RUFUS2008A

On Valuing Toxic Assets and AIG Bonuses

If the Congress, Treasury, Fed, and White House will stop grandstanding and pointing fingers, the solution is simple.

Re: AIG employee bonuses.

Set up Employee executive bonus trust fund, collateralize with assets of portfolio consisting of MBO created during the bonus earned period, payout of fund over future time is contingent upon liquidation values of the MBO and to the extent that such portfolio ultimately realizes the original AIG valuation on the securities. Have all execs sign releases of any other liability of the corporation and agreement to the trust payout as a requirement for continued employment as well as a new going forward employment agreement negating any future bonus plans until the corporation is back functioning profitably(essentially the same waiver as execs signed in Nov. 2008 on original TARP doc.).

Will satisfy legal problems with contracts, put the execs bonus contingent upon the value of the business they generated for AIG during the measurement period of the bonus itself, and prevent the payout of taxpayer funded bailout money.

Whatever Happened to Bankruptcy?

Bankruptcy is not a court micromanaging anything. A trustee is appointed for debtor in possession. Management still runs the company. It just requires a detailed workout plan, and then appropriate trustee approvals for transactions of money above determined amounts. I have turnaround businesses through Chapter 11 and if you have any chance at all in making a viable business out of a financial disaster like the auto makers have created with their huge obligations for future payments in benefits, it is the only way to get out of an impossible situation. Imagine the US government having to suddenly cash flow social security with no new tax money. Can't be done. The only possible solution is Ch. 11...as no one would purchase these businesses as they stand, and no investor would put a nickle into them. The government is like a really stupid guy with a lot of money that is being told by an unscrupulous broker to invest in something that everyone else recognized as a dead man walking. Difference is, the Congress is not investing their money, nor are they liable for their fraud or their malfieasance.

Whatever Happened to Bankruptcy?

Do not knock bankruptcy as a legitimate way to survive a turnaround with impossible long term contract obligations that can never be serviced out of profits. What is missing with GMS is cash flow. They falsely claim that bankruptcy would prevent anyone from buying. That is patently spin. It is false. Any turnaround CEO knows that financial deals are always possible to SELL something. The automakers have millions of unsold autos in parking lots all over the country. These can be sold off for SOME price, generating cash flow, and creating new customers as well. Sales drives more sales. A public lottery of selling cars, backed by the government loaning money to the purchasers keeps jobs, keeps manufacturing, creates cash flow, and solves the cash crisis for now. Putting cash into a failing business, with no prospects of sales or priming the sales pump is foolishness that only a lawyer Congressman would fall for. There are union jobs that MUST go away to survive the economic crunch...no matter what congress of the UAW want to do to pressure the taxpayers to pay for their salaries. This just takes immediate and strong action to create money flows and reduce outflows immediately. The management team that run GMC have NO experience in a turnaround, and NO ONE that the politicians select as a so called car Czar will make any difference because they will be looking to provided uneducated oversite, not to force immediate action and reaction that are needed. This will not be pretty for anyone, and the Michigan folks, the UAW folks and especially congress need to get out of the way and let some professional turnaround managers take this thing until the crises can pass.