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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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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