Enron Redux

Enron Redux

There was no better symbol of the Enron era than the infamous Nigerian barge deal, the one in which Merrill Lynch agreed to buy three power plants mounted on barges off the African coast with the understanding that it could sell them back a year later at a modest guaranteed profit. The idea was to create $12 million in phony profits for Enron. Four Merrill bankers were convicted for their role in the scheme, and although the convictions were later overturned, the deals were a black eye for Merrill.

So imagine my surprise when I read that Merrill may be trying to hide the full extent of its exposure to losses from mortgage-backed securities. The Wall Street Journal reports that Merrill has been striking deals with hedge funds to buy commercial paper from Merrill-sponsored entities, with a promise that they can sell the stuff back to Merrill after a year for a guaranteed minimum return.

The SEC is investigating.

A U-Turn for Chrysler

The financial hot shots at Cerberus Capital Management aren't exactly getting off to a flying start at Chrysler.

Case in point: The announcement of 12,000 layoffs just days after United Auto Workers members, by a razor-thin margin, approved a new contract in which they made significant concessions in terms of a two-tier wage structure and job security to help the company become competitive again. The size and timing of the layoffs took the union by surprise and will surely undermine whatever sense of partnership Cerberus had hoped to establish with its new employees.

What caught my eye, however, was the decision to scrap two of the new models Chrysler had introduced in the last few years to freshen up its product line -- the stylish Crossfire roadster and the handsome Pacifica station wagon. Executives at Daimler, Chrysler's previous owner, understood that it would take years of trial and error and heavy marketing investment just to get consumers to take a look at their products again. The early sales of these two models had been disappointing, but improvements were in the works. Now, the new owners have decided they are unwilling to stick with that process, signaling that they don't think Chrysler has what it takes to compete in categories in which it is not already successful.

Surely that raises the question of whether Cerberus means it when it says it aims to revitalize Chrysler, or whether -- having put very little of its own cash into the deal -- its goal is simply to cut costs, reduce debt, restore profitability, and then sell it off to the next sucker at the top of the next economic cycle.

Zone Defense

It's not often in politics when your adversaries utter one of those comments that is so flattering you could put it on your next campaign brochure.

But such a gift was delivered to D.C. Mayor Adrian Fenty (D) last week by William J. Wright, president of the Taxicab Industry Group, after the mayor's decision to set a $4 minimum for cab rides under the new metering system.

"The mayor did his thing again," Wright told The Post. "He's catering to the public." Heaven forbid!

As it happens, the drivers' appreciation for political nuance is no better than their appreciation of economics. On the one hand, they complain the new fare system will lower their incomes by lowering fares. And in the next breath, they complain the meters will attract big taxi companies with large fleets into the city -- by their crazy logic, to take advantage of lower fares and the extra costs of buying and maintaining the meters.

Of course, we surely wouldn't want those big fleets moving in. They might actually try competing through unfair tactics -- you know, like catering to the public.