Taxpayer Cash Machine Is A Banker’s Dream-Come-True
If the Fed buys $186-million worth of toxic commercial mortgage-backed securities for a barely-profitable hotel that might have been sold to a subsidiary of the seller, from lenders who might also have been owned by the buyers of the hotel, and the sale price was over $1.3 billion, and (less than two years later) the hotel is $1.2 billion in debt, and the hotel is not making payments, and lenders are planning to foreclose and take ownership, and the Fed is saying nothing about the $186 million they chipped in, does anybody need to be audited? Alan Grayson suggests maybe so.
Listen carefully from about 7:00… I think he’s saying that 1) The Fed relieved JP Morgan of a $186- million toxic loan that helped pay for a $1.313-billion purchase of an over-appraised, barely profitable (see articles below) hotel. 2) The lenders of the remainder borrowed for the buyout foreclosed on the borrower/s in 2010 and are now “moving in” to take over the property. 3) We don’t know what happened to the Fed’s (our) $186-million interest in it, because we don’t audit the Fed.
The storyline Grayson is talking about might be easier to follow after you read the articles linked-to below. But I think he’s saying…
…in 2007, a foreign company (Westbridge partnered with Citgroup) wanted to do a leveraged buyout of the Red Roof Inn (”a liability … secured only by this modest hotel chain of limited profitability, being sucked dry already by its foreign owners”). “Wall Street” came up with half a billion dollars for the $1.313 billion purchase, $186 million of which was set up to come from “entities” created specifically for “providing money” for this LBO “so somebody could end up controlling the Red Roof Inn other than the people who originally owned it.” (It appears the people who originally owned it were a company called Accor, which according to Westbridge’s description of itself on LinkedIn, was and probably still is one of three parents of Westbridge, the company that bought the hotel with partner Citigroup. In other words, Accor sold the hotel to a subsidiary of itself and Citigroup.)
Is Grayson saying Bear Stearns held the $186m note after the hotel was sold? I think so. I think he’s saying Bear Stearns held the $186m note, and the plan must have been to immediately sell it, but when markets collapsed in 2008, the note for the loan on this sinking company became an even hotter potato. I think he’s saying that when Bear Stearns went out of business, JP Morgan negotiated with the Fed for ownership of Bear Stearns’ assets and liabilities. But JPM didn’t want liabilities like the Red Roof Inn, so the Fed “assumed responsibility” for it. That is, the $186 million Bear Stearns note for the LBO was moved to the Fed’s books. I think “assumed responsibility” means they paid JP Morgan for it. Actually, we (the unwitting benefactors of the Fed) paid for it.
This was accomplished via a corporation set up by the Fed called Maiden Lane. (Maiden Lane II and Maiden Lane III were also formed for the Fed’s purchase of AIG liabilities.)
More about Maiden Lane: http://www.google.com/search?hl=en&rls=com.microsoft%3Aen-us&q=%22maiden+lane%22+federal+reserve&btnG=Search&aq=f&aqi=g1&aql=&oq=&gs_rfai=
No surprise that the Red Roof Inn soon failed to make payments (see WSJ articles below). And now (April-May, 2010) “the major creditors” are “moving in” to take ownership. (The Fed, a $186m-major-creditor, apparently is not “moving in.”) Citibank (a subsidiary of Citigroup) is mentioned as one of the major creditors.
But… “Not a single word from the Federal Reserve” about the Fed’s share in the property.
With no way to find out because we don’t audit the Fed. We also don’t know if banks are “moving in” to own lots more companies whose liabilities went on the Fed’s books when they “rescued us from financial disaster.”
A bill the Senate just passed to “audit the Fed” is, I think, limited to simply making public the names of banks that received Fed money. Bills that would initiate an actual audit have not been passed.
By the way, is that Nancy Pelosi in the background? Interesting to watch what happens behind Grayson in this video.
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Wall Street Journal June 2009 article on the Red Roof Inn and the LBO in 2007:
http://online.wsj.com/article/SB124578596153843175.html
“In 2007, Red Roof was acquired from Accor SA for $1.3 billion by a group led by Citigroup Inc.’s Global Special Situations Unit and including hotel manager Westmont Hospitality Group. (Westbridge is “managed by” Westmont. See below.) The deal left Citigroup with a 79% stake in Red Roof. This month, Red Roof’s owners missed scheduled payments on four mortgages with 131 Red Roof Inns pledged as collateral. All told, Red Roof’s properties carry nearly $1.2 billion in debt, including mortgages, mezzanine loans and other notes.”
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Wall Street Journal April 2010 article on the Red Roof Inn’s $367 million default (this is the article Grayson refers to in the video):
http://online.wsj.com/article/SB10001424052748703763904575196492743696902.html?KEYWORDS=red+roof+inn
“Red Roof Inn Inc., a hotel chain popular with business travelers on a budget, defaulted on $367 million face amount of mortgage debt, the latest hotel casualty in an industry that has been hard hit by the recession.
“In the latest examples of this, budget-hotel chain Red Roof Inn Inc. and real-estate investment trust Innkeepers USA Trust face losing hotels to their lenders as they scramble to get new terms on past-due debts.”
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Hotel industry news web site September 2007 article on the sale of Red Roof Inn by Accor to Citigroup and Westbridge,
http://www.hotel-online.com/News/PR2007_3rd/Sept07_RedRoof.html
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Hotel industry news site April 2010 article about Red Roof Inn default:
http://lhonline.com/distressedinventory/foreclosures_reveal_red_roof_inn_distress/
“The leveraged buyout, for almost 250 company-owned properties and a franchise system with more than 90 locations, was financed largely by debt sold to investors as commercial mortgage-backed securities (CMBS).”
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“Westbridge Europe is a hospitality industry investment fund managed by the Westmont Hospitality Group, one of the largest privately owned organizations of its type in the world today.
“Formed in 2006 as the European arm of Westmont, Westbridge Europe is headquartered in London. It currently operates 24 hotels in seven European countries and employs some 1,600 staff. The mostly franchised hotels operate under the Intercontinental Hotel Group brands of Crowne Plaza, Holiday Inn and Express by Holiday Inn, and the Accor brand Mercure. Westbridge Europe is continually monitoring the hotel industry for opportunities in both investments and partnerships.”
Copied and pasted on May 11, 2010 from http://www.linkedin.com/companies/westbridge-europe
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Note: Accor was the seller of the scarcely profitable Red Roof Inn to Citigroup and Westbridge for $1.313 billion. Accor is listed in Westbridge’s Linked-In account as one of the three parents of Westbridge. Which, if true, means Accor sold the Red Roof Inn to Citigroup and one if its own subsidiaries, Westbridge. Citigroup and Westbridge bought the hotel with a loan from “Wall Street” that included the $186m Bear-Stearns>JPMorgan>Fed note.
Grayson says Citibank is one of the lenders that’s repossessing the hotel. Does he mean Citigroup? If he means Citibank, then the lender was a subsidiary of the buyer, Citigroup. So, if I’ve got this straight (and I’m not sure I do), wouldn’t that be like me being an owner of the mortgage company I borrowed money from for a house? But if he means Citigroup, then one of the purchasers was also the lender, and is now repossessing (as lender) the property it bought (as purchaser). Right? This can’t be right. Either I don’t have my facts straight, or I’ve twisted some conclusions, but I don’t know where I’ve gone astray and would really appreciate hearing from somebody who can clarify.
Who is Alan Grayson?
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“Mr. Grayson has filed dozens of lawsuits against Iraq contractors on behalf of corporate whistle-blowers. He won a huge victory last month [March 2006] when a federal jury in Virginia ordered a security firm called Custer Battles LLC to return $10 million in ill-gotten funds to the government. The ruling marked the first time an American firm was held responsible for financial improprieties in Iraq.” – The Wall Street Journal, April 19, 2006
In the words of Senator Dorgan, there is an “orgy of greed” in Iraq. Vice President Cheney’s old firm Halliburton gets billions of dollars in no-bid contracts. War profiteers run wild, stealing millions from both US taxpayers and the Iraqi people. Corrupt corporations plunder Iraqi reconstruction funds, sabotaging the war effort. And the Bush Administration does nothing to stop it.
Everyone is concerned about the War in Iraq. Alan Grayson has done something about it.
Alan has taken on the biggest corrupt defense contractors, and won. His work on behalf of taxpayers has been recognized and applauded not only in the Wall Street Journal, but in the Washington Post, the New York Times, the Boston Globe, CNN, 60 Minutes, the BBC, and newspapers and magazines in dozens of countries around the world.
Alan’s Background
Alan and his wife, Lolita, have five children – Skye (12), Star (8), Sage (6) and two-year-old twins, Storm and Stone.
Alan grew up in “the projects” in the Bronx. He heard the squeal of the wheels of the elevated trains, every five minutes, all day and all night. At the age of 12, he took the subway to school, by himself. At the age of 11, a bully threw him under a moving bus. He lived.
Six years later, he took the standard test for 12th graders in New York. Almost 50,000 students in the Bronx took that the same test. Alan received the highest score.
Alan was accepted to Harvard College. He cleaned toilets there, and worked as a night watchman. He graduated in three years, with high honors.
Then he went to graduate school at Harvard. In only four years, he received a law degree (with honors), he earned a master’s degree in Government, and he finished the course work and passed the general examinations for a Ph.D.
After graduate school, Alan worked as a judge’s assistant at the D.C. Circuit Court of Appeals. He worked with Judges Ginsburg, Bork, Scalia, and Starr. He then joined Judge Ginsburg’s husband’s law firm, where he represented government contractors.
In 1990, Alan left the practice of law, and started a new business – IDT Corp. Alan was the first President of IDT. Today, IDT is a Fortune 1000 public company, with $2 billion a year in sales. Alan took his profit from IDT, and invested it in many other small companies. Today he owns between one and ten percent of a dozen different public companies.
Twenty years ago, Alan helped to found the Alliance for Aging Research, to help promote health and a good life for older people. The motto of the Alliance is “Living to 100 – and Loving It!” Alan has served as an officer of the Alliance for two decades. He also supported the work of Arnold Palmer Hospital for many years.
In the ’90s, Alan returned to the practice of law. For many years, he represented honest government contractors. Over the years since the beginning of the Bush Administration, however, he has seen the bad drive out the good. Fraud and corruption among government contractors grows and grows. The Bush Administration did nothing to recover the stolen money, protect the taxpayers, punish the thieves, or even safeguard the U.S. troops using and wearing defective equipment and supplies. And so Alan found his calling – like an Avenging Angel for the taxpayers and soldiers, he has sued the war profiteers in the name of whistleblowers, and forced them to disgorge their ill-gotten gains.
Source: http://www.graysonforcongress.com/page.asp?PageId=2
