Hell Loses Its Guard Dog

cerberus.thumbnail.jpgAtrios baited me to weigh in on Cerberus’ imminent demise.

Investors in hedge funds run by Cerberus Capital Management LP, whose audacious multi-billion dollar bet on the U.S. auto industry went bust, are bolting for the door, clinching one of the highest-profile falls from grace of a superstar in the investment world.

Clients are withdrawing more than $5.5 billion, or nearly 71% of the hedge fund assets, in response to big investment losses and their own need for cash, according to people familiar with the matter.

"We have been surprised by this response," Cerberus chief Stephen Feinberg and co-founder William Richter wrote in a letter delivered to clients late Thursday.

And while I suggested I would keep my schadenfreude in check until such time as I got to see Cerberus’ Senate defender, Bob Corker, weep, I just couldn’t resist two points.

First, who the hell thought a financial institution in which John Snow, 43’s failed Treasury secretary, and Dan Quayle, 41’s laughable Vice President, had significant management roles would succeed? Sure, having Snow and Quayle on board promised that people like Corker would subvert the national interest in favor of his buddies at Cerberus. But even an institution wired into the best crony network must exhibit some basic competence.

And, too, I take some joy that this model of financialized predation has failed. Yeah, Cerberus is not singlehandedly responsible for Chrysler’s failure. But it is nice to see Cerberus pay for its efforts to suck some value out of a company by extracting its financial wing at the expense of its productive core.

It’s just a damned pity that so many real human beings have suffered in the interim.

(Photo credit: http://www.flickr.com/photos/puyo/ / CC BY-ND 2.0)

12 replies
  1. eagleye says:

    The wingnuts have been in full frothing and writhing mode in 2009, and I think to some extent it’s because so many of their beloved capitalist institutions have failed. They have always maintained that private industry does things better than the dreaded government, but now we see some of the titans of free enterprise falling, and this pulls the rug out from under the wingnut world view. Capitalism, given a free rein, usually ends in catastrophe.

  2. dipper says:

    “But even an institution wired into the best crony network must exhibit some basic competence.” Unfortunately, not always.

  3. BoxTurtle says:

    My bet is that the principles of Cerberus some out significantly better than the rank and file investor.

    Cerberus were a bunch of fools. Mercedes had already sucked all the talent out of Chrysler before they sold what remained.

    Boxturtle (One Cerberus down, 10,000 Cerberus-like entities to go)

    • SparklestheIguana says:

      My bet is that the principles of Cerberus some out significantly better than the rank and file investor.

      Cerberus doesn’t have principles (literally or figuratively). Only principals. I wonder what lies in their future….

  4. prostratedragon says:

    Yeah, the whole business of just knowing we were all fools got a bit thick with Cerberus, didn’t it?

    Starting with that name, as if Greek myths were part of the arcane knowledge of the inner elites.

  5. rosalind says:

    car-related: driving home this morning from the farmer’s market, a local car dealer was advertising its own cash for clunkers program on the radio, $3,500 for any trade-in by a specific deadline.

  6. bmaz says:

    Yeah, Cerberus is not singlehandedly responsible for Chrysler’s failure

    Well, no, but there was a reason Daimler ran like Usain Bolt the opposite direction from Chrysler. Cerberus, however, sure as hell is responsible for thinking they were going to apply a $2 Simoniz shine on battered old Chrysler and split it off into big profit; that plan was moronic even without the financial meltdown.

  7. scribe says:

    Couldn’t happen to a more deserving bunch.

    Now, to correct someone up at 1 on the thread: These clowns and their ilk were never “capitalists”, and never would be. And their operations were never “capitalism”. They were gamblers – bad, skill-less, degenerate losing gamblers, but gamblers nonetheless. And their operations – like Cerberus – were attempts to game the financial system in their favor through applying crony power to tilt the table (or salt the deck of cards – take your pick).

    The core of investment banking as it relates to capitalism is that the investment bankers put together financing for new or existing ventures (i.e., “corporate finance”), or put together existing ventures in new combinations to have more productive oiperations (i.e., “mergers and acquisitions”). Hedge funds are “insurance”; used to be that investors with piles of money to invest would invest it directly or through intermediaries in ventures which they hoped would yield them a stream of investment income. Insurance companies were good places to park that money for that purpose because insurance companies are – by their nature – required (and regulated) to manage risk, to provide for it, and to protect against it. A properly run (i.e., no monkey business and no scheming around the edges) insurance company which complied with the actuarial tables and risk assesments, etc., has never failed when the claims came in. Their failures always come when someone decides to misallocate loss reserves into dividends, to fail to diversify (to benefit some crony), to fail to properly reinsure, or to skim (to give four easy examples).

    These clowns figured they knew better and, with their crony power intact, could make the laws of nature move aside just like they were used to having the laws of man move aside when they stamped and pouted.


    I hope I run into Dan Quayle panhandling so I can look him in the eye and say “no – I can’t spare any change.”

    • Rayne says:

      Let’s try a thought experiment for a moment. If one were to set up a holding company rather like Cerberus, how would one launder money through it?

      And what would it look like when the shop was wrapped up?

      Just an experiment, of course.

      • scribe says:

        It would look like pretty much every other bust-out in history, just bigger.

        What I want to find out is who is going to wind up coming out of this owning one of Cerberus’ other holdings: Remington Firearms. That’s right – not only did they own Chrysler, but they also owned one of the larger and oldest US firearms manufacturers.

  8. greenbird4751 says:

    not: “so many real human beings have suffered…”
    rather: so many real human beings are suffering.
    unless their suffering is over.
    which i somehow doubt.

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