuide/index.htm

          My mother’s ’84 Olds Delta runs just fine, thank you.

          The same goes for my ’94 Chevy Cav RS.

          And no car payments! Sweet.

          Cubs Countdown: 36 hours! :mrgreen:

          • Seattle Moss

            Hey Cubie..Thanks for checking in!

            I don’t have much debt in life, but I do have a big car payment…I have no regrets!
            I do feel for those people that have houses that have devalued like used cars.

            Must be sad to lose all that equity or be upside down on the mortgage unable to use it as a piggy bank.

          • Seattle Moss

            Hey Cubie,
            My last comment got spammed.
            As for Chrysler the one car they got right was the 300…Reminds me of the good old days.My car reminds me of my 74 Olds 88 and rides like a high tech sled. Has a Mercedes chassis with an SUV cabin on top.
            The best car Chrysler has made in 50 years and I dare say the last….

            • Cubs in 09

              These sure are interesting times… :wink:

              It’s Mr. Sandman time for me. I’ve been working 40-50 hours a week. Whew! I’m not complaining. I’m on salary though, so I don’t get overtime. Dang!

              Cheers!

              • Cubs in 09

                Oh! I forgot! I’ll be getting that $13/week tax cut! :roll:

                • Seattle Moss

                  Enjoy the extra happy meals!

                  Have a great rest of the week…

            • andrew191

              Jeeze SM, the cars we’ve driven sort of tie into the evolution of our lives. It’s a truly American experience! It’s really fun to look back on all of the rides we’ve had and owned since we got our licenses and ponder just how those rides might have shaped our lives. I too drove the old family Delta 88 for some time in my later college years, what a solid set of wheels. It would be a gas if others could recount just how their lives were shaped by the steel they drove, or wanted to drive, and connect that aspect of their lives with where they are today. The movie “American Graffitti” was such a wonderful flic that tied us together not only for an American love for hot wheels, but also sewed us together with music and a mutual understanding of what it is to be an American. The current Obama Zeitgeist crushes that basic American spirit. I now feel like a foriegner in the country that I was born in. It’s beginning to feel as though I’ve been transported into the old soviet union. It’s depressing.

              • Seattle Moss

                Andrew,
                Nice to wake up and read your fine prose!
                Obama and his socialist engineers have robbed us of our dreams. No more are we allowed to think about the good life or our heritage and the great cars and experiences we enjoyed. Now one size car fits all and the money we make through our labor needs to be given back to the state.
                Very much like the Soviet Union…

                I wonder if we will have those long lines to buy essentials..

                • andrew191

                  There weren’t any lines at the Home Depot down on First last Saturday. What could be a better barometer for the degree of fear that’s crippling the world right now? Even more disturbing, there was a very large and desperate, even hostile, group of illegals swarmed at the parking lot fence. How long will it be before they resort to crime just to feed themselves?

                  Obama and crew have used the Cloward-Pivens strategy and Alinsky’s rules for radicals to perfection. We now live in a country where so many have been so miseducated about the true role of a government that was meant to preserve a haven for individual freedom, that they don’t realize that the Obama government is actually stripping us all of the few freedoms that we have left. We now have a majority in this country that expect the government to directly provide all the things that we’re supposed to obtain by ourselves. When we ask the government to provide an endless grocery list of goodies, we’re giving away our freedom and dignity. Since our government wasn’t set up to provide houses, health care, food, cars, or anything else that we consider the basic necessities, the expectations of a misinformed and increasingly angry mob may rip appart what little remains of the vision our founders had. The resulting void will be filled with the type of power hungry monsters that have orchestrated this crisis in the first place.

              • Karma

                I completely agree Andrew and was fortunate enough to drive some great cars. They certainly shaped us and our activities. It is a shame if they take these cars from us. Yes, not every one is into these…which is why they make four bangers. ;)

                Anyway, this show Top Gear did this great episode on American cars. They test drove the Challenger, Corvette, and Cadillac to the Salt Flats and tried their luck there.

                It was interesting to see them fall for their cars at various points during the road trip to Utah. Though it took the dude in the Cadillac a while to discover his….the mountian pass segment is where it finally happened.

                Here is a small write up

                http://www.topgear.com/us/the_show/more/season-12-ep-2-us-road-trip-part-deux/

                Not sure if it is still on tv. But you can catch a couple of video segments of Epidsode 2 here.

                http://www.topgear.com/us/the_show/episode_guide/category/season-12

                Mountain pass segment.

                http://www.topgear.com/us/videos/more/climbing-mountains-in-muscle-cars

  • elise

    LD, I have been trying to follow your posts as carefully as possible over the last few months and I’ve learned a lot, but there are so many things going on it’s more than confusing. My reaction to Detroit and the big three is based principally on instinct and common sense. The bailout Chrysler received a few years ago worked and Iacocca managed to pay back all the debt plus interest and got the company out of trouble temporarily. In spite of this information and the potential for the lose of jobs, I don’t think they should be given anymore money. GE is in trouble, the banks are in trouble and states are in trouble. There has been gross mismanagement and even theft across the board. If the information on your previous post and the link you provided is accurate information, banks have been allowing people to take out mortgages on homes they can’t afford. Why would they do such a stupid thing and why would buyers commit to payments they may not be able to make? I hate the idea of people losing their homes, but a few months ago I saw a 60 Minutes show on foreclosures and there was a single mother with three children with a modest job and her house was $250k. It’s a little hard to feel sympathetic. She claimed the bank didn’t inform her the payments would go up in five years. Either the mortgage company was remiss in informing her of the terms of the contract or she knew and chose to ignore the fact she wouldn’t be able to make the payments a few years down the line. And won’t more of these balloon payments come due this year and force more foreclosures? I don’t think I am the only one confused. I don’t think the president, the congress or the fed understands what is happening or how to stop the fall.

    • LD

      Elise,

      The key to this ENTIRE mess is the fact that disciplined underwriting of loans was horrendous. Why? Because the overwhelming majority of the loans were bundled into securities and SOLD.

      Why did investors buy them? They were negligent in doing their homework and allowed the ratings assigned by the rating agencies to serve as their due diligence.

      At every point in the process, the common denominator was excessive greed. Now we pay…

  • anon

    Like I have any solution…but I’ll say this, not until the bad debt has been reckoned, not until those who should and must fail do fail, not until reality of the debt is reconciled with reality will this obscenity end and the heal begin.

    I’m not privy to the Gov’t or Wall Street great thinkers. But I think I know what I’m seeing…timidity in a time that requires leadership, certainty and strength. I ‘m not feeling like politics tonight (though I’ve got not a mouth but a universe of criticism about that) I’m feeling like talking money, economics and finance.

    “This sucker’s gonna blow” GWB circa September 16. 2008.

    Not to be all gloom and doom, though I think we’ve got to realize reality. If you’ve got any way to get invested, job, stocks etc. with natural gas or its distribution and a transport fuel DO IT!!

    • anon

      as a transport fuel…sorry for the typo/retardation

  • Linda C.

    Cerebus is acting smug and we are in no way beholden to them. GM is a public company and is working with a bit more transparency. If Cerebus can’t do its fiduciary bit then it will have to suffer the consequences. If Cerebus wants to do business in the same way then the same old consequences of doing business applies. Same with the banks. This new idea that capitalism is just a means of socializing debt and risk while the private sector gets the profits has to go.
    Cerebus is playing chicken and we need to call them on it.

  • mountainaires

    Why doesn’t Cerberus do it? Why, indeed.
    That’s a good question.

    The answer, of course, is a confluence of politics and a game of chicken to be sure. Obama doesn’t want thousands of workers thrown into the void on his watch. The Democratic Party is looking forward to 2010 and 2012. The automakers and Cerberus and Obama all know full well that if they fearmonger, we’ll allow them to tap the public purse if we get $13 a week in return. We sell out entire futures so cheaply, don’t we?

    Governments have no business buying stakes in privately owned companies in the first place. The Fed–not even part of our government–has now become the de facto United States Bank. This is just a complete meltdown of entire system of government. They “screwed the pooch” as the astronauts liked to say.

    Caution: Rant Imminent

    This is why Moral Hazard is so vital to keep in mind. The entire government is a moral hazard if you ask me; they are a moral hazard to the people of this nation. Either you do, or you do not, believe that people should be held accountable for their actions.

    If you do believe that, you simply cannot support the continued theft of taxpayer money to bail out corporations which have been reckless, irresponsible and frankly, criminal, for decades.

    You know, this is a little OT on the Cerberus issue, but it goes to the fundamental issue of accountability–for Chrysler, GM, AIG, Citi, BofA, and our financial system:

    No one is being held accountable, except those of us who kept our financial affairs in order!! I resent the hell out of it.

    Let the carmakers go bankrupt; let the banks go bankrupt. Let AIG and all the insurance companies go bankrupt. Let the buyers who lied on their mortgage apps, go bankrupt. When they do, private money will come in and purchase the assets that are worth purchasing. A new system of regulated financials can rise from the ashes; a new group of automakers can rise from the ashes. Housing will begin to sell foreclosed, then price homes acc. to income; conservative lending can then begin again. But unless we allow the natural consequences of their actions to occur, we are driving this economy off the cliff, and dragging the entire financial structure off the cliff with us.

    Okay, rant over. Sometimes you just need to vent.

    But read this, and it will piss you off as much as it did me! I call it the “HOODATHUNKIT DEFENSE.”

    Grrr….

    Ex-Fed governor feels ‘accountable’ in economic crisis

    From CalculatedRiskblog.com

    http://www.calculatedriskblog.com/2009/02/former-fed-governor-feels-accountable.html

    http://www.greenvilleonline.com/apps/pbcs.dll/article?AID=2009902220336

  • Karma

    LD,

    Great job again!

    It really does make you wonder if they are cruising through here/your site. ;)

    And thanks for spelling it out for us then. I have come to terms with the fact my warranty may expire due to those Cerberus clowns before the mileage takes it out.

    It doesn’t matter…I still love the car.