• Cerberus Leveraging Billion Dollar Connections In Congress

It is agonizing to watch Congress publicly stumbling through its analysis and qualification of the auto industry, providing appearance that it is doing its homework on a bailout. Over 40% of Congress is made up of lawyers, with little grasp of finance, economics or business. Congress should not be negotiating the bailout.

Chrysler and Cerberus Capital Management are seeking an unholy bailout and Congress understandably struggles when Cerberus owned Chrysler CEO, Bob Nardelli, cannot explain why his bosses will not put up cash to bailout one of its many subsidiaries. Cerberus does not work that way, and it does not have to. Its political clout will do the heavy lifting on salvaging a failing investment.

Taxpayers won’t know any better since neither the current nor the incoming administrations will take oversight seriously and neither seems to understand Deal Structure. Unfortunately, neither will Congress which is simply lacking understanding of some critical components of business, wealth creation and negotiations. Certainly its actions suggest absence of such comprehension. American taxpayers have a particular interest in the outcome, and should be paying particular attention to the bailout, and to the Chrysler deal in particular.

In the shadows of enormous private equity investment firms lurk shareholders who remain anonymous, and who hire directors, senior staff and advisors who have political connections deep inside the private rooms of Washington decision makers (Congress & Administration), enriching the deals and enhancing ultimate financial returns. John Snow, the current Chairman of Cerberus and Bush’s former Secretary of the Treasury before Paulson, has apparently been earning his employer’s favor by lobbying directly, and through influential lobbyists at Treasury and elsewhere, for a Chrysler bailout.

The Cerberus investment of $7.4 billion in Chrysler is underwater. Their elimination of 30,000 jobs has not helped them or their former employees, so now Nardelli uses fear to energize congress into action. Most firms like Cerberus don’t acquire control of companies to turn them around, rebuild them and create wealth. They either acquire for position in an industry, then apply and leverage influence for strong ROI, or they pluck low lying fruit in the hope that political polishing and some finely tuned connections will enable a flip of the asset for a significant profit. Cerberus has for years had a nasty reputation on Wall Street as a fierce player and hard nosed negotiator, which is its right. Everything Congress is not. In this game of risk, connections and being ruthless make all the difference. In the Chrysler deal, these warm associations and substantial sphere of influence will bring access to taxpayer funds. Snow called his friend Paulson for the cash.

There may be media clamoring for transparency on the wealthy and secretive Cerberus, yet I feel this is an unwarranted forensic hunt for indeterminate ghosts. If Congress structured the deal properly, Cerberus and who owns it, how much it has, what companies it controls, all become irrelevant. Implementing a bailout program as delineated in this recent article on this post, would remove any Congressional concerns of the Cerberus share position, which would be drastically diluted to a minority in the event of any bailout cash injection. Unfettered, Cerberus could then slide back into the shadows, to await some future Congressional discomfort with its unnatural influence.

Should Chrysler take any money from the taxpayers, as it now appears it will, structure can be simple and effective as noted in the above referred-to article and “…take preferred share positions at the current market value for funds provided as and when the investments are made.” This, and other suggestions therein, such as clearing all Directors for the Boards, renders Cerberus shares inconsequential and provides taxpayer complete control over a company they will have funded, until all funds are repaid.

Congress, please pay attention. American taxpayers don’t need another blunder committed on their behalf.