In my October 1st article, I pointed out how ineffective the Federal Reserve Bank's $1.8 trillion has been on the economy and the banking system since December of 2007. The point of the article was to show that bailouts don't work, never have and never will.
Well, today I look at the news headlines and I see that General Motors (GM) is interested in buying Chrysler but it doesn't have enough cash. But wait, wasn't it just this past Thursday that GM hit a new 58-year low in the stock price and was thought to be under threat of filing bankruptcy. Hmmm, how could a near-bankrupt company acquire another money losing car company when it is also in the throes of death?
Wait a minute! Didn't they just pass a bill in Congress on September 25th granting the auto makers a $25 billion bailout loan intended to prolong or save the industry? What hasn't happened in the 16 days since the passage of the bill? What in the world is going on with this system that money can be easily drummed up for an industry on a moments notice and then it is lost or proven ineffective?
I'll tell you what I think will happen to the money though I can't prove it yet. I suspect that Cerberus Capital Management LP, majority owner of Chrysler, took whatever money is available from the gov't and kept it for themselves. Then, they get GM to merge the bad assets into the newly combined entity. Only problem is that even with some portion of a $25 billion bailout loan, GM doesn't have enough money to complete the deal.
This transaction has all the characteristics of the PG&E bankruptcy in 2002, whereby the company "ring-fenced" it's assets so that bankruptcy courts couldn't or wouldn't include this wealth in the bankruptcy proceedings.
Well, today I look at the news headlines and I see that General Motors (GM) is interested in buying Chrysler but it doesn't have enough cash. But wait, wasn't it just this past Thursday that GM hit a new 58-year low in the stock price and was thought to be under threat of filing bankruptcy. Hmmm, how could a near-bankrupt company acquire another money losing car company when it is also in the throes of death?
Wait a minute! Didn't they just pass a bill in Congress on September 25th granting the auto makers a $25 billion bailout loan intended to prolong or save the industry? What hasn't happened in the 16 days since the passage of the bill? What in the world is going on with this system that money can be easily drummed up for an industry on a moments notice and then it is lost or proven ineffective?
I'll tell you what I think will happen to the money though I can't prove it yet. I suspect that Cerberus Capital Management LP, majority owner of Chrysler, took whatever money is available from the gov't and kept it for themselves. Then, they get GM to merge the bad assets into the newly combined entity. Only problem is that even with some portion of a $25 billion bailout loan, GM doesn't have enough money to complete the deal.
This transaction has all the characteristics of the PG&E bankruptcy in 2002, whereby the company "ring-fenced" it's assets so that bankruptcy courts couldn't or wouldn't include this wealth in the bankruptcy proceedings.
The Federal Energy Regulatory Commission (FERC) on Wednesday upheld a plan by utility PG&E Corp. to shield assets of its unregulated subsidiaries from creditors, denying objections raised by California state officials and by other companies.
"FERC Upholds PG&E Plan." The Oil Daily (Feb 22, 2001)
What's worse in this case is the fact that Cerberus Capital exploits the taxpayer and then keeps the valuable stuff while either merging into GM or filing bankruptcy. The process of bankruptcy or merging with GM would be the final step in fleecing the taxpayer. Touc.
Sources:
- Simon, Richard. "House OKs aid plan for automakers." Los Angeles Times. September 25, 2008. C-1.
- Strumpf, Dan. "GM shares tumble 31 percent to 58-year low." Associated Press. October 9, 2008.
- Krisher, Tom. "Analysts: GM would need cash to acquire Chrysler." Associated Press. October 11, 2008.
- "FERC Upholds PG&E Plan." The Oil Daily. Feb 22, 2001.
- Lazarus, David. "PG&E Can Spin Off Profitable Assets." San Francisco Chronicle. February 22, 2001.
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