Mitt Romneyâs opposition to the auto bailout has haunted him on the campaign trail, especially in Rust Belt states like Ohio. There, in September, the Obama campaign launched television ads blasting Romneyâs November 2008 New York Times op-ed, âLet Detroit Go Bankrupt.â But Romney has done a good job of concealing, until now, the fact that he and his wife, Ann, personally gained at least $15.3 million from the bailoutâand a few of Romneyâs most important Wall Street donors made more than $4 billion. Their gains, and the Romneysâ, were astronomicalâmore than 3,000 percent on their investment. It all starts with Delphi Automotive, a former General Motors subsidiary whose auto parts remain essential to GMâs production lines. No bailout of GMâor Chrysler, for that matterâcould have been successful without saving Delphi. So, in addition to making massive loans to automakers in 2009, the federal government sent, directly or indirectly, more than $12.9 billion to Delphiâand to the hedge funds that had gained control over it. One of the hedge funds profiting from that bailoutâ
$1.28 billion so farâis Elliott Management, directed by 
Paul Singer. According to The Wall Street Journal, Singer has given more to support GOP candidatesâ$2.3 millionâthan anyone else on Wall Street this election season. His personal giving is matched by that of his colleagues at Elliott; collectively, they have donated $3.4 million to help elect Republicans this season, while giving only $1,650 to Democrats. And Singer is influential with the GOP presidential candidate; heâs not only an informal adviser but, according to the Journal, his support was critical in helping push Representative Paul Ryan onto the ticket. Singer, whom Fortune magazine calls a âpassionate defender of the 1%,â has carved out a specialty investing in distressed firms and distressed nations, which he does by buying up their debt for pennies on the dollar and then demanding payment in full. This so-called âvulture investorâ received $58 million on Peruvian debt that he snapped up for $11.4 million, and $90 million on Congolese debt that he bought for a mere $20 million. In the process, heâs built one of the largest private equity firms in the nation, and over decades heâs racked up an unusually high average return on investments of 14 percent. Other GOP presidential hopefuls chased Singerâs endorsement, but Mitt chased Singer with his own checkbook, investing at least $1 million with Elliott through Ann Romneyâs blind trust (it could be far more, but the Romneys have declined to disclose exactly how much). Along the way, Singer gained a reputation, according to Fortune, âfor strong-arming his way to profit.â That is certainly what happened at Delphi. http://www.thenation.com/article/170644/mitt-romneys-bailout-bonanza continued
* * * Delphi, once the Delco unit of General Motors, was spun off into a separate company in 1999. Alone, Delphi foundered, declaring bankruptcy in 2005, after which vulture hedge funds, led by Silver Point Capital, began to buy up the companyâs old debt. Later, as the nationâs financial crisis accelerated, Singerâs Elliott bought Delphi debt, as did John Paulson & Co. John Paulson, like Singer, is a $1 million donor to Romney. Also investing was Third Point, run by Daniel Loeb, who was once an Obama supporter but who this summer hosted a $25,000-a-plate fundraiser for Romney and personally donated about $500,000 to the GOP. As Delphi was in bankruptcy, making few payments, the bonds were junk, considered toxic by the banks holding them. The hedge funds were able to pick up the securities for a song; most of Elliottâs purchases cost just 20 cents on the dollar of their face value. By the end of June 2009, with the bailout negotiations in full swing, the hedge funds, under Singerâs lead, used their bonds to buy up a controlling interest in Delphiâs stock. According to SEC filings, they paid, on average, an equivalent of only 67 cents per share. Just two years later, in November 2011, the Singer syndicate took Delphi public at $22 a share, turning an eye-popping profit of more than 3,000 percent. Singerâs fund investors scored a gain of $904 million, all courtesy of the US taxpayer. But thatâs not all. In the year since Delphi began trading publicly, its stock has soared 45 percent. Loebâs gains so far for Third Point: $390 million. The gains for Silver Point, headed by two Goldman Sachs alums: $894 million. John Paulsonâs fund, which has already sold half its holdings, has a $2.6 billion gain. And Singerâs funds and partners, combining what theyâve sold and what they hold, have $1.29 billion in profits, about forty-four times their original investment. Yet without taking billions in taxpayer bailout fundsâand slashing worker pensionsâthe hedge fundsâ investment in Delphi would not have been worth a single dollar, according to calculations by GM and the US Treasury. Altogether, in direct and indirect payouts, the government padded these investorsâ profits handsomely. The Treasury allowed GM to give Delphi at least $2.8 billion of funds from the Troubled Asset Relief Program (TARP) to keep Delphi in business. GM also forgave $2.5 billion in debt owed to it by Delphi, and $2 billion due from Singer and company upon Delphiâs exit from Chapter 11 bankruptcy. The money GM forgave was effectively owed to the Treasury, which had by then become the majority owner of GM as a result of the bailout. Then there was the big one: the governmentâs Pension Benefit Guaranty Corporation took over paying all of Delphiâs retiree pensions. The cost to the taxpayer: $5.6 billion. The bottom line: the hedge fundsâ paydays were made possible by a generous donation of $12.9 billion from US taxpayers. http://www.thenation.com/article/170644/mitt-romneys-bailout-bonanza continued
One of President Obamaâs first acts in office, in February 2009, was to form the Auto Task Force with the goal of saving GM, Chrysler, their suppliers and, most important, auto industry jobs. Crucial to the plan was saving Delphi, which then employed more than 25,000 union workers. Obama hired Steven Rattner, himself a millionaire hedge fund manager, to head the task force that would negotiate with the troubled firms and their creditors to avoid the collapse of the entire industry. In Rattnerâs memoir of the affair, Overhaul, he describes a closed-door meeting held in March 2009 to resolve Delphiâs fate. He writes that Delphi, now in the possession of its hedge fund creditors, told the Treasury and GM to hand over $350 million immediately, âbecause if you donât, weâll shut you down.â His explanation was corroborated by Delphiâs chief financial officer, John Sheehan, who said in a sworn deposition in July 2009 that the hedge fund debt holders backed up their threat with âan analysis of the cost to GM if Delphi were unwilling or unable to provide supply to GM,â forcing a âshutdown.â It would take âyears and tens of billionsâ for GM to replace Delphiâs parts. At that bleak moment, GM had neither. The automaker had left the inventory of its steering column and other key components in Delphiâs hands. If Delphi laid siege to GMâs parts supply, the bailout would fail and GM would have to be liquidated or sold offâas would another Delphi dependent, Chrysler. Rattner could not believe that Delphiâs managementânow effectively under the hedge fundersâ controlâwould âwant to be perceived as holding GM hostage at such a precarious economic moment.â One Wall Street Journal analyst suggested that Singer was treating Delphi âlike a third world country.â Rattner likened the subsidies demanded by Delphiâs debt holders to âextortion demands by the Barbary pirates.â Romney has slammed the bailout as a payoff to the auto workers union. But that certainly wasnât true for the bailout of Delphi. Once the hedge funders, including Singerâa deep-pocketed right-wing donor and activist who serves as chair of the conservative, anti-union Manhattan Instituteâtook control of the firm, they rid Delphi of every single one of its 25,200 unionized workers. Of the twenty-nine Delphi plants operating in the United States when the hedge funders began buying up control, only four remain, with not a single union production worker. Romneyâs âjob creatorsâ did create jobsâin China, where Delphi now produces the parts used by GM and other major automakers here and abroad. Delphi is now incorporated overseas, leaving the company with 5,000 employees in the United States (versus almost 100,000 abroad). Third Pointâs Daniel Loeb, whose net worth of $1.3 billion owes much to his share in the Delphi windfall, told his fundâs backers this past July that Delphi remains an excellent investment because it has âvirtually no North American unionized laborâ and, thanks to US taxpayers, âsignificantly smaller pension liabilities than almost all of its peers.â * * * http://www.thenation.com/article/170644/mitt-romneys-bailout-bonanza continued
Another outcome may have been possible. In June 2009, the Treasury and GM announced a bailout deal theyâd crafted over months with the cooperation of the United Auto Workers. GM would take back control of Delphi via a joint venture with Platinum Equity, a buyout firm led by billionaire Tom Gores, a self-described âMichigan manâ who grew up in the shadow of Delphiâs Flint plant. The final Platinum plan, according to Delphiâs official statement posted on Marketwire in June 2009, lists plants in fourteen locations slated for closing, which would have left several of Delphiâs plants still in business, still unionizedâand still in the United States. Crucially, the deal would have returned key Delphi operations, including the production of steering columns, directly to GM. The hedge funders stunned Delphi by refusing to accept the Platinum plan. Harshly criticizing it as a âsweetheart deal,â they demanded 45 cents on the dollar for the debt bonds they had bought on the cheapâmore than double what the Treasury-brokered Platinum deal would pay. Then the Singer-led debt holders swooped in. After the Platinum deal was announced, Elliott Management quietly tripled its holdings of Delphi bonds, purchased at just one-fifth of their face value. By joining forces with Silver Point, Paulson and Loeb, Singer now controlled Delphiâs fate. Gores, Delphi and UAW officials declined to respond to queries about the deal on the record, but the sworn deposition by Delphi CFO Sheehan (confidential then, but later posted on Scribd.com) lets us in on the tense negotiations culminating in a twenty-hour showdown between Delphi, GM, the UAW, the Auto Task Force and the US pension agency, on the one hand, and Singerâs hedge fund group, on the other. Delphi said it would dump the Platinum deal if the hedge funds would agree to terms that would take care of all stakeholders, including the following stipulation: âAgree on plan structure to maximize job preservation.â The hedge funders said no, since they had a billion-dollar ace up their sleeve. According to Sheehan, Singer and companyâs controlling interest allowed them to force the bankruptcy judge to hold an auction for all of Delphiâs stock. The debt holders outbid the Michigan Manâs team, offering $3.5 billion. But it wasnât $3.5 billion in cash: under the rules of Chapter 11 bankruptcy, debtors-in-possession may bid the face value of their bonds rather than their current market value, which at the time was significantly lower. Under the Platinum deal, Delphi would have had much more in real money for operations: $250 million in cash from Gores, another $250 million in credit, and $3.1 billion in âexit financingâ from GM, all of it backed up by TARP. Still, under Chapter 11 rules, the Platinum bid was technically lower. And thatâs how Singerâs fundsâwhich included the Romneysâ investmentâcame to buy Delphi for the equivalent of only 67 cents a share. Rattner and GM, embarrassingly outmaneuvered, tried to put a good face on it. As Rattner wrote in his memoir, âIn truth we didnât care who got Delphi as long as GM could extricate itself from the continual drain on its finances and assure itself of a reliable supply of parts.â * * * Even before the hedge funds won their bid for Delphiâs stock, they were already squeezing the parts supplier and its workforce. In February 2009, Delphi, claiming a cash shortage, unilaterally terminated health insurance for its nonunion pensioners. But according to Rattner, the Treasuryâs Task Force uncovered foggy accounting hiding the fact that the debt holders had deliberately withheld millions of dollars in cash sitting in Delphi accounts. Even after this discovery, the creditors still refused to release the funds. http://www.thenation.com/article/170644/mitt-romneys-bailout-bonanza continued
The article is a text book assessment of why the govt can't compete with the private sector. None of what Singer did would have been possible had the govt NOT bailed out GM and Delphi. Romney is exactly right....bankruptcy, not a govt bailout, was best for all involved, including the unions who would have found out real quick what their labor is really worth. How long do you think the largest auto market in the world would have been without a new, more efficient auto industry once they had been bankrupted? The govt could have helped with extended UE benefits and an expanded safety net while this played out. They should not be directly invovled in taking over or "saving" an industry.
"?" I can only add this. Way back when Delphi filed BK I did my research on analyst calls re Delphi. Pretty pretty sad state of affairs. right up until the bankrupcty many had "buy" rating on Delphi. Other web sites had 5 star ratings on the stock, whata bunch of dopey calls.. If you were born yesterday and made desicions based on co research you've been 'punked".