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TheStreet Open House

Cerberus: Auto Bailout's Other Beneficiary

Stock quotes in this article: GM

Updated from 3:02 p.m. EST

The automakers are not the only ones getting bailed out by U.S. taxpayers Friday -- so is Cerberus Capital Management, the massive private equity firm that is the majority owner of Chrysler and General Motors' (GM) financing arm GMAC.

President Bush on Friday said GM and Chrysler would receive $17.4 billion in government loans from the $700 billion financial rescue fund Congress approved in October. The fact that Cerberus will not contribute further equity to these companies is sure to raise the hackles of many people who see private equity executives as little more than financial engineers who add little of value to the economy and, in many instances, contribute to a company's woes by saddling it with an unsustainable debt load.

"I don't think this is ideal policy," says Julian Zelizer, professor of history and public affairs at Princeton University. "But you're dealing basically with option one which is basically a jerry-built policy that's going to bail out some people who shouldn't be bailed out vs. large-scale bad economic effects from unemployment to more financial collapse and I think they're just saying in the short term, we can't afford option B."

Still, Zelizer believes Cerberus should take some kind of a hit.

"The idea that people in these executive positions and official positions should just receive the money and not be required to give something in return doesn't seem like a great course of action, so I don't see anything wrong with asking," he says.

GM will receive $4 billion on Dec. 29 and $5.4 billion on Jan. 16. It will receive $4 billion more in February, if Congress agrees to release the second half of the funding for the Troubled Asset Relief Program. Chrysler, meanwhile, will get $4 billion on Dec. 29.

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