Steven Rattner has written a great article recounting his experiences as the "Car Czar" overseeing the bailout of the auto companies. He gives glimpses into the White House decision making process which illuminates the challenges of the situation and the thoughtfulness of Obama and his key players. Many people on both sides villified Obama for his decisions and I personally was against any bailouts. However these problems are incredibly complex and ultimately are unprecedented. This means the people solving them can't necessarily rely on exact experience to reach the goal. While ultimately success still remains to be seen, I think the administration handled it extraordinarily well.
http://money.cnn.com/...
I think this captures the essence of the difference between the Obama administration and the Bush administration.
When the Obama administration took office on Jan. 20, it inherited nothing in the auto area: no staff, no stacks of analyses, no plans of any kind. The Bush administration had decided in late December that GM and Chrysler were not going to go bankrupt on its watch and had shoveled $17.4 billion of TARP money into the companies to keep them afloat, but without any meaningful stab at restructuring them.
As much as you may hate wall streeters, they understand business. During this time people like Rush (and even me) were saying we should let the automakers fail. Rattner says that in his professional opinion that this would have resulted in full liquidation.
I found it frustrating that so many pundits were suggesting that the government stay on the sidelines and let the two companies fend for themselves. With financial markets still largely frozen and no private capital available, there was no question that both would have slid into bankruptcy, run out of cash, closed their doors, and liquidated.
He describes how bad GM's management is. As a free market proponent, I believe companies with bad management should fail and companies with good management should thrive. I don't think in general the government should step in. In the case of GM and Chrysler while still skeptical I truly can understand the point.
Everyone knew Detroit's reputation for insular, slow-moving cultures. Even by that low standard, I was shocked by the stunningly poor management that we found, particularly at GM, where we encountered, among other things, perhaps the weakest finance operation any of us had ever seen in a major company.
For example, under the previous administration's loan agreements, Treasury was to approve every GM transaction of more than $100 million that was outside of the normal course. From my first day at Treasury, PowerPoint decks would arrive from GM (we quickly concluded that no decision seemed to be made at GM without one) requesting approvals. We were appalled by the absence of sound analysis provided to justify these expenditures.
The cultural deficiencies were equally stunning. At GM's Renaissance Center headquarters, the top brass were sequestered on the uppermost floor, behind locked and guarded glass doors. Executives housed on that floor had elevator cards that allowed them to descend to their private garage without stopping at any of the intervening floors (no mixing with the drones).
One of the most interesting portions are where he describes meeting with Obama and the decisionmaking of the Obama team. This is exactly how Obama comes across in public and why I think he actually is a great president.
As we went back and forth over Chrysler, the President himself seemed as torn as Larry and I had been. Suddenly, he realized that Austan Goolsbee, unofficial spokesman for the opposition, was not in the room. "Where's Goolsbee?" the President asked. A few minutes later, Austan joined the conversation. But the President had only about 20 minutes available before his assistant, Katie Johnson, came in with a note urging him to move on to his next appointment. "This is too important to try to decide in a rush," the President told us. "We need to get together again later."
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The President's political advisers were as torn as his task force: Polls universally showed the public strongly opposed to the auto bailouts. At the same time, the advisers recognized the severe economic and political consequences of a Chrysler shutdown across broad swaths of the industrial Midwest. We were dazzled that chief of staff Rahm Emanuel -- a former congressional leader -- could identify from memory the representatives in whose districts the large Chrysler facilities lay.
After about an hour, the President asked for any final comments and then said, "I've decided. I'm prepared to support Chrysler if we can get the Fiat alliance done on terms that make sense to us." And we were thrilled when the President said, "I want you to be tough, and I want you to be commercial."
With that, the meeting dispersed. The recommendation to ask GM's Rick Wagoner to step aside had received barely a mention. New to business meetings with Presidents, I found Obama's style consistent with his "No drama Obama" image and on a par with the best CEOs I had spent time with. He was cordial without being effusive and decisive when his advisers were divided.>
He then writes about the reaction to the government asking the CEO of GM to step down. I agree wholeheartedly that if you ask the government for bailout money, they get to dictate whatever terms they want, just like any other lender. To suggest otherwise is preposterous. Bt the same token, the banking industry has earned themselves a ton of new regulation - next time don't come asking for handouts.
The news about Rick's departure had leaked out on Sunday before we started briefing the press and consequently ended up being a bigger part of the story than it should have been. I was stunned by the suggestion that the government, GM's only source of fresh capital, was somehow out of bounds for asking for the resignation of a CEO who had lost $13 billion of taxpayer money in three months and was now asking for more. But rightly or wrongly, the concept of Washington extending its iron fist to an industrial icon proved unnerving to more than just the Wall Street Journal editorial page.
The bankers negotiate as is there job - to get as much money as possible. I don't fault them for that at all, but I'm glad Obama's team handled it so skillfully.
Led by Jimmy Lee, J.P. Morgan's top banker and a long-standing business friend of mine, the banks had been insisting that, as secured lenders, they were entitled to repayment of their entire $6.9 billion. "And not a penny less," Jimmy said to me on more than one occasion.
From the outset that had struck us as ridiculous. The debt was trading at about 15¢ on the dollar, and according to Chrysler's analysis, the liquidation value of the company was around $1 billion. Clearly the banks didn't believe that the government would push back and let the lenders take over the company, if necessary. Until they heard the President speak on Monday morning. Almost immediately afterward, Jimmy called with a new message: "We need to talk."
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Expecting to haggle, I had decided to put forward the smallest number I could imagine ($1 billion, equal to both the current market value of the loan and the liquidation value of the company).
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The lenders felt that this represented an ideological decision by the Obama administration to tilt in favor of labor and against capital. That was simply not the case. At no time during our months of work did the White House ever ask us to favor or punish any stakeholder.
Many other unsecured creditors -- notably, suppliers and consumers holding warranties -- actually received 100¢ on the dollar. The fact was, Chrysler had to have workers, suppliers, and customers to succeed and therefore needed to give them more than called for by their rank in the capital structure.
I highly recommend you read the whole article and would love to read the inside scoop on health care and decision making on other issues of the day.