High court asked to block Chrysler sale – Washington Times

High court asked to block Chrysler sale – Washington Times.

Three Indiana pension funds and a collection of consumer groups Sunday asked the Supreme Court to block the sale of Chrysler to Italy’s Fiat, threatening a major component of President Obama’s plans to restructure the nation’s troubled automotive sector.

An appeals court in New York approved the sale Friday, but gave objectors until Monday afternoon to convince the Supreme Court to intervene.

Auburn Hills, Mich.-based Chrysler LLC wants to sell the bulk of its assets to a group led by Italy’s Fiat Group SpA as part of its plan to emerge from bankruptcy protection.

The emergency requests were sent to Justice Ruth Bader Ginsburg, who handles such matters from New York, where the case originated. She can act on her own or refer it to the entire court.

Federal bankruptcy Judge Arthur Gonzalez on May 31 approved the sale of most of Chrysler’s assets to Fiat.

The judge said in his ruling that a speedy sale was needed to keep the value of Chrysler from deteriorating and would provide a better return for the company’s stakeholders than if the country’s third-largest automaker had been forced to liquidate

But the Indiana State Police Pension Fund, the Indiana Teachers Retirement Fund and the state’s Major Moves Construction Fund argue that the sale unlawfully rewarded unsecured creditors, such as the union, ahead of secured lenders.

Attorneys for the funds also questioned the constitutionality of the Treasury Department’s use of money from the Troubled Asset Relief Program to supply Chrysler’s bankruptcy protection financing.

The funds hold about $42 million of Chrysler’s $6.9 billion in secured loans.

Chrysler had argued that it would be forced to sell its assets piece by piece unless the sale to the Fiat Group SpA was approved.

Mr. Obama has pushed for Chrysler and fellow Detroit car maker General Motors to file for bankruptcy in a drastic attempt to restructure and resurrect the deeply troubled U.S. auto industry.

As part of Chrysler’s restructuring plan, a United Auto Workers retiree health care trust would receive a 55 percent stake in the new company, while Fiat would get a 20 percent stake that can increase to 35 percent.

The remaining 10 percent of the company would be owned by the U.S. and Canadian governments. Ottawa became involved because a significant portion of the Chrysler work force is Canadian.

The Chrysler case also could set a precedent for General Motors, which is using a similar quick-sale strategy in its bankruptcy in New York.

In the deal with GM, which filed for bankruptcy last week, the Treasury Department will hold an initial stake of 60 percent in GM.

In the days leading up to Chrysler’s Chapter 11 filing, the automaker struck a deal with the majority of secured lenders to give them $2 billion in cash, or 29 cents on the dollar, to erase the $6.9 billion in debt. But some of the debt holders protested, and the automaker was forced to file for bankruptcy protection April 30.

Chrysler — which has produced such iconic American “muscle cars” as the Plymouth GTX and Road Runner, as well as the Dodge pickup-truck line — has pledged to reinvent itself as a leaner company more responsive to U.S. consumer tastes, including an increasing appetite for smaller, more fuel-efficient models.

Fiat, Italy’s largest automaker, which produces a range of models from small “microcars” to high-end sports cars such as Ferrari and Maserati, has the option of pulling out if the deal does not close by June 15.

At Geithner’s Treasury, Key Decisions on Hold – washingtonpost.com

This seems to be a case of the White House micro-managing the Treasury department.

Washington Post Staff Writer
Monday, May 18, 2009

Seven weeks after the Treasury Department announced that it was ousting General Motors chief G. Richard Wagoner Jr. in the federal bailout of the company, he is still technically on GM’s payroll.

Wagoner’s removal has been held up because senior Treasury officials have yet to decide whether he should get the $20 million severance package that the company had promised him.

The delay is one of many hitches that have slowed a host of important policy actions in the four months since Timothy F. Geithner became Treasury secretary. While Geithner has taken dramatic steps to address flashpoints in the economy, the work of carrying out those policies has bogged down because critical decisions about how to do so aren’t being made, interviews with a broad range of federal officials show.

Government officials, inside the Treasury and out, say the unresolved issues are piling up in part because of vacancies in the department’s top ranks. But some of the officials also cite the Treasury’s ad-hoc management, which is dominated by a small band of Geithner’s counselors who coordinate rescue initiatives but lack formal authority to make decisions. Heavy involvement by the White House in Treasury affairs has further muddied the picture of who is responsible for key issues, the officials add.

One of the department’s signature initiatives, considered vital for getting at the root of the financial crisis, aims at relieving banks of their toxic assets. But to those familiar with the program, it remains unclear who will decide some of the practical details, such as whether foreign firms will be allowed to participate in the funds that buy the assets. This uncertainty is slowing the rollout of the program, which in any case has proven daunting to design. Announced in early February, it may not launch until July, officials say.

In March, Treasury officials clashed over a $15 billion initiative to use money from the federal bailout package to free up credit for small businesses. Geithner’s counselors pressed to announce the program quickly, despite protests from the career staff members who said it would not work. Unable to raise the issue with Geithner himself, the staff members appealed directly to the White House but were rebuffed, according to sources familiar with the episode.

President Obama announced the program two months ago, and it is still struggling to get off the ground. Officials are looking to overhaul the proposal.

And in the wake of the public firestorm over bonuses paid by American International Group, senior Treasury officials have been meeting several times a week all spring to review, one by one, the payments to the company’s executives. But the time-consuming discussions have never resolved whether any of the executives should get paid.

Geithner said in interviews that some of the department’s internal difficulties result from the intense pressure on officials to develop a raft of rescue initiatives in a very short time.

“We were just putting enormous pressure on these people to put in place and execute this comprehensive set of programs,” Geithner said. “In a crisis, the most important thing is to show the capacity for credible initiative that is actually going to fix the problem. That’s why we are trying to do so much so early.” He added, “It could get tough at times . . . but I think they are doing a great job in that context, and they are working 24 hours a day to put out A-plus policy.”

Still, some lawmakers and government officials said Geithner needs to be a stronger manager.

“No one knows how to get decisions made,” said a senior government official familiar with the Treasury’s inner workings. “Major decisions can happen very fast at the top, and then after that there are tons of detail and nuances that have to get worked out without clear chains of command. Either the seats are unfilled . . . or you have to answer to a half a dozen counselors running around.”

So far, nearly four months after the Obama administration took power, the Treasury Department is still without a deputy secretary. Two undersecretary positions — including the vital post overseeing domestic finance — have not been filled and many other division heads have not been named. The White House vetting of potential candidates has proven arduous, and nearly all of those individuals nominated have yet to win Senate confirmation and fill out Geithner’s team.

“I’ve seen the effect of this, and I wish he would move quicker to put in his own people,” said Rep. Barney Frank, chairman of the House Financial Services Committee.

Help could soon be on the way. Confirmation hearings for Neal Wolin, the administration’s pick for deputy Treasury secretary, began a week ago. Treasury staff members have been impressed by the management skills of former Fannie Mae chief executive Herbert M. Allison Jr., who awaits confirmation as Geithner’s pick to lead the bailout operations. The White House is also seeking to bolster the Treasury’s ranks by adding former Clinton press secretary Jake Siewert as counselor to Geithner.

Aside from getting officials into place, Geithner still needs to define the roles of his senior counselors and delegate some decisions to lower-ranking officials, several government officials said.

“Tim’s nature is to be very inclusive,” said an official who frequently interacts with the Treasury. “But there are too many decisions to make with 20 guys around his table.”

While federal departments often experience a degree of upheaval when administrations change, the difference between the Treasury of former secretary Henry M. Paulson Jr. and Geithner’s has been stark. Under Paulson, the department nearly always made its own decisions. The Bush White House, nearing the end of its tenure, hardly intervened.

But now, even minor matters, such as Web site design or news releases, are reviewed by the White House. Staff members detailed from the National Economic Council, reporting directly to Obama senior economist Lawrence H. Summers, roam the Treasury building. Treasury staff members working on restructuring the nation’s automakers took much of their direction from the NEC, sources said.

Geithner said he welcomes the input from senior White House officials because they provide intelligent feedback and because he has been short-staffed. After studying the last dozen Treasury secretaries, Geithner said he became convinced that the Treasury needed to closely collaborate with the White House.

But the time spent meeting with White House colleagues on high-priority issues — from the federal budget and tax policy to health-care reform and a proposed overhaul of financial regulation — has left him little chance to manage his staff.

“People think he’s very, very smart, but he has not exerted a management presence yet,” added a source familiar with the Treasury’s inner workings. “He’s being stretched in a thousand directions . . . but I don’t know if that absolves him of responsibility for management.”

Geithner insists he has been tending to his staff, reaching out across the department in a way his predecessor never did. He said he encourages anyone with problems to come to him directly and regularly speaks with the rank-and-file.

“I know everyone would like a little more clarity about who’s going to be working for whom, which we are trying to give them,” he said. “But in the interim we are just trying to get stuff done the best we can.”

Chrysler Goes to Court – WSJ.com

Chrysler Goes to Court – WSJ.com.

President Obama’s broadside against bankers yesterday illustrates better than any argument ever could that bankruptcy court, and not the political arena, is where Chrysler belongs. Yesterday’s filing isn’t the end of the U.S. auto industry, or even necessarily of Chrysler, and it offers the best chance to protect all parties under the rule of law.

Getty Images

“I don’t stand with those who held out when everyone else is making sacrifices,” Mr. Obama nonetheless declared, blaming what he called “a small group of speculators” for the car maker’s Chapter 11 filing. To hear the President tell it, you’d never know that Chrysler had borrowed, and since frittered away, the $6.9 billion that it owes to those “speculators.” The Administration had only offered $2 billion to those secured creditors as part of its proposed restructuring for the car maker. So it’s hardly a surprise that many lenders would rather take their chances in bankruptcy court.

Chrysler’s finances can now be restructured in a less political atmosphere in the New York courtroom of federal Judge Arthur Gonzalez. This is how the Chrysler collapse should have been worked out last December, when the auto maker first went looking for taxpayer cash. Treasury could have saved the $4 billion it lent the car maker at that time, to which we can now add another $8 billion that Mr. Obama promised yesterday to keep the company going.

The Administration is hoping the judge will do little more than rubber stamp the restructuring deal it has worked out among the Treasury, the United Auto Workers and the Italian car maker, Fiat. It could play out that way, if Judge Gonzalez determines that $2 billion is the highest and best value that can be obtained for Chrysler’s assets.

But that is now the legal test that the Administration’s plan must satisfy, not the political standard of whether the creditors “worked constructively” in a spirit of “shared sacrifice” that Mr. Obama set out yesterday. And let’s hope Judge Gonzalez ignores Michigan Representative John Dingell, who yesterday called the investors “vultures” and warned darkly that they “will now be dealt with accordingly in court.” Someone should tell Mr. Dingell that the debt-holders aren’t on trial in a bankruptcy proceeding.

It’s especially rich for Mr. Obama to blast the creditors for seeking “an unjustified taxpayer-funded bailout” while offering the UAW a 55% majority stake in Chrysler. He also praised the large banks that hold most of the Chrysler debt and supported the government plan. But of course J.P. Morgan and the other big banks are also recipients of billions of dollars in taxpayer cash and have a strong interest in playing nice with their creditor, Uncle Sam Obama.

The Chrysler creditors at least represent teachers, pensioners and retirees, among others. The Administration is advancing its own social and political agenda through its ever-deeper entanglement with Chrysler and General Motors. That explains why the government is giving 55% of the new Chrysler to the UAW’s retiree-benefit trust, a junior creditor, while those ahead of the trust in line get a mere 30 cents on the dollar.

A senior Treasury official described the decision to give majority ownership to the union’s health-care trust as simple pragmatism — that keeping the union happy is essential to the long-term health of the car maker. A skeptic might respond that this is precisely the kind of political-business calculation that helped to drive Detroit’s auto makers into this ditch.

Meanwhile, over at Detroit’s other ward of the state, General Motors, the Treasury was dismissive of a counter-offer that GM’s private creditors made Thursday. Earlier this week, the Administration (via GM) made an offer to give those creditors about five cents on the dollar while taking 50% of the equity for the government. And it justified that offer by saying taxpayers needed to be protected for the $16.2 billion Treasury has already lent to GM.

So GM’s creditors offered to take 50% ownership themselves in exchange for canceling their $27 billion in debt. The UAW would still get about 40% of GM, but the new private owners would control the firm. And the Treasury’s own loans would be kept whole, helping to ensure that taxpayers get all their money back.

“The company can’t sustain all that debt,” a senior Treasury official told us, explaining why the government’s share of the debt load needs to be reduced. That could well be true, but if the Treasury knew that $16.2 billion was too much debt for GM to carry, it had no business lending the company that much in the first place.

The GM drama will play out in the coming weeks before an end-of-May deadline, and it may also end up in bankruptcy court if Treasury doesn’t make a better offer to creditors. That would be painful, but an independent judiciary is also the place where the rule of law and sound financial judgment can best prevail. That will ultimately serve taxpayers best as well.

Estimated U.S. taxpayer cost for bailout jumps

Mon Apr 6, 2:49 am ET

WASHINGTON (Reuters) – U.S. congressional budget analysts have raised their estimate of the net cost to taxpayers for the government’s financial rescue program to $356 billion, an increase of $167 billion from earlier estimates.

The Congressional Budget Office had originally projected the $700 billion Troubled Asset Relief Program would cost taxpayers $189 billion.

The additional cost, which applies to TARP spending for fiscal years 2009 and 2010, was included in the CBO’s March projection of a $1.8 trillion deficit for fiscal 2009, which ends September 30.

The TARP cost projection was raised due to changes in financial market conditions, new transactions and a shift in expected timing of payments, the CBO said.

The Treasury Department announced plans to use some of the money to help avoid home foreclosures and made new deals with Bank of America and American International Group. Those programs involved higher subsidy rates than previously estimated, the report said.

Congress passed the Wall Street bailout program in October with the goal of stabilizing banks and reassuring jittery markets.

(Reporting by Lisa Richwine; Editing by Jackie Frank)

via Estimated U.S. taxpayer cost for bailout jumps.

Toxic Bank Assets Plan Delayed Again

By: Ron Haruni   Friday, March 20, 2009 1:04 AM

Government sources tell Time Magazine – the Administration’s long-awaited plan to save America’s banks is being delayed ‘again’. Apparently, the cause of this latest delay consists in the Treasury Department’s difficulties, or should we say – inabilities at this point, to create a proposal on financial reform that will help banks clean up toxic assets from their balance sheets through a partnership between private investors and the feds.

Administration officials are urging patience and insist they are moving faster than anyone has tried to do before. However, the reality is – the Department’s version of the plan, initially introduced by Secretary Geithner in mid February, has faced challenges from the start and more importantly – so far it has gone nowhere, at a time when urgency is imperative and needed to bolster the financial system.

Geithner, notes the Time has been burdened by thin staffing as he tries to get nominees to the Senate who can pass muster. But let’s face it. That’s not really an objective excuse for someone in charge of such an important department at such a critical time with the U.S. economy confronting its toughest financial crisis in the last seven decades. Geithner’s responsibility is not to delay ; his obligation is to give a detailed plan in clear terms of how we are to proceed. Something he keeps failing to produce. The slip(s) is embarrassing for Treasury officials who have been assuring the media and the markets that the plan was coming. We simply can not continue to respond to market pressures for recapitalization without a specific, well-defined and coherent restructuring or rehabilitation program.

But then again, Geithner’s disappointments didn’t just start with his tax problems. They continued with his incomplete Feb. 10 proposal intended to relieve banks of their toxic assets and was heavily criticized for not providing a detailed plan in clear terms or explaining for that matter, how the program would work. As recently as March 14, Geithner again told Bloomberg TV he would release details of his plan soon, adding the Treasury already is well on its way to starting “a dramatic lending program to help securities markets get flowing again.” Further complicating the matters, besides the latest delay and the uproar over AIG an their bonus structure, is now the International Monetary Fund’s [IMF] latest report – released Thursday (3/19).

The IMF said in the report, prepared for a meeting earlier this month of finance ministers from the Group of 20 nations: “Geithner’s plan to fix the financial system lacks “essential details”…Critical details concerning the valuation of distressed assets remain unclear…The plan also does not address how severely undercapitalized or insolvent banks will be resolved or clarify the

via Toxic Bank Assets Plan Delayed Again.

Dodd: Administration pushed for language protecting bonuses – CNN.com

Facebook | Dodd: Administration pushed for language protecting bonuses – CNN.com.

What did he know and when did he know it?  click on the link above to read more……

(CNN) — Senate Banking committee Chairman Christopher Dodd told CNN Wednesday that he was responsible for language added to the federal stimulus bill to make sure that already-existing contracts for bonuses at companies receiving federal bailout money were honored.

Sen. Chris Dodd, D-Connecticut, appears on CNN’s “The Situation Room” on Wednesday.

Dodd acknowledged his role in the change after a Treasury Department official told CNN the administration pushed for the language.

Both Dodd and the official, who asked not to be named, said it was because administration officials were afraid the government would face numerous lawsuits without the new language.

Dodd, a Democrat, told CNN’s Dana Bash and Wolf Blitzer that Obama administration officials pushed for the language to an amendment designed to limit bonuses and “golden parachutes” at those companies.

“The administration had expressed reservations,” Dodd said. “They asked for modifications. The alternative was losing the amendment entirely.”

On Tuesday, Dodd denied to CNN that he had anything to do with adding the language, which has been used by officials at bailed-out insurance giant AIG to justify paying millions of dollars in bonuses to executives after receiving federal money.

He said Wednesday that the “grandfather clause” language “seemed like innocent modifications” at the time. Watch Dodd’s interview with CNN’s Dana Bash »

“I agreed reluctantly,” Dodd said. “I was changing the amendment because others were insistent.”

Political Punch: Obama Administration: We Didn't Find Out About AIG Bonuses Until This Month

Political Punch: Obama Administration: We Didn’t Find Out About AIG Bonuses Until This Month.

March 17, 2009 7:18 PM

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Tahman Bradley

–>Sources in the Obama administration Tuesday said that despite previous media reports administration officials did not know until a couple weeks ago that the officials of the controversial AIG Financial Product Division were set to receive $165 million in bonuses on March 13.

It wasn’t until Thursday, March 5, 2009, administration sources told ABC News, that officials of the Federal Reserve Bank of New York informed officials of the Treasury Department of the full extent of the $165 million in bonuses pending for the controversial Financial Products Subsidiary.

This was three days after the Obama administration had already announced a new commitment of an additional $30 billion for AIG.

Treasury Secretary Tim Geithner was alerted last Tuesday, March 10; he phoned AIG CEO Edward Liddy on Wednesday evening, March 11, to protest the bonuses, sources told ABC News.

On Thursday, March 12, Secretary Geithner informed a senior White House official about the controversy, aides passed the information on to President Obama later in the day.

How the Obama administration was caught flat-footed by this controversy dates back to last Fall, when the New York Federal Reserve Bank — then run by Geithner — stepped in to give AIG a high-interest loan for $85 billion to help prevent the company from going under — which Lehman Brothers was doing at the time. As part of the deal, AIG CEO Robert Willumstad was replaced by the new CEO, Liddy.

In late October, the $700 billion Troubled Assets Relief Program passed Congress, which includes rules about executive compensation but nothing about retention bonuses.

In November, the Fed and Treasury Department soon began pumping more money into AIG — $40 billion, to take down the $85 billion credit facility set up by the Federal Reserve Bank of New York.

At this point, an Obama administration official says, Treasury officials generally became aware that AIG had put retention programs in place, but whom they were for and the extent of them were unknown. The New York Fed began studying the compensation policies on the books — while also making efforts to save banks and rescue the economy. But by then Geithner’s nomination was pending and he had recused himself from dealings with AIG.

AIG provided information about the company’s myriad compensation packages to the New York Fed, but officials described the information as extremely complex and not easily understood. AIG had more than 100 compensation policies for more than 116,000 employees throughout the world.

In January and February, officials of the Federal Reserve Board, and the Federal Reserve Bank of New York began working on an additional $30 billion support package to prevent an AIG downgrade. On February 23 and 24, government officials were finalizing the details of the USG support package for AIG; on February 25 and 26, officials of AIG presented the package to the rating agencies, along with the Federal Reserve Bank of New York. On February 27, the agencies affirmed AIG’s A- rating.

It was only after that process, on February 28, officials said, when officials of the Federal Reserve Bank of New York email their counterparts at the Treasury Department to inform them of several outstanding issues related to compensation for AIG executives, and to give them a heads up that details of the retention program for the Financial Products subsidiary were forthcoming.       

On March 2, AIG officials announced record losses for their company, along with the restructuring plans and additional $30 billion in government aid. 

Three days later, on March 5, New York Fed officials forwarded to the Treasury Department a summary of AIG’s bonus and retention payment issues, including details of the retention program for officials of the Financial Products. This information included that $165 million in payments were expected that very month, as well as the fact that the contracts were in place in the first quarter of 2008, and so not covered by the limitations in the stimulus bill as articulated by an amendment to the stimulus bill offered by Sen. Chris Dodd, D-Conn.

As ABC News’ Capitol Hill Correspondent Jonathan Karl reported, in February, the Senate unanimously approved an amendment restricting bonuses over $100,000 at any company receiving federal bailout funds, but during the closed-door House and Senate negotiations the provision was stripped out and replaced with a measure by Dodd exempting bonuses agreed to prior to the passage of the stimulus bill on February 11, 2009.
 
On March 9, 2009, the Federal Reserve Bank of New York sent full details and supporting documentation to the Treasury Department about the Financial Products retention program.

One day later, Geithner was told about the $165 million in bonuses. 

“Everyone knew that there were retention bonuses on the books,” an Obama administration source said, “but no one (in the Obama administration) knew about the $165 million for the Financial Products division” until March 5.

Geithner called Liddy on Wednesday, March 11, Liddy — appointed to run AIG September 2008 — told the Treasury Secretary that he knew about the bonuses and had already talked to company lawyers to try to end them.

But, Liddy said, he’d been told that going after the bonuses — for work from 2008 — would actually cost the government more money because of resulting lawsuits.

The Treasury Secretary expressed concern, pointed out that AIG also had 2009 retention bonuses set up, not to mention $121.5 million in executive bonuses that Geithner wanted trimmed.

On Thursday and Friday, administration sources said, Geithner urged Treasury Department lawyers to try to figure out a way to block the bonuses. But the lawyers ultimately came to agree with AIG’s lawyers; that their hands were tied.

Liddy and Geithner talked again on Friday, the day the $165 million in retention bonuses were being cut, and the Treasury Secretary Geithner acknowledged he did didn’t think he could block the payments going out the door.

But he told Liddy he was going to make efforts to, at a minimum, recoup that money as part of the agreement for the pending $30 billion the government announced in aid for AIG on March 2. Liddy agreed to trim or reduce executive compensation for the top 47 officers of the company, to reduce and renegotiate 2009 bonuses — tying them to performance, specifically to what officers are doing to unwind the company.

Geithner asked Liddy to codify their agreement in a letter, which Liddy sent the Treasury Secretary on Saturday. Throughout the weekend, Treasury Department and White House lawyers explored various options to see if they could block the bonuses, as they continue to do so today, aides said.

— jpt

*This post has been updated.

The Money Masters – How International Bankers Gained Control of America

This is long but informative.

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