President Obama's remarks on the plans submitted by GM and Chrysler present us with an opportunity to clearly demand sacrifices from the financial industry employing the very logic of our President in his own words.
I sympathize with those who are concerned about what Obama's statement means to GM and Chrysler, but what is most important to me is making sure that those standards are applied universally to all firms on the taxpayer dole. For if Obama's argument isn't a statement of universal principles, but rather something specific to GM and Chrysler, then it doesn't mean anything at all beyond political theater designed to lessen challenges to whatever Geithner and Summers want to do with the auto industry.
Which is unfortunate, because this situation just feeds the fire that either the Administration is tone deaf to the economic concerns in the country, or the President is being outmaneuvered by his advisers. Neither conclusion is particularly appealing, so I would prefer to treat these statements as if the President really means them, as if these are principles, not excuses. For as universal principles, this is a deeply powerful statement.
So with all the hubbub, what exactly did Obama say? And wouldn't it be great if this applied to the financial services companies that have been the recipients of trillions of dollars of Fed and Treasury support?
In recent months, my Auto Task Force has been reviewing requests by General Motors and Chrysler for additional government assistance, as well as plans developed by each of these companies to restructure, to modernize, and to make themselves more competitive.
Hopefully, the same has been done to the financial firms, as well.
Year after year, decade after decade, we've seen problems papered over and tough choices kicked down the road, even as foreign competitors outpaced us. Well, we've reached the end of that road. And we, as a nation, cannot afford to shirk responsibility any longer. Now is the time to confront our problems head-on and do what's necessary to solve them.
Amen! Here's my personal take on solutions, but that's by no means the definitive listing. The point is, let's stop kicking the can down the road. Let's deal with the problems now and do what's necessary to solve them.
And that's why the federal government provided General Motors and Chrysler with emergency loans to prevent their sudden collapse at the end of last year -- only on the condition that they would develop plans to restructure. In keeping with that agreement, each company has submitted a plan to restructure. But after careful analysis, we've determined that neither goes far enough to warrant the substantial new investments that these companies are requesting.
Why aren't Fed and Treasury aid to financial companies conditioned upon plans to restructure? Why hasn't each company submitted a plan to restructure? What have they done to warrant new investments?
And so today I'm announcing that my administration will offer GM and Chrysler a limited additional period of time to work with creditors, unions, and other stakeholders to fundamentally restructure in a way that would justify an investment of additional taxpayer dollars. During this period they must produce plans that would give the American people confidence in their long-term prospects for success.
[snip]
It'll require creditors to recognize that they can't hold out for the prospect of endless government bailouts.
This is what's wrong with the financial bailouts, right here. Creditors and other stakeholders have not been forced to renegotiate (indeed, AIG has been using government money to pay off its creditors like Goldman Sachs, and the industry has paid tens of billions of dollars in bonuses to highly-compensated employees since the 'crisis' began). Where are the plans that support public confidence in their long-term prospects for success?
No stronger indictment of the Fed and Treasury actions has been rendered than by our President himself.
Now, while Chrysler and GM are very different companies with very different paths forward, both need a fresh start to implement the restructuring plan they develop. That may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger. Now, I want everybody to be clear about this. I know that when people hear the word "bankruptcy" it can be unsettling, so let me explain exactly what I mean. What I'm talking about is using our existing legal structure as a tool that, with the backing of the U.S. government, can make it easier for General Motors and Chrysler to quickly clear away old debts that are weighing them down so that they can get back on their feet and onto a path to success; a tool that we can use, even as workers staying on the job building cars that are being sold.
Hmm, using bankruptcy courts? That sounds suspiciously like what those of us who opposed bailouts the last couple years have been advocating.
Because I know that if we can tap into that same ingenuity and resilience right now, if we can carry one another through this difficult time and do what must be done, then we will look back and say that this was the moment when the American auto industry shed its old ways, marched into the future, remade itself, and once more became an engine of opportunity and prosperity not only in Detroit, not only in our Midwest, but all across America.
Sounds good. Now, let's make that happen in the financial services industry.
Until then, this is just political theater. Until Blankfein, Mack, Dimon, and other financial company executives are asked to resign, we'll know Wagoner's departure doesn't mean much of anything. It's window-dressing, a distraction from the trillions going out the door with few strings attached. Let's seize this opportunity to attach the very same strings to every one of these financial companies.
If the financial executives don't like it, there's a very simple option. Stop using government to replace the funds you should be raising from private capital markets.
Update: Up above, I linked to the New York Times transcript of the event. Here are the original remarks as released by the White House Press Office as prepared for the speech at 11:07 AM Eastern.