Could Detroit Get Bailout and Bankruptcy?

Are they or aren't they? That's the big question this morning hovering around the on-again/off-again merger talks between General Motors and Chrysler. On Thursday, the Detroit Free Press, among others, quoted GM as saying, no, negotiations have not resumed. Citing company spokesmen, the newspaper writes, "GM and Chrysler merger talks were held in October—though GM never formally acknowledged talking specifically about Chrysler—but the idea was halted as the automakers' cash crisis deepened."

With that out of the way, focus now shifts from Detroit to Washington, where Reuters is reporting this morning that the emergency financing for the struggling automakers could be announced as soon as today. The bridge loans would get the companies through the next few months, the newswire reports. And if that doesn't work? Well, an "orderly bankruptcy" then might be the best option for GM and Chrysler, Treasury Secretary Henry Paulson said at a Business Week-sponsored "Captains of Industry" forum yesterday in New York. "This is a time when it makes sense to be prudent," Paulson said, adding, "If the right outcome is bankruptcy, then it's better to get there through an orderly process." Paulson also said he would like to see the Fed take "oversight over hedge funds."

The New York Times today takes a look at how Ponzi schemes and similarly constructed financial scams have been prosecuted in the past and draws a tough conclusion for current and former clients of Bernard Madoff, mastermind behind what's being calling "Wall Street's largest ever fraud." Madoff clients who made money may have to pay up. "Previous court rulings regarding financial frauds suggest the winners could be forced to give up some of their gains to losers," the newspaper writes, citing the case of the $400 million collapse of the hedge fund Bayou Group in 2005. That was peanuts compared with the alleged Madoff fraud. Madoff has told investigators the final toll could hit $50 billion; so far, reported losses from around the world are at $20 billion, the NYT calculates.

The Wall Street Journal, meanwhile, explains how it was that Madoff managed to extend his client base so aggressively from New York and Florida to international financial capitals such as London, Tokyo, and Zurich. The key to Madoff's overseas success was investment fund Fairfield Greenwich, which heavily marketed Madoff's golden touch to clients abroad. "Fairfield Greenwich has in marketing documents touted its close relationship with Mr. Madoff—and in the process raised about $1.7 billion from investors in the U.S. and Europe," the newspaper writes. In a separate article, the WSJ reveals the difficult task ahead for Madoff investigators in uncovering the extent of the alleged fraud. Securities and Exchange Commission investigators have located documents that indicate Madoff had a list of what could be thousands of clients, but it's unclear where their money has been invested, if at all. "The [clients'] positions were stated as being with 'clearing banks,' but the SEC said as of Dec. 12 it was unable to identify any such clearing banks," the newspaper writes.

On Thursday, President-elect Barack Obama took a jab at the SEC. In a press conference to announce Mary Schapiro, the first woman to head the agency, Obama decried the lack of "adult supervision" in monitoring the financial industry that allowed the Madoff fraud to grow unchecked, the Guardian writes. Current SEC chief Christopher Cox, meanwhile, continues to be blasted by critics, namely for not accepting responsibility for the failures in uncovering the alleged Madoff fraud sooner, the Washington Post writes. 

Continuing with the white-collar police-blotter news, the SEC announced Thursday that it has broken up a $4.8 million insider-trading scam in New York. It involved a former Lehman Bros. broker, his wife at high-powered public relations firm Brunswick Group LLC, and 1994 Playboy Playmate Maria Checa. According to the WSJ, 35-year-old Matthew Devlin, now suspended from Barclays Capital (Barclays acquired the Lehman unit where Devlin worked this fall), admitted to stealing confidential details from his wife before passing them on to his buddies (and his buddy's girlfriend, Checa) for ill-gotten gains over a span dating back to 2004. According to the WSJ, the wife, an executive at Brunswick, had access to sensitive information of major corporate mergers including InBev NV's $52 billion purchase of Anheuser-Busch and Electronic Arts' unsolicited bid for Take-Two Interactive Software. She was unaware her husband had been stealing the information. Still, it appears he made quite a habit of helping himself to her work files. Devlin would share details of juicy mergers to clients and friends in code, referring to his wife as his "golden goose," the NYT details. The SEC has charged seven people and is seeking to reclaim trading profits from two others, including Checa.

And finally, this is usually the time of year when overworked investment bankers look forward to their annual bonus. At Credit Suisse, management has come up with a creative pay-off: "[T]he bank said it would pay a substantial percentage of their 2008 compensation with an illiquid group of junk bonds, mortgage-backed securities and corporate loans," the WSJ writes. Merry Christmas, indeed.