Wall Street Comes to Fayette: Update 5

I've been on the road recently, but wanted to pass along a quick update on the situtation with First Brands, the auto parts company that laid off workers in little Fayette, Ohio, and then other places.

As readers may recall, First Brands is, or was, a holding company with a number of aftermarket auto parts names, like Fram and Autolite, under its corporate umbrella. Private lenders – finance companies that operate a little like banks, but are not banks, and often provide risky loans to other firms – shoveled a lot of money to First Brands, leaving it heavily indebted to what amounted to the payday lenders of Big Time Finanace. Meanwhile, brothers Patrick James, the First founder, and brother Edward were living the high life. They've since been indicted, and their company labeled a kind of Ponzi scheme.

The indictment is all well and good, but workers at all those companies assembled under the First Brands umbrella are the ones paying. I've listed layoffs in earlier installments of this saga. Then, this past week, First Brands announced that instead of trying to sell the bankrupt company (probably because receivers could not find any buyers), it's going to be liquidated. Kaput. That means retirees will no longer receive the benefits they've been promised.

This situation is so messed up that cash from the sale of inventory can't even be distributed because Bank of America is suing another First Brands creditor, Aequum Capital Financial II. Aequum is in danger is defaulting on its own loans and wanted the cash to help it out of its own bind.

While the Wall Street players battle in court, people like those in Fayette – and Cleveland, Toledo, Indiana, and so on – are out of work and retirees who put in their years are scrambling for money. The entire debacle was enabled by the supposed wizards of finance whose eyes grew so large with greed at the prospect of being able to charge First Brands high interest rates, that they didn't bother to check out the company to which they gave out all the loan money. Venerable American brands will be no more, the auto parts distribution chain will be damaged – as will communities where First Brands plants and offices were located – workers and older people will be rooked, again, and the financial system itself will take a hit as private lenders cover their own losses.

This would seem to an area ripe for reform, if any political candidates would like to speak up.