Typically in a PE agreement, each fund can not invest more than a set percentage of funds into any one company. Typically this number is 5%, which may or may not be a meaningful cap depending on how large the fund was that Cerberus acquired chrysler in. Supposedly they have already placed an additional $2 bb into the company over the last couple months, but only Cerberus and their LPs know for sure how much they can invest.

Nothing separates the smart from the foolish than their appreciation of the concept “matter of degree”. Think of that before getting overly excited about “giving” 15 billion to the domestic automakers. Let me explain.

Assume 2 million jobs are affected with an average of 60 thousand dollars per year. They yield roughly 20 billion per year in social security taxes and more than 50 billion in federal and state taxes per year. So, for the government to RETURN 15 billion would be practically NOTHING.

I understand that in the long term these people may get other jobs (though God knows where) but in the short term and under the present conditions there will be a huge problem if we do not help. If you want to stick to principles, focus on AIG etc.

1) Not being a party to the discussions going on, my gut feeling is still that the UAW will take a heavy blow (for better or for worse). It’s just that since that’s a very contentious issue right now, the Congress hasn’t yet reached consensus on this issue, and may eventually punt to the “car czar” to make these difficult decisions itself, so that Congress doesn’t have to take responsibility for them.

In the past, Congress has stood idly by while airlines forced major concessions from their unions, but the difference this time is that the democrats are in power and the unions are their support base, and because we didn’t just get finished giving a trillion dollars to Wall St. Regardless of the merits of forcing UAW to make concessions, the optics of the issue, cutting healthcare and pensions for auto workers while AIG executives are still getting million dollar bonuses, is very, very bad.

2) The relevant difference between public companies and private in this matter is threefold:

Firstly, in public companies, once you buy a share, you aren’t required to put up any more capital. You may lose the entire value of your investment, but you won’t be asked to put up more. In PE deals, there are typically ongoing capital calls structured into the investor contracts. How much money Cereberus’ investors are contractually obligated to provide over the next several years, and how much to Chrysler specifically vs Cereberus in general, I don’t know, but deciding how much more money Cereberus should put into Chrysler is a valid topic of discussion.

Secondly, shareholders in public companies have very little control over how companies are run. PE firms owning companies, OTOH, have a lot of say in how the companies are run. It’s the difference between shareholders and the board of directors in determining responsibility for the company being in its current mess. IMHO, PE firms have more responsibility when they drive their companies into the ground than shareholders of a public company, even though both are nominally “owners” of a company. Should this mean that Cereberus should take a bigger hit than GM/Ford shareholders? IMHO, yes.

Lastly, Chrysler being a private company complicates the matter of the govt taking partial ownership and benefiting from any recovery. GM/Ford can issue stock warrants to the govt that allow it to have some benefit from the upside of any recovery. How do you do this with Chrysler? Assuming you’re able to structure a deal where the govt gets a certain percentage of the company, when the market recovers, the govt will eventually wish to sell its stake in these companies. How does it do this in a company that isn’t currently publicly traded?

Anyway, those are some of the issues that Congress will have to face (or not; given the amount of incompetence it has shown so far in these matters…) as the details of the plan are finalized.

I am of two minds in this matter.
Jeffrey Tucker presents a thoughtful analogy in arguing his anti bailout position in his essay The End of the US piano industry

Yet, since making real tradable goods is essential to restoring our nation’s economic survival, I would ask Mr Tucker to suggest what he perceives to be the competitive advantages of the US and which industries might capitalize on them.

No.

There were plenty of union employees that lost their pensions in the airline bankruptcies. If anything, this is a game to ensure the UAW isn’t beat on.

WTF? There is no logic in the differentiation between public and private here. Also, we seem to subsidize private agribusiness withou any differentiation.

I said months ago that by the time we get to plans E,F,G etc the fun would start. Well here are!