Cerberus: Auto Bailout's Other Beneficiary

Cerberus issued a lengthy statement Friday, arguing that it cannot contribute more money to Chrysler because it already had to get a waiver to invest 7.5% of its $27 billion. The firm said it has told its investors it would not put more than 5% of its assets in any single investment.

"Cerberus is not a deposit-taking institution that can act as an ATM machine for its portfolio companies," it says.

Additionally, Cerberus says it will invest the first $2 billion of Chrysler Financial profits back into the financing arm's parent automaker. Cerberus says the funding will back up the $4 billion loan Chrysler is getting from the government as part of its rescue package for the domestic auto industry.

But these steps are not going to be nearly enough to counter the impression that Cerberus, a $27 billion firm with stakes in a wide range of companies and a roster of influential executives such as former Treasury Secretary John Snow, is getting an undeserved handout.

Bill Cohan, a former investment banker who wrote a history on Lazard (LAZ) and is wrapping up a book on the collapse of Bear Stearns, notes that Daimler wrote the value of its stake in Chrysler to zero, suggesting Cerberus' is also worthless. He expects its investment in GMAC is also near worthless.

"Their little foray into Detroit at the height of the market is a total cropper from my perspective," he says. "Calls by people in government to ask them to step up and put more money in is just so much theater and showboating."

But while Cohan doesn't see any point in asking Cerberus for more money, neither does he think the automakers should have received any from the government .

"Chapter 11 bankruptcy is an option here," he says. "Just because you file for Chapter 11 doesn't mean everyone loses their jobs. You can wipe out the ridiculous healthcare and pension benefits and paying people for not working and then maybe these companies can start to think about being competitive again. That's what Chapter 11 is for. Otherwise we're just propping up and rewarding bad behavior."

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