Thursday, May 21, 2015

LIBOR Scandal: Did Ford Credit benefit?



Louisville, KY - On Wednesday it was announced that four banks pled guilty and at least six banks would pay almost $6 Billion total in fines for trying to manipulate foreign exchange rates. This is just the latest in all of the seemingly daily settlements for corporate wrongdoing in the stock market manipulation, yet miraculously, no one is in jail.

JP Morgan Chase of course is involved once again, along with, Citigroup, Barclays, UBS and Royal Bank of Scotland. The charges were cheating their clients to boost their own profits using invitation-only chat rooms and coded language to coordinate their trades.

And they pled guilty, and no one is in jail.
So why mention Ford? Simple.
How many Billions of dollars did Ford benefit from based on a manipulated LIBOR rate that the treasury would use as a baseline for interest rates that benefited Ford itself? How much did Ford insiders make on illegal insider trading if allegations are proven true?

Ford should be on the hook for penalties/fines that could be as high as $2 Billion as we outlined in previous stories. How does that affect their contract negotiations this year? We will tell you later in this article. In the meantime back to Ford, LIBOR, and what it all means.

In my opinion, Ford benefited from the manipulated LIBOR rates but in order to show you how we have to lay it out for you.

Ford and the myth of the bailout

In 2006 Ford was on life support and was on the verge of bankruptcy just like GM and Chrysler. So what to do? 

In the latter half of 2005, Chairman Bill Ford asked newly appointed Ford Americas Division President Mark Fields to develop a plan to return the company to profitability. Fields previewed the Plan, named The Way Forward, at the December 7, 2005 board meeting of the company and it was unveiled to the public on January 23, 2006. "The Way Forward" included resizing the company to match market realities, dropping some unprofitable and inefficient models, consolidating production lines, closing 14 factories and cutting 30,000 jobs.

In addition you may recall the later announcements by Ford that they had "mortgaged the blue oval itself" to obtain a loan of about $23 Billion in order to survive. 

The problem? 

The $23 Billion was borrowed at a time when Ford had a junk credit rating which means they paid at least 10% interest on the borrowed money. 

That is one serious interest payment amid declining sales and revenues and it would be unsustainable for any length of time.

The interest payment alone would eat up $2.2 Billion a year minimum and that most certainly was unsustainable, BUT it did buy them time to work on a solution and present a plan to the government in their quest to use our taxpayer money to save themselves.

One example of how desperate Ford was? The absurd cash for clunkers program that Americans were so angry about came from Ford lobbying.

But who would lend Ford that kind of money considering their junk bond status? 

Most certainly it would have included one of the big four who just got nailed manipulating the market. Citigroup? Barclay's? JP Morgan Chase? Bank of Scotland? Ford would deal with at least one or all of them.

Ford needed a better deal and could not get one on their own thanks to their own mishandling of their business.

In 2008 as we all know the government delivered with the auto bailout. Ford Credit received at least $15.9 Billion of our tax money at presumably treasury rate which is close to the LIBOR rate. The feds would certainly use LIBOR as a basis for their own rates since they would compete for the same money. 

As we know Ford also received $5.9 Billion in loans at 1/2 of 1 % from the Department of Energy.

Ford's profits are all because of our taxpayer dollars. We know they have never repaid at least $5.9 billion as we pointed out previously.  

From 2006-2008 Ford's stock began a nosedive and they couldn't give it away. The writing was on the wall and Ford was going under. They borrowed heavily with an unsustainable payment plan. 

They knew going in that paying $2.2 Billion alone each year just on interest was unsustainable but they needed time. Borrowed time. They also knew a normal repayment agreement would include principal repayment as well. They knew that when, not if, they defaulted on those loans they were done. They knew when they took the $23 Billion loans they had to find a way out.

Ford's original loan of $23 BILLION at 10% per annum (minimum junk bond rate) would cost $2.2 Billion each year in interest. Combined with a normal principal repayment plan that price was even greater.

They needed our tax money and the government bailout. They lobbied for it and put the plan together. 

With a bailout totaling at least $22.8 Billion (DOE "loan" of $5.9 Billion and Ford Credit receiving $15.9 Billion) at a new rate of 1/2 of 1% they saved tons of money. The new interest rate annual payout would be somewhere around $115 Million.

Think the LIBOR scandal isn't important? How many corporations the size of Ford benefited from the manipulated interest rates on their loans?

Ford's savings/profits?

$2.085 BILLION annually on the interest alone!

And with no requirement to ever pay back the principal for at least $5.9 Billion of it.

Congress should be angry as hell. 

OUR tax money could now be used to pay back the high interest loans Ford got themselves into with at least part of that money, the DOE's $5.9 Billion loan, not having to go towards principal allowing them to keep that money forever. Money that generates around $200 Million annually in profits from Ford investing it.

With Ford having over $17 BILLION in cash, when do we cut off the Corporate welfare? Why did no one see this coming?

What of the small businesses that were lost and destroyed during this period? Mom and Pop stores bankrupt, family farms lost all because they could not get the same thing Ford did. Where could they get the same credit deals that Ford received that would allow them to stay in business?

They couldn't. The heartland of America paid for Ford's greed. Ford wasn't alone but they were the only ones who lied about being part of the bailout. While I may not like the bailout at least Chrysler and GM admitted their failures.

They also paid back their government money.

Ford misrepresented themselves to the American people and their recovery depended on the lie. It depended on the lack of oversight on the whole deal. It depended on the mirage that they were "too big to fail."

And it worked. Now that we know about the manipulation by the major banks, who are/ were bankrolling Ford and Ford Credit, did Ford knowingly benefit from that? That question has to be asked.

We will find out, but can anyone wonder anymore why Ford was so worried about insider trading being found out during this time?

Insiders who attended the Treasury briefings KNEW of the bailout. How far would Ford go to protect themselves from an insider trading scandal with all this money and their entire business on the line? Hell even if James T. Young were the only man to benefit from it, he wasn't, why would Ford protect just one lowly employee AND promote him as well?

With current Deputy Secretary of Commerce, and Ford former Vice President of Government Affairs own Bruce Andrews married to then SEC Chief of staff Didem Nisanci, is it a far fetched realization that the cover up was on?

No investigation of insider trading was ever done.....until now. Your welcome.

With $17 billion cash why did Ford need to request an extension on a $9 Billion revolving credit line? Have they not fixed the business model that failed yet?

Going Forward

In the meantime, Ford is in the middle of a contract negotiations year. Going forward, how will this affect the UAW employees and their jobs?

If Ford waits, doesn't admit wrongdoing now, until after the contract is signed, then what?

The investigation is no secret, Washington leaks like a sieve and now everything is public anyway.

Why admit it and make restitution now? Ford relies on the two their wage system these days, it saves them a bundle, but the UAW will push back and ask that it be eliminated. 

Based on Ford's own public reports about how profitable they are these days, and backed up by the public announcements of the apparently taxpayer funded large employee profit sharing checks, the UAW can certainly make the case against Ford to drop the two tier system.

Ford of course wants to keep the system to make even more profit. At this point though, whose profit is it? Ours, the taxpayer who apparently is funding them, or Ford's?  

Once that contract is negotiated and signed Ford is on the hook. Negotiations begin in earnest this summer.

What happens once that contract is signed and Ford finally admits wrongdoing? That will then destroy their credibility, once again. The stock price drops, once again, we the American consumer realizes that we have been duped, once again, Ford loses even more market share they will never recover from, just like they did after the Firestone debacle, once again, and Congress, the SEC, and the criminal investigations finally hold them accountable.

How long before Congress realizes they were duped and that Ford made billions on the lie? Insiders made millions on illegal insider trading? When do they realize that Ford's profits are with OUR money not theirs? When do small mom and pop business get the break they deserve? How about the family farms who lost it all? When does the heartland get their recovery?

Mark Fields named his 2006 plan the Way Forward plan. It cost at least 30,000 jobs and put we the taxpayer on the hook for Ford's recovery.

If Ford were the "all American" company they lied to us about being during all of this, they would step up and do the right thing now before it costs them, and we the taxpayer, even more money.

How many jobs will be lost due to their arrogance and inability to correct the problem they created once again has yet to be seen.

But how many families now lose their way of life because of Ford's ego?

The mom and pop businesses, the farmers in the heartland, just like practically every small business in America was denied the same benefit Ford received, and yet we all paid for it.

So many families and business destroyed so that one company whose arrogance, ego, and in my opinion illegal corrupt behavior, wouldn't have to suffer.

All to protect a rich corporate family named Ford.

Fields called his original plan the Way Forward plan. Is this how Ford wants to be remembered going forward?

It would seem so which proves the lies.

Does Ford go forward by doing the right thing and owning up to this mess, taking responsibility, paying the penalties, and salvage what they can of the company? Or does their arrogance and egos demand they go forward until they are so far in the corner that thousands more jobs will be lost and more families lives destroyed because of them.

That isn't what we the people signed up for when we the people funded their bailout.

I like those words, "going forward."

Come to think of it I will name my Ford stories a part of my new plan. I will call my plan Ed Springston's 2015 "Going Forward Plan."

There is plenty more to come in my "Going Forward" plan. 

You won't want to miss it.


Listen daily from 7-8pm at The Ed Springston Show. Also visit Louisville Politics for more details and in depth coverage of local political and news issues.

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Yours truly,
Ed Springston

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