Top funders made billions from US Treasury
by Greg Palast
[Thursday February 23] Republican Presidential candidate Mitt Romney called the federal governmentâ€™s 2009 bail-out of the auto industry, â€œnothing more than crony capitalism, Obama style… a reward for his big donors to his campaign.” In fact, the biggest rewards ÂÂâ€“ a windfall of more than two billion dollars care of US taxpayers ÂÂÂâ€“â€“ went to Romney’s two top contributors.
John Paulson of Paulson & Co and Paul Singer of Elliott International, known on Wall Street as â€œvultureâ€ investors, have each written checks for one million dollars to Restore Our Future, the Super PAC supporting Romneyâ€™s candidacy.
Gov. Romney last week asserted that the Obama Administrationâ€™s support for General Motors was a, â€œpayoff for the auto workers union.â€ However, union workers in GMâ€™s former auto parts division, Delphi, the unit taken over by Romneyâ€™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 wasnâ€™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 Journalâ€™s Dealmaker column was outraged, accusing Paul Singer of treating the auto company, â€œlike a third world country.â€
But it worked. Singer and Paulson got what they demanded. Using US Treasury funds:
- GM agreed to pay off $1.1 billion of Delphiâ€™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 didnâ€™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 Romneyâ€™s funders who wiped out 100% of the pensions and health care accounts of Delphi salaried retireesÂÂ.
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. Paulsonâ€™s gain totals a billion and a half dollars ($1,499,499,000), and Singer gained nearly a billion ($899,751,000) â€“â€“ 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? Itâ€™s doing well for Paulson and Singer. GM and Chrysler, still in business by the grace of the US Treasury, remain Delphiâ€™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 â€“â€“ 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 â€œinsuranceâ€ 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 Streetâ€™s toughest â€œvultureâ€ speculator. Vulture fund financial attacks on the worldâ€™s poorest nations have been effectively outlawed in much of Europe and excoriated by human rights groups, conduct Britainâ€™s former Prime Minister Gordon Brown described as, â€œmorally outrageous.â€
Greg Palast has been investigating vulture speculator Paul Singer for BBC Television Newsnight and Britainâ€™s Guardian for five years. The investigative reporter is author of Vulturesâ€™ Picnic: In Pursuit of Petroleum Pigs, Power Pirates and High-Finance Carnivores and the New York Times bestseller, The Best Democracy Money Can Buy. For reports on Singer and vulture funds, go to www.GregPalast.com and www.VulturesPicnic.org.