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Wednesday, May 06, 2009

How to blow $7.5 billion

It doesn't come as a massive surprise to learn that the billions in government money to Chrysler have already vaporized:

Buried in the Chrysler filings was the revelation that US government investments in Chrysler will not be paid back, though the government will probably take an 8% equity interest in Chrysler: Chrysler LLC will not repay U.S. taxpayers more than $7 billion in bailout money it received earlier this year and as part of its bankruptcy filing.

This revelation was buried within Chrysler's bankruptcy filings last week and confirmed by the Obama administration Tuesday. The filings included a list of business assumptions from one of the company's key financial advisors in the bankruptcy case. Some of the main assumptions listed by Robert Manzo of Capstone Advisory Group were that the Treasury would forgive a $4 billion bridge loan given to Chrysler in the closing days of the Bush administration, a $300 million fee on that loan, and the $3.2 billion in financing approved last week by the Obama administration to fund Chrysler's operations during bankruptcy.

Only $7.5 billion for an 8 percent share of a bankrupt company owned by the United Auto Workers in a dying industry? Yeah, these financial whizzes are going to do a bang-up job "fixing" the economy. And just in case you weren't convinced that the economy is doomed...

"Mindful of his predecessor, Barack Obama seems to be trying harder to make sure he hears all sides. On the night of April 27, for instance, the president invited to the White House some of his administration's sharpest critics on the economy, including New York Times columnist Paul Krugman and Columbia University economist Joseph Stiglitz. Over a roast-beef dinner, Obama listened and questioned while Krugman and Stiglitz, both Nobel Prize winners, pushed for more aggressive government intervention in the banking system."

Summers: "Do you think we ought to give Citi and BOA two trillion apiece or three trillion to recapitalize?"

Krugman: "More, more! Spend more!"

Summers: "How much more?"

Krugman: "Um, fiver?"

Stiglitz: "My bearded little buddy is right. Increasing banker bonuses will reduce the wage sluggishness effect, so the more you give them, the less sluggish they'll be and the more loans they'll make, thus jump-starting the economy. It is science."

Obama: "Um, ah, ha ha ha ha ha!"

Summer: "Ignore him, he's just a little punch-drunk after celebrating the Cinco de Cuatro. Fiver it is."

Setting aside the fact that Krugman's sharp "criticism" of Obama is that he hasn't been quite as stupendously wonderful as Krugman believes he has the potential to be, the idea that the architects of the Chrysler deal should more aggressively intervene in any enterprise more complicated than a lemonade stand is risible. In fact, I expect that if Obama, Geithner, and Summers ever did run a lemonade stand, they'd somehow manage to drive away half the customers while poisoning the other half.

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