(AP Photo/Evan Vucci)
This investigation was supported by the Investigative Fund at the Nation Institute and by the Puffin Foundation. Elements of it appear in Palast's new book, Billionaires & Ballot Bandits: How to Steal an Election in 9 Easy Steps (Seven Stories). Research assistance by Zach D. Roberts, Ari Paul, Nader Atassi and Eric Wuestewald.
Mitt Romney's opposition to the auto bailout has haunted him on the campaign trail, especially in Rust Belt states like Ohio. There, in September, the Obama campaign launched television ads blasting Romney's November 2008 New York Times op-ed, "Let Detroit Go Bankrupt." But Romney has done a good job of concealing, until now, the fact that he and his wife, Ann, personally gained at least $15.3 million from the bailout—and a few of Romney's most important Wall Street donors made more than $4 billion. Their gains, and the Romneys', were astronomical—more than 3,000 percent on their investment.
It all starts with Delphi Automotive, a former General Motors subsidiary whose auto parts remain essential to GM's production lines. No bailout of GM—or Chrysler, for that matter—could have been successful without saving Delphi. So, in addition to making massive loans to automakers in 2009, the federal government sent, directly or indirectly, more than $12.9 billion to Delphi—and to the hedge funds that had gained control over it.
One of the hedge funds profiting from that bailout— $1.28 billion so far—is Elliott Management, directed by Paul Singer. According to The Wall Street Journal, Singer has given more to support GOP candidates—$2.3 million—than anyone else on Wall Street this election season. His personal giving is matched by that of his colleagues at Elliott; collectively, they have donated $3.4 million to help elect Republicans this season, while giving only $1,650 to Democrats. And Singer is influential with the GOP presidential candidate; he's not only an informal adviser but, according to the Journal, his support was critical in helping push Representative Paul Ryan onto the ticket.
Singer, whom Fortune magazine calls a "passionate defender of the 1%," has carved out a specialty investing in distressed firms and distressed nations, which he does by buying up their debt for pennies on the dollar and then demanding payment in full. This so-called "vulture investor" received $58 million on Peruvian debt that he snapped up for $11.4 million, and $90 million on Congolese debt that he bought for a mere $20 million. In the process, he's built one of the largest private equity firms in the nation, and over decades he's racked up an unusually high average return on investments of 14 percent.
Other GOP presidential hopefuls chased Singer's endorsement, but Mitt chased Singer with his own checkbook, investing at least $1 million with Elliott through Ann Romney's blind trust (it could be far more, but the Romneys have declined to disclose exactly how much). Along the way, Singer gained a reputation, according to Fortune, "for strong-arming his way to profit." That is certainly what happened at Delphi.
* * *
Delphi, once the Delco unit of General Motors, was spun off into a separate company in 1999. Alone, Delphi foundered, declaring bankruptcy in 2005, after which vulture hedge funds, led by Silver Point Capital, began to buy up the company's old debt. Later, as the nation's financial crisis accelerated, Singer's Elliott bought Delphi debt, as did John Paulson & Co. John Paulson, like Singer, is a $1 million donor to Romney. Also investing was Third Point, run by Daniel Loeb, who was once an Obama supporter but who this summer hosted a $25,000-a-plate fundraiser for Romney and personally donated about $500,000 to the GOP.
As Delphi was in bankruptcy, making few payments, the bonds were junk, considered toxic by the banks holding them. The hedge funds were able to pick up the securities for a song; most of Elliott's purchases cost just 20 cents on the dollar of their face value.
By the end of June 2009, with the bailout negotiations in full swing, the hedge funds, under Singer's lead, used their bonds to buy up a controlling interest in Delphi's stock. According to SEC filings, they paid, on average, an equivalent of only 67 cents per share.
Just two years later, in November 2011, the Singer syndicate took Delphi public at $22 a share, turning an eye-popping profit of more than 3,000 percent. Singer's fund investors scored a gain of $904 million, all courtesy of the US taxpayer. But that's not all. In the year since Delphi began trading publicly, its stock has soared 45 percent. Loeb's gains so far for Third Point: $390 million. The gains for Silver Point, headed by two Goldman Sachs alums: $894 million. John Paulson's fund, which has already sold half its holdings, has a $2.6 billion gain. And Singer's funds and partners, combining what they've sold and what they hold, have $1.29 billion in profits, about forty-four times their original investment.
Yet without taking billions in taxpayer bailout funds—and slashing worker pensions—the hedge funds' investment in Delphi would not have been worth a single dollar, according to calculations by GM and the US Treasury.
Altogether, in direct and indirect payouts, the government padded these investors' profits handsomely. The Treasury allowed GM to give Delphi at least $2.8 billion of funds from the Troubled Asset Relief Program (TARP) to keep Delphi in business. GM also forgave $2.5 billion in debt owed to it by Delphi, and $2 billion due from Singer and company upon Delphi's exit from Chapter 11 bankruptcy. The money GM forgave was effectively owed to the Treasury, which had by then become the majority owner of GM as a result of the bailout. Then there was the big one: the government's Pension Benefit Guaranty Corporation took over paying all of Delphi's retiree pensions. The cost to the taxpayer: $5.6 billion. The bottom line: the hedge funds' paydays were made possible by a generous donation of $12.9 billion from US taxpayers.