Cerberus--All Bark No Bite

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[Genesis Of The Financial Meltdown]

In 2000 Fiat and General Motors (GM) signed an agreement in which GM acquired a stake in Fiat. But this agreement included a put option whereby after four years Fiat had the right to sell its automotive unit to GM at fair market value.

If GM refused to purchase the Fiat auto division, GM was required to pay Fiat $2 billion. When GM refused to purchase Fiat's automotive division, Fiat demanded and received $2 billion from GM.

Yesterday, Chrysler agreed to give Fiat a 35% stake in Chrysler for no cash- merely access to Fiat's line of compact cars and Fiat's international sales network. This was Cerberus Capital's idea of a business plan to qualify for more federal aid.

Cerberus Capital did this so that Chrysler would hopefully qualify for an additional $3 billion in federal bailout money- in addition to the $4 billion that Chrysler has already received. Cerberus Capital owns 80.1% of Chrysler.

Cerberus owns the hedge fund, Cerberus 4, a privately-held hedge fund, which has an 80.1% interest in Chrysler and a related hedge fund owns or controls 51% of General Motors Acceptance Corporation. Yet, Cerberus, the three-headed dog that guards the underworld, has refused to give the government access to the financial statement of Cerberus 4 and we do not even know the identities of the principals in Cerberus 4.

Of course in true hedge fund arrogance, Steven Feinberg, founder and head of Cerberus Capital Management, LLP, has refused to even provide his financier, the government of the United States, a financial balance sheet for Cerberus 4. This means that we do not know if Cerberus 4 has other profitable investments that could absorb the losses of Chrysler.

Let us examine a plain vanilla balance sheet for General Motors. In June 2008 prior to the auto rescue, General Motors had: total assets $136 billion; total liabilities $191 billion; and, net deficiency $ 55 billion.

Cerberus has consistently refused to provide even an anorexic balance statement, such as the above, for Cerberus 4, the owner of Chrysler. (Daimler has written down its 19.9% stake to $0.) We have no idea of the red ink that is hemorrhaging on Chrysler's balance sheet.

Why would Cerberus refuse to provide this basic information?

The motives of Cerberus are easy to discern. Cerberus eventually seeks to split Chrysler into two units. One unit is the automobile unit. The other unit is the truck unit. After the bailout is accomplished and Chrysler ekes out a profit, Cerberus will sell the truck unit for a profit- and strike a give-away for the car unit.

Why should the federal government continue to bail out Chrysler- but in reality bailout Cerberus? The owners of Chrysler are its creditors and employees- not Cerberus.

The federal government should force Chrysler into bankruptcy. Then let Fiat have the automobile unit. And auction off the truck unit.

Steven Feinberg learned financing from Michael Milken, his former employer at Drexel Burnham- whose principals should have been indicted under RICO.

The government should not be bailing out hedge funds.

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