Daily Archives: February 23, 2012

Greg Palast on Mitt’s Vultures

Romney’s Auto Bail-out Billionaires

Top funders made billions from US Treasury

by: Greg Palast for Nation of Change
Thursday, February 23, 2012

Republican Presidential candidate Mitt Romney called the federal government’s 2009 bail-out of the auto industry, “nothing more than crony capitalism, Obama style… a reward for his big donors to his campaign.” In fact, the biggest rewards — a windfall of more than two billion dollars care of US taxpayers — went to Romney’s two top contributors.

John Paulson of Paulson & Co and Paul Singer of Elliott International, known on Wall Street as “vulture” investors, have each written checks for one million dollars to Restore Our Future, the Super PAC supporting Romney’s candidacy.

Gov. Romney last week asserted that the Obama Administration’s support for General Motors was a “payoff for the auto workers union.” However, union workers in GM’s former auto parts division, Delphi, the unit taken over by Romney’s funders, did not fare so well. The speculators eliminated every single union job from the parts factories once manned by 25,200 UAW members.

The two hedge fund operators turned a breathtaking three-thousand percent profit on a relatively negligible investment by using hardball tactics against the US Treasury and their own employees.

Under the control of the speculators, Delphi, which had 45 plants in the US and Canada, is now reduced to just four factories with only 1,500 hourly workers, none of them UAW members, despite the union agreeing to cut contract wages by two thirds.

It wasn’t supposed to be quite so bad. The Obama Administration and GM had arranged for a private equity investor to provide half a billion dollars in new capital for Delphi, but that would have cut the pay-out to Singer and Paulson. The speculators blocked the Obama-GM plan, taking the entire government bail-out hostage. Even the Wall Street Journal’s Dealmaker column was outraged, accusing Paul Singer of treating the auto company, “like a third world country.”

But it worked. Singer and Paulson got what they demanded. Using US Treasury funds:

  • GM agreed to pay off $1.1 billion of Delphi’s debts,
  • forgave $2.15 billion owed GM by Delphi (which had been spun off as an independent company)
  • pumped $1.75 billion into Delphi operations, and
  • took over four money-losing plants that the speculators didn’t want.

If those plants had been closed, GM factories would have shut down cold for lack of parts.

Then there was the big one: The US government agreed to take over $6.2 billion in pension benefits due Delphi workers under US labor law.

Governor Romney, while opposing the bail-out of GM, accused Obama of eliminating the pensions of 21,000 non-union employees at Delphi. In fact, it was Romney’s funders who wiped out 100% of the pensions and health care accounts of Delphi salaried retirees­­.

Paulson and Singer paid an average of about 67 cents a share for Delphi. In November, 2011, Paulson sold a chunk of his holdings for $22 a share. Paulson’s gain totals a billion and a half dollars ($1,499,499,000), and Singer gained nearly a billion ($899,751,000) — thirty-two times their investment.

One-hundred percent of this gain for the Paulson and Singer hedge funds is accounted for by taxpayer bail-out support.

But, unlike the government loans and worker concessions given to GM, the US Treasury and workers get nothing in return from Delphi.

From GM, the US Treasury got warrants for common stock (similar to options) that have already produced billions in profit.

And Delphi? It’s doing well for Paulson and Singer. GM and Chrysler, still in business by the grace of the US Treasury, remain Delphi’s main customers, buying parts now made almost entirely in China and other cheap-labor nations.

And exactly who are Paulson and Singer?

Billionaire John Paulson became the first man in history to earn over $3 billion in a single year — not for his hedge fund, but for himself, personally. At the core of this huge payday was a 2007 scheme by which, via Goldman Sachs, he sold “insurance” on subprime mortgage loans. According to a lawsuit filed by the Securities Exchange Commission, Goldman defrauded European banks by pretending that Paulson was investing in the insurance. In fact, Paulson was, secretly, the beneficiary of the insurance, reaping billions when the mortgage market collapsed.

Goldman paid half a billion dollars in civil fines for the fraud. While the SEC states that Paulson knowingly participated in the scheme, he was not fined and denies he defrauded the banks.

Multi-billionaire Singer is known as Wall Street’s toughest “vulture” speculator. Vulture fund financial attacks on the world’s poorest nations have been effectively outlawed in much of Europe and excoriated by human rights groups, conduct Britain’s former Prime Minister Gordon Brown described as, “morally outrageous.”

Mario Piperni on the Debate

The Last GOP Debate – Sex, Money and Collusion

February 23, 2012 By

That’s it. Republican debates are over for now…and none too soon for the four assclowns hoping to win this thing. The consensus is that the only real winner from these debates has been President Obama who last night got to watch these guys beat themselves up over the immorality of teenage sex, the evils of birth control (the conservative crowd actually booed when birth control was mentioned…sigh), the joy of earmarks and the wondrous glory of going to war with Iran.

Here’s how Will Wilkinson of The Economist summed up last night’s debate.

The race has come down to Santorum and Romney, and they both failed to distinguish themselves tonight. Both repeatedly offered convoluted answers in the attempt to establish trivial points. As everyone’s noted, Romney’s success at hall-packing made him look like a winner even though he’s losing to Rick Freaking Santorum.

I am ashamed of and afraid for my country.

And more so, I imagine, if one is a conservative knowing that their fearless leader and savior come November is going to be one of the four saps who took the stage last night. Four years ago, conservatives had their hopes and dreams shattered with the totally inept pairing of McCain/Palin carrying the Republican banner. And now, those same hopes and dreams appear doomed with the realization that Mitt Romney or the equally inept Rick Santorum will lead the GOPers into battle. Yes, there is much to be ashamed of.

Quote of the night goes to Ron Paul who again seemed overly aggressive in attacking Santorum throughout the debate. There is talk in conservative circles that Romney and Paul are in collusion and have formed an alliance in going after Santorum and Gingrich. The question becomes what it is Romney has promised Paul in return for his help in taking down Santorum. A cabinet post in a Romney administration for Paul’s son, Rand, perhaps?

Anyway, when asked why he had referred to Santorum as a fake, Paul responded it was because “...he’s fake. I think his record’s so bad as a politician.”

Well, perhaps so, but in defense of Santorum, it’s not easy being both politician and the moral conscience of 300 million Americans. Give the guy a break. He’s going to heaven, you know.

Ezra Klein on Repug Budgets

Gilbert Fidler, an audience member at last last night’s CNN debate, was making it easy on the assembled Republican candidates. “What are you going to do to bring down the debt?” He asked.

Rick Santorum went first. “Here’s where I differentiate myself from everybody else, including, obviously, the president,” he said. “I actually have experience on tackling the toughest problems that we have in this country.”

Ron Paul couldn’t believe it. “He’s a fake,” he said, referring to Santorum. “I find it really fascinating that, when people are running for office, they’re really fiscally conservative. When they’re in office, they do something different.”

Paul is only half right. According to a new report by the Committee for a Responsible Federal Budget, none of Paul’s opponents are even running fiscally conservative campaigns. Quite the opposite, in fact.

The report takes every tax and spending policy the Republican candidates have offered and tallies them up. It does so against what the CRFB calls “a realistic baseline.” That’s a baseline where all the Bush tax cuts are extended, and many of the scheduled spending cuts are ignored, and debt is piling up. It’s a baseline, in other words, in which Congress has made the deficit much worse. A baseline where debt is 86 percent of GDP in 2021. A baseline in which the debt is on a completely unsustainable path. And so, in theory, a baseline so bad that it should be easy for the candidates to appear responsible by comparison. But, with the exception of Paul, they don’t.

Take Santorum. He has not shied away from naming large spending cuts. He would implement Paul Ryan’s plan for Medicare reform on an accelerate schedule. He would convert “Medicaid, housing, education, job training, and food stamps” to capped block grants. He would cut Social Security benefits. All in all, CRFB estimates he would reduce spending by over $2 trillion between 2013 and 2021. Unfortunately, his tax cuts would increase debt by more than $6 trillion over the same period. Net impact: $4.5 trillion in new debt, for a debt-to-GDP ratio of 105 percent.

Newt Gingrich’s plan is, remarkably, even worse for our finances. Like Santorum, he would block grant and cap almost everything in sight. In fact, he’s promised to block grant and cap more than 100 programs. In total, CRFB estimates his spending cuts would shave $2.7 trillion off of the debt. But Gingrich would also spend $1.6 trillion dollars financing new private accounts for Social Security. And his tax cuts would cost more than $7 trillion. Net impact: $7 trillion in new debt, for a debt-to-GDP ratio of, wait for it, 114 percent.

Mitt Romney’s plan is more difficult to score. He saves $1.2 trillion by block granting Medicaid and cutting the federal workforce. But his new tax plan doesn’t have enough detail to say how much it costs. The campaign says it will be revenue neutral, but in part because they assume it will lead to faster economic growth, and thus higher revenues. That’s an assumption that would get thrown out if he sent it to Congress. He also hasn’t specified which tax breaks he’ll eliminate. But if he;s sufficiently aggressive in that area, much of his tax plan could ultimately be offset. For now, however, CRFB estimates that if the plan isn’t paid for at all, it will add $2.6 trillion to the deficit, leaving Romney’s debt-to-GDP at 96 percent. The more deductions and loopholes he closes, the lower that number will be.

Paul is the only candidate whose plan puts him in the black. His cuts to federal spending are incredibly severe, saving $7.5 trillion. Comparatively, his tax cuts cost $5.2 trillion. And though his plan to end the Federal Reserve would rack up $400 billion in transition cost (and, if we’re being real about this, untold trillions in market terror and future financial panics), put it all together and he cuts the deficit by $2.2 trillion, and brings debt-to-GDP down to 76 percent.

And remember that al these tax cut plans are coming on top of making the Bush tax cuts — with their $4+ trillion price tag — permanent. All of this, in some sense, gives the GOP candidates too much credit. Their tax plans, with the possible exception of Romney’s, are fantastical. Their proposed spending cuts are far beyond what’s plausible. The point is that even unfettered by political reality or operational responsibility, three out of the remaining four candidate have proposed plans that take an unsustainable deficit path and make it significantly worse. And if they can’t cut the deficit when they don’t have to worry about Congress or the federal bureaucracy or the consequences of actually implementing their proposals, how will they do it when they are burdened by those constraints and concerns?

You might wonder, of course, where Obama’s proposals fit into all this. His budget estimates that debt will be 76.5 percent of GDP in 2021. That’s lower than any of the Republican candidates save Paul. Though, CRFB is quick to note that 76.5 percent of GDP is “roughly double historical debt levels” and is not sufficient “to reduce the debt relative to the economy.”