William J. Holstein

Why Steve Rattner Must Resign from the Obama Automotive Task Force


April 5, 2009--There were two dramatically different stories about Steve Rattner in today’s newspapers. One was a preposterous puff piece in the New York Times by Louise Story praising Rattner for having a socialite wife, Maureen White, who helped him raise funds for Hillary Clinton at their Fifth Avenue apartment overlooking the Metropolitan Museum. When Barack Obama beat Clinton out for the Democratic presidential candidacy, the Rattners shifted their fundraising to Obama. Therefore, he was rewarded with the plum position of being in charge of the auto task force and summarily firing General Motors Chief Executive Rick Wagoner. This is called buying a position of power and promptly abusing it. This is shocking. Does the New York Times really think that this is the right way for the Obama administration to make major decisions about the U.S. economy? Maybe they're soft on Rattner because he once worked at the Times as a reporter. That is a basic journalistic conflict of interest, in and of itself.

But an article in The Wall Street Journal raised a possible conflict of interest that is the real reason why Rattner cannot be making decisions about the future of Chrysler, which is owned by Cerberus Capital Management. The Journal reported that Rattner’s investment banking firm, Quadrangle, made a $250 million wrong-way bet on Alpha Media, the publisher of men’s magazine Maxim. The media group has been crushed by the declining advertising market. Quadrangle put up $90 million of equity and borrowed the rest of the money it invested.

“Alpha represents another awkward issue for Mr. Rattner,” the Journal wrote. “One of the main lenders in the deal is Cerberus Capital Management LP, the private-equity firm that owns Chrysler and stands to lose a lot of money as a result of Mr. Rattner’s decisions in his new job. Cerberus controls a large chunk of Alpha Media’s $125 million in senior debt and could end up owning the company.”

Quadrangle has written down its Alpha investment to a lower level, but we don’t know by how miuch. If Cerberus ends up owning Alpha, it will be in business with Rattner’s firm. How can we the American people trust anything that Rattner does toward Chrysler? He has no choice but to resign.