THE BLOG

Snow, Quayle, Feinberg and Merkin: This Is Who Gets Our Bailout Money?

02/09/2009 04:12 am ET | Updated May 25, 2011

You might not think that your tax dollars should be given to a company like Cerberus Capital Management, L.P., the highly secretive, wildly wealthy, hugely powerful private equity firm.

But, well, we're not in Kansas anymore, are we?

Cerberus has been the beneficiary of not one, but two government bailouts; getting approximately $10 billion in taxpayer funds. Cerberus made two really bad bets, and the American taxpayer is breaking their fall.

Cerberus owns 80% of Chrysler and until recently, a controlling stake of GMAC. Who is Cerberus' chairman? John Snow, Hank Paulson's immediate predecessor as Treasury Secy. Who else is there? Among many influentials, former VP Dan Quayle. Steve Feinberg, the firm's co-founder, is a former junk bond trader at Drexel, and a big GOP contributor.

Cerebus owns companies that have over $100 billion in revenue per year, and their website says they also have $26 billion under management. So their exposure here is really quite a small percentage of their total assets. However, that didn't stop them from pulling all of the levers of power to get government help (Quayle and Snow both personally lobbied government officials). Weird how Quayle and Snow didn't show up on televised public Congressional hearings, though, huh?

As a completely unregulated private equity partnership, Cerberus has no public reporting requirements. In fact, they are now explicitly refusing to disclose their financials, or the financials of Chrysler, even after the bailout. Therefore, we have no idea what management fees they are pulling out of the company, even as we bankroll their continuing operations.

In their defense, turning Chrysler around has apparently been tougher than the geniuses at Cerberus thought it would be. Here's Steve Feinberg last January:

"We believe we bought the company very cheaply, and we do not need to be heroes to earn a good return on the investment."

Hmmm.

Cerberus has now had to give up control of GMAC, as part of the bailout deal. However, because of the infusion of government equity, Cerberus and its investors have been assured a relatively soft landing. At the behest of lawmakers, Cerberus has also promised to provide $2 billion in new equity to help GMAC. Why didn't they do this before a government bailout was necessary?

To cap all of this off, the man Cerberus hand-picked to be chairman of GMAC is hedge fund giant Ezra Merkin. Merkin has reportedly lost $1.8 billion in Bernie Madoff's Ponzi scheme, and he is being sued by NYU for "unauthorized" investments of University money with Madoff; New York Law School is suing Merkin over the $3B they lost with Madoff; and Yeshiva University is also blaming Merkin for their massive losses.

Word now is that Merkin will resign his post at GMAC. Gee, why, I wonder?

These are the people we are bailing out??

Just asking:

How much money has Cerberus made in management fees in the past year from Chrysler and GMAC?

Why has John Snow not been asked to testify before Congress?

If, as John Snow has argued, "the involvement of private investment in the economy, as seen in the Chrysler purchase, offers perhaps the last best hope of turning around the auto industry and basic manufacturing in the U.S.," why is he now begging for government funds?

Will Treasury force disclosure of Chrysler and GMAC financials now that they have been bailed out?

Will / should Cerberus be forced to liquidate assets / 'take a haircut' on other investments to keep Chrysler alive, just as the American taxpayer is doing? (after all, Snow has said keeping the car company alive is a patriotic duty!)

YOU MAY LIKE