Private Equity again: is Detroit selling up to pay out retirement funds?

With more news that the private equity …somethings (vultures? At the moment at least not wagons) are circling the auto industry, still.

A small group of private equity funds this week received information on Land Rover and Jaguar in preparation for a possible sale of Ford Motor’s two UK luxury brands, the Financial Times has learned.

First, I know what you’re thinking: doesn’t anything belong to itself anymore? No, not really.

Recipients of the data – which one person close to the process described as “more of a teaser, and less than an information memorandum” – are said to include Cerberus Capital Management, Ripplewood Holdings, One Equity Partners and at least one other fund with an interest in the automotive sector.

Just to keep the baedeker straight, Cerberus just bought out Daimler-Chrysler for USD7.4bn (they also just missed out with a Telco bid. Also, they’re fighting CAFE standards already. This also means they own Jeep – a competitor of Land Rover. Ripplewood Holdings also was interested in the Chrysler deal. It does my head in.

The two brands don’t seem valuable to Ford and – assuming this energy legislation does anything at all – will cost money. Ford might be getting out now to spare themselves the trouble of even caring about what to do with big engines?

GM selling Allison is more interesting anyway

This story was another of those starting points, though. Ford is appearing to take a loss on Land Rover and Jaguar to shed them. I read the other day that GM is going ahead with its sale of Allison Transmission. Two other Equity groups entirely – Onex Group and the Carlyle Group are paying GM USD5.6bn for the unit. It’s GM’s most profitable (or among them) division – as was their financial GMAC, also sold a while back. GM did this for two explicit reasons,

1. Focussing instead on core business (about which there is some disagreement. When you do what GM does, having a profitable division that does what Allison inside your tent is the preferred circumstance), and more importantly
2. Raising cash for dealing with unions, later this summer.

The markets loved the move:

The union thing? It looks for all the world like GM is going along with the plan to set up an independent trust to deal with retirement and/or health care costs once and for all, subsequently walking away from the liability. Which we can all agree is probably wise idea. The two other companies mentioned in the previous speculation were Ford and Chrysler – two companies also selling up divisions.

Post-Script

What did, finally, strike me as odd/cool about the GM story was the plan by the Carlyle and Onex groups’ partnership to take Allison public. That is not the usual order of things. But Allison makes money, and clearly they figure they have a better bet selling the company to the public than jimmy-ing its costs around a bit and selling it to another private group. What this means for, say, the workers and their benefits, remains to be seen. It seems to me positive, though – treating the division like a company, rather than an asset, bodes well for the workers, while selling it to a broader range than investors rather than another leveraged buyout consortium is probably better all around. Perhaps Onex and Carlyle have figured out that finding another such group several months from now might be nigh-impossible?

There is an 11-year wait for public housing in Sydney?

That was my piece of interesting information, from this story in something called the Fairfield Champion.

I don’t place great importance to human interest stories (these count, statistics students, as anecdotal evidence, not actual evidence. When people refer to “proof by evidence”, make sure they aren’t actually bulking up anecdotal evidence). This one is fascinating, though: Iraqi immigrants, handyman husband never had a full-time job in their 11 years in Australia (I can imagine Howard voters loving that one), but offered a fully-leveraged mortgage, which they’ve finally run out of chances to keeping paying. Husband has left, photo of wife with 3 kids, evicted at the end of the month.

Like I said, what really hit me was the throw-away line about the wait for public housing. Bloody hell. Those who remember the days of the Thatcher’s “right-to-buy” homeless families (not me, no) will pause at that one. Big shortages of public housing does not portend well when we’re expecting an increasing number of evicted bankrupts suddenly entering a rental market that is already at historically low vacancy rates – irrespective of their awful credit rating.

Continuing this latter point, the actual story I first spotted (much earlier today, but I had to go to the bank. Post-”9/11″ laws here mean I can’t just get on the internet to wire money to Australia – like I can in every other country. It’s a more convoluted, and far more annoying, process).

There were a record 1400 auctions in the region in the year to March 31, nearly double the number in 2005, Australian Property Monitors figures show.

When I saw the heading for the story (“Surge in families forced to sell their homes”) I was more than a little skeptical, but I reckon that qualifies. Evidence that these were so-called ‘distressed sales’ (selling because the bank is foreclosing and you lose the house to pay off the mortgage – the woman in the story at the top had tried this already) is in the prices, as much as the numbers – tens of thousands of dollars below averages in other areas/regions/times (the woman in the story at the top had failed because the offer she got did not satisfy the bank. So she doesn’t ’just’ lose her house, she goes all the way to bankruptcy (I’ve mentioned this trend developing).

This is a phenomenon seen here in the US, also – something I spotted Bloomberg (wireless) calling the Housing Recession – home ownership dead while the economy at large still ‘goes along’, as it were. Sydney is about doing that, too.

The number of bankruptcies and debt agreements – which are binding on defaulters – have doubled in some parts of Sydney since 2000. There were 5250 personal insolvencies registered across the city between June and February, suggesting this financial year’s total could reach nearly 8000 compared with just 4544 in 1999-2000. Parts of western Sydney have been hardest hit, with an increase in personal insolvencies of 99 per cent in Blacktown and 70 per cent in the outer west.

But the rise in bankruptcies and debt agreements is not confined to the urban fringe. Sydney’s inner west experienced an increase of 83 per cent over the past six years and there was a 74 per cent rise on the northern beaches and 60 per cent in the eastern suburbs.

The credit agency Dunn and Bradstreet released figures last week showing those defaulting on debts were getting younger, and failing to pay off smaller amounts. Half the defaulters referred to the agency, which monitors creditworthiness, were younger than 32. NSW residents were most likely to default on debts and had the largest average value of unpaid debt. Many consumers are failing to pay phone, internet and pay TV accounts.

Score. Wouldn’t it be amusing if that desalination plant comes online just when the number of people buying/occupying houses is declining because of this mess?

Funnily enough the call to end easy credit continues. Which is fine. I’ve said before this is all happening because people who shouldn’t, on paper, own homes were given mortgages anyway. Chickens are pretty much coming home to roost in the house the bank just took away from them, and it isn’t fair. I’d say more needs to be done than close the bank door after the horse bolted (it is “fun with metaphors” day). Like build public housing and a statue for Jack Lang (the Australian politician, not the French one).

Sadly, like the US, we still need consumer spending to fuel (or prop up, depending upon your mood) our economy, too. Take away the unsecured lending that pays for that and a real recession is on the offing. Leave the credit there and you risk a bigger one anyway.

Paul Wolfowitz cannot go back to Indonesia

Surely. Just reading in the Financial Times this evening that Paul Wolfowitz, architect of the Iraq War, isn’t done with his Project for the New American Century, just yet.

The White House appointee and former deputy defence secretary is leaving his post midway through his term after being forced from office over an ethics scandal.

He said he would be joining the American Enterprise Institute, a conservative think-tank in Washington, as a visiting scholar, which would allow him to continue influencing public policy.
…
He appeared to encourage recent suggestions he was being linked to a future foreign policy role in Indonesia. “Twenty years ago I was American ambassador to Indonesia and I have to freely acknowledge, because it is pretty much an open secret, that I fell in love with that country,” he said.

It is this I’d like to revisit. Wolfowitz was ambassador to Indonesia from 1986 to 1989, prior to which he was Assistant Secretary of State for East Asian and Pacific Affairs from 1982 to 1986.

Meanwhile, after overthrowing his predecessor, a fellow by the name of Suharto had taken control in Indonesia, a country in Melanesia and the Malay Archipelago. It has around 200m people, has the most muslim people of any country, and contains around 17,500 islands (around 6,000 inhabited).

It used to contain a bit more than that, actually. More on that in a moment.

Suharto enjoyed easy relations with the United States and Australia, as well as our aid and political cover – basically we propped up his dictatorship. During this dictatorship, and up until the massacre in Dili in 1991 when everyone else began to notice, he got away with the following.

• In 1965, between 300,000 and one million Indonesians were killed in the mass-killings following the arrest of PKI members in Suharto’s cabinet. The CIA provided the Indonesian military with a list of 10,000 suspected communists, while also acknowledging it as one of the worst mass-murders of the 20th century.
• Allegedly, Suharto was also the mastermind of the 1965 slaughter of millions of Chinese Indonesians, purportedly to eradicate the Communist Party of Indonesia.
• Through means political and …otherwise, Suharto expropriated Western New Guinea (Irian Jaya on that map), East Timor and Aceh.
• Only three parties were allowed to participate in elections: his own Golkar party; the Islamist United Development Party (PPP); and the Democratic Party of Indonesia (PDI). He was unopposed for reelection as president in 1973, 1978, 1983, 1988, 1993, and 1998.
• Under the auspices of advice from American-educated economists (the Berkeley Mafia), Indonesia stabilised their economy, restructuring and securing high levels of economic growth – including the establishment of private banks owned by friends of Suharto in 1988. Suharto embezzled more money than any other world leader in history with the estimated US $15–35 billion embezzlement during his 32 years rule.

For example. In the end Suharto was too ill to be tried – though loads of his friends and family (including his son, Tommy) were, and convicted.

Even Christopher Hitchens agrees that the United States went terribly wrong somewhere (this was just prior to him losing his mind almost completely after 2001).

This was hardly done at the will of Wolfowitz, but he was an architect on the scene, and he isn’t remembered terribly fondly from the other end of the guns. The people wiped out in the purges, the people who suffered most from the collapse in 1997, people from East Timor, Aceh. Even Irian Jaya, the least developed, became a military operations zone (trans. military wiping out ‘insurgents’ – although they managed to vote for independence in a dodgy referendum back in 1969). Even Australia. When Reagan visited in 1985 on his ‘winds of freedom’ tour – welcoming Indonesia’s human rights improvements even as a violent crackdown had just occurred – Wolfowitz was criticised for missing the single greatest opportunity to discuss democracy, sticking to economic issues entirely. When Australian journalists were held in Bali and deported, Wolfowitz tried to downplay the resulting press coverage – earning a rebuke by then Prime Minister Bob Hawke.

In March of 2001, Tim Shorrock wrote in the Asia Times,

…apparently Cold War habits die hard. Wolfowitz’s efforts to whitewash the likes of Chun, Marcos, Suharto, and Wiranto illustrate the bankruptcy of US foreign policy from Reagan to Bush. Americans concerned about what is being done abroad in their names need to watch Wolfowitz’s every move, from Korea to Iraq to Colombia.

Meanwhile, on the islands of Indonesia

• Much has happened since Wolfowitz left and everything has come out in the wash (also sounds familiar). East Timor is free – despite the efforts of both of our governments of the day(s),
• Aceh is not, but has signed a peace accord with the government after the 2006 tsunami wiped out most of the Free Aceh Movement (I don’t know what’s become of the nasty oil concessions originally granted to US companies way back in the 70s).
• Irian Jaya declared its own independence in 2000. At the moment its status is unclear (much less public international support for an island of tribesman – and our own records in Papua New Guinea are rather poor, to boot).
• The Molluca Islands have hosted seperatist and religious violence for nearly a decade, while many have fled altogether.
• West Kaliantan (Borneo) as well.

The several million ethnic Chinese will not welcome Wolfowitz’s return:

Under Suharto, Chinese were also forbidden from careers in state-sponsored academia, serving in the military, and the civil service. They were forced to carry identity cards and the use of Chinese characters and celebrations, such as the Chinese New Year, were banned.

During the violent upheavals that lead to Suharto’s downfall in May 1998, some 1,200 Chinese were believed killed. Thousands of businesses were looted, prompting tens of thousands of Chinese fled overseas. In addition, billions of dollars was transferred out of the country.

Nor will most of the 88% or so of Indonesians that are muslim – extremist or otherwise (and most Indonesians are otherwise). Islamic vs. other relgions tensions have not fared at all well since the onset of the war in Iraq. Our governments can blame whomever they like, but pissing off 200 million people in their own country won’t help diplomatic relations (assuming the Bush administration remembers what those are. Perhaps Dr. Rice can explain it while Cheney is having his 5th bypass operation one day).

I don’t know, really, what Wolfowitz will do – nothing requiring Senate confirmation, certainly. But it’s not as though either he or Bush have a record of even being aware, let along giving a shit, about the consequences of their actions. I wouldn’t be surprised if right now he was talking about democracy and reform in Indonesia and theatre missile defence in Asia, and meaning every word of it.