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Five Controversial Business Deals of 2009

Yesterday, I ranked my Top Five Business Stories of 2009 in handy-dandy listicle format.

Today's listicle is Five Controversial Business Deals of 2009.

I'll do one each day this week (except Friday). Feel free to comment below, telling me what I've left off or should not have been included.

Here we go:

(1) Freddie Mac gets additional $6.1 billion: In July, Treasury gave Freddie Mac an extra $6.1 billion of your taxpayer dollars to cover mounting losses at the mortgage house. That ran Freddie's take of taxpayer money up to $51.7 billion.

(2) GM's and Chrysler's government-backed bankruptcies/bailouts: Things fail in market economies. But not anymore, it looks like. Some $50.4 billion was committed to GM, another $12.5 billion to former financing arm GMAC and $12.5 billion to Chrysler.

(3) Lending money to Dubai, Ireland and Iceland: A classic case of bubble economies: Banks lent money to these nations based on an idealized promise of their future, not necessarily on their real-world ability to pay back the loans. A year later, Dubai is afloat thanks to a $10 billion bailout from oil-rich neighbor Abu Dhabi, the Celtic Tiger is heavily sedated and Iceland's banks are under government control.

(4) Citi sells Phibro for book value: Phibro was the energy-trading house of Citi, and the one that employed Andrew Hall, the super-trader who created $1 billion worth of business for Citi this year. That's what good traders are supposed to do. And they're supposed to get rewarded for it. Hall was owed a whopping $100 million bonus. Had this not been during a recession and had Citi not already received or been promised $45 billion in taxpayer bailout money, Hall would have quietly been paid his bonus and gone on to make Citi more money. But Hall became a huge albatross around the neck of Citi's embattled chief executive, Vikram Pandit, who felt he had no choice but to avoid paying Hall's bonus by selling Phibro to Occidental Petroleum for far, far less than it was worth. How much less? Oxy got Phibro for $250 million and the company had been averaging annual profits of $371 million the past five years.

(5) Cash for Clunkers: If all you wanted to do was defibrillate a bunch of auto dealers during one month of the Great Recession, then the government-subsidized Cash for Clunkers was a runaway success. The program was criticized for creating no new real demand, simply pulling future demand forward, having little impact on upstream parts makers and mostly just selling down inventory. Because the traded-in "clunkers" were literally put to death, the program removed massive amounts of spare parts from the market. And it hit all U.S. taxpayers -- even ones who did not buy a new car -- in the wallet. Auto research firm Edmunds estimated that each new car sold under the program cost the American taxpayers $24,000.

Honorable mention: The government's home-buyer subsidy, now extended to April: it was dinged for helping to artificially inflate a depressed housing market.

Not making the list: President Obama's $787 billion stimulus plan because the jury's still out. We know it's "fake money," meaning it serves as an artificial, Red Bull jolt to the economy rather than as organic, market-created growth, but we also don't know how it's going to play out because it was so back-loaded. It won't be spent out until 2011. We do know, however, the impact on the budget deficit and national debt: Very big.

Bonus: Click here to read my colleague Allan Sloan's worst deals of the year.

What are your thoughts on this list? What should have made it?

-- Frank Ahrens
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By Frank Ahrens  |  December 29, 2009; 1:19 PM ET
Categories:  The Ticker  | Tags: Andrew Hall, Chrysler, Citi, Dubai, Freddie Mac, GM, Iceland, Ireland, Phibro, Vikram Pandit, cash for clunkers, worst business deals of 2009  
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Comments

While not quite a done deal I would include the purchasing of Sen. Nelson's health care 'reform' vote.

I would add to the GM/Chrysler debacle the way the secured debt holders got shafted by entrenched political interests.

Giving up the European missile defense system for the privilege of having the Russians say 'No' to our face.

While not confined to 2009, anybody who invested with Bernie Madoff.

Also not confined to 2009, the Fed's monetary expansion.

Posted by: tk221 | December 29, 2009 1:59 PM | Report abuse

Oh, just of late, the unlimited financial support of Freddie/Fannie. Hello? That is part of what got the country into this mess.

Posted by: tk221 | December 29, 2009 2:01 PM | Report abuse

"Banks lent money to these nations based solely on the promise of their future, not necessarily on their ability to pay back the loans." Isn't this a huge non-sequitur, one which would be very embarrassing for a business correspondent to make?

The "promise of their future" is exactly the same as "their ability to pay back the loans"--banks are supposed to make sober assessments about the promise of the future as a measure of a borrower's ability to pay back a loan. The problem was that the banks were credulous and drunk with greed and never did make that assessment properly.

Posted by: harmiclir | December 29, 2009 2:17 PM | Report abuse

harmiclir:
It's a good point you make. I sharpened the language in No. 3.
Frank Ahrens

Posted by: ahrensf | December 29, 2009 2:24 PM | Report abuse

perhaps they "loaned" the money. i thought "lent" was a holiday. how about whatever acenture, or whoever they are, and how much it cost them to pander to woodslovers?

Posted by: bnglfn | December 29, 2009 3:20 PM | Report abuse

The first comment said it, but it can't be said enough. The purchase of Senator Nelson's vote for $100M is repugnant and should be at the top of the list.

Posted by: iphony | December 29, 2009 3:57 PM | Report abuse

WARNING--OFF-TOPIC USAGE LESSON
bnglfn wrote: "perhaps they 'loaned' the money. i thought 'lent' was a holiday."

Actually, "lent" is the past tense of "lend," the more generally accepted verb form. The use of "loan" as a verb is contested in some language-purist circles--although I have no personal objections, and it is generally accepted in common usage. Thus it is correct, and possibly preferable, to say, "Banks lent money."

Posted by: highschoolteacher | December 29, 2009 4:09 PM | Report abuse

obama--a profile in economic idiocy

Posted by: ProCounsel | December 29, 2009 4:23 PM | Report abuse

No, not a bad list at all. The cash for clunkers is especially gauling because it takes about 30 minutes to work out all the causes and effects. But, it was about funding auto workers, a political constinuency not about car efficiency.

Part of the bad thing about these deals is that the US had bankruptcy procedures in place, but everyone panicked, and invented an entirely new bankruptcy process. Bad deal more than just money, the protections built in place can be gotten around. End up with a less sound social contract.

Posted by: jhtlag1 | December 29, 2009 4:53 PM | Report abuse

Now I want to see to see a list of the Top 5 Causes of the market meltdown and subsequent recession AND the author's Top 5 things he would have done to keep the economy from tanking. Absent those two thing, this is just a cheesy piece of tea-bagger whining.

Posted by: st50taw | December 29, 2009 5:08 PM | Report abuse

The bribes to obtain votes from Nelson and Landieu weren't mentioned. I suppose, however, prostitution and bribery are really considered illegal normally; therefore, would not qualify as a business deal.

Posted by: inmanorj | December 29, 2009 6:56 PM | Report abuse

the program removed massive amounts of spare parts from the market. According to FOX NEWS the clunkers were stripped of all resellable parts before being crushed. Can't believe you missed that after all it was on FOX NEWS

Posted by: landrumbelgeon | December 29, 2009 7:28 PM | Report abuse

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Posted by: iofferkicks234 | December 29, 2009 8:07 PM | Report abuse

So Phibro made an average annual profits of $371 million over the past five years. And Andrew Hall created (I love that "created") $1 billion worth of business for Citi this year. Interesting.

Where did all that profit and revenue come from? That is, who was buying whatever it was that Phibro and Hall were selling? Were the buyers' profits higher or lower as a result? In other words, did Phibro's customers get something of value for the money they paid into Phibro's accounts, or were they suckers in a casino game.

Just asking.

Posted by: donnolo | December 29, 2009 8:10 PM | Report abuse

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