Sunday, October 21, 2012

Obama Truth Team: I Don't Think This Article Means What You Think It Means

    A recent article by Greg Palast in The Nation entitled Mitt Romney's Bailout Bonanza details the bailout of Delphi Automotive, a former subsidiary of GM that still supplies parts to the restructured automaker.  The story involves hedge funds, bankruptcy, junk bonds, tax payer funded bailouts, and, of course, Mitt Romney.  One of the hedge funds involved is Elliott Management, directed by 
Paul Singer.  Singer is a big financial supporter of GOP candidates.  The article ties Romney to Singer in this self-contradictory statement:
Other GOP presidential hopefuls chased Singer’s endorsement, but Mitt chased Singer with his own checkbook, investing at least $1 million with Elliott through Ann Romney’s blind trust[.]
    Palast explains away the chased/blind trust paradox by quoting Romney's cynicism towards Ted Kennedy's blind trust years ago.  Nevertheless, Palast builds his conspiratorial case on this most slender of foundations.  Whatever one thinks of private capital and hedge funds, Romney is barely a bit player in this billion dollar drama.  The Obama administration, on the other hand, takes one of the marquee roles.  But after reading the details of the bailout and the connected deals to which the administration gave tacit if not explicit approval, one wonders if the Obama campaign should have looked before it leaped on this article (see the TruthTeam2012).

    Right from the start, it is clear who Palast sees as the winners in the bailout of Delphi, and it's not the venerable 99%:
It all starts with Delphi Automotive, a former General Motors subsidiary whose auto parts remain essential to GM’s production lines. No bailout of GM—or Chrysler, for that matter—could 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 Delphi—and to the hedge funds that had gained control over it.
One of the hedge funds profiting from that bailout—
$1.28 billion so far—is Elliott Management, directed by 
Paul Singer. 
    And just how did all this come about?  The article provides a lot of background, but here's the money quote, so to speak:

Yet without taking billions in taxpayer bailout funds—and slashing worker pensions—the hedge funds’ 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 investors’ 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 Delphi’s 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 government’s Pension Benefit Guaranty Corporation took over paying all of Delphi’s retiree pensions. The cost to the taxpayer: $5.6 billion. The bottom line: the hedge funds’ paydays were made possible by a generous donation of $12.9 billion from US taxpayers.
    While this story goes to great lengths to make out Romney and the other investors as hypocritical and greedy vultures, in large measure it also makes out the Obama administration to be a huge chump funneling billions to the 1%!  The beneficent federal government (Dudley Do-Right) was hornswoggled at every turn by this band of mustache-twirling Snidely Whiplash hedge funders.  And in this episode, Dudley wasn't able to get sweet Nell (the taxpayers) off the train tracks in time.  For its next episode, the Obama Truth Team might want to consider someone else to pen the script.

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