Welcome Steven Rattner, and Host Marcy Wheeler.

[As a courtesy to our guests, please keep comments to the book.  Please take other conversations to a previous thread. - bev]

Overhaul: An Insider’s Account of the Obama Administration’s Emergency Rescue of the Auto Industry

Marcy Wheeler, Host:

I come to Steven Rattner’s Overhaul: An Insider’s Account of the Obama Administration’s Emergency Rescue of the Auto Industry from a very particular perspective. As a Michigander whose husband still works in the auto industry and whose town has benefited from battery subsidies, I’m a grateful direct beneficiary of the work the Obama Administration did to save the auto industry. But that also means I read this book, which might have been subtitled, “Wall Street gapes at Detroit” from the perspective, “Detroit gapes back at Wall Street.”

The Key to the Bailout: Section 363

There are key parts of the story I was eager to read, particularly the inside details on how Team Auto brought GM and Chrysler through bankruptcy in such short time. The decision–which Rattner traces to a suggestion he made in December 2008–to use Section 363 of the bankruptcy code is what made the whole bailout work. It allowed Team Auto to move the viable parts of Chrysler and GM into new companies, leaving much of the debt and underperforming parts of the companies (like Saturn or Pontiac) behind. As Rattner describes, preparing for 363 took a lot of negotiations with stakeholders–notably the UAW and bondholders–ahead of the actual bankruptcy filings to bring the time they’d spend in BK down from the 6 to 15 months originally projected, to the month or two it ultimately took. Much of the book’s narrative is about the deal-making Rattner himself led. Some interesting details of that deal-making: that Tim Geithner instructed Rattner not to make any special demands of TARP recipients who were also Chrysler bondholders, that Citi feared consumers would take their branch banking in MI and OH elsewhere if it played hardball, and that JPMorgan Chase’s chief negotiator Jimmy Lee,

demanded to know why, if the government thought banks important enough to give them tens of billions in TARP money, it wanted to squeeze them on [the Chrysler] deal.

In additional to this central drama, Rattner provides worthwhile details of what he learned over the course of this intervention. Some of these are details widely known in car country, but dismissed by much of the rest of the country: that GM had closed most of the gap in labor costs with transplants by the beginning of the restructuring, that GM plants really were competitive in terms of productivity, and that trimming the number of dealers was crucial to the success of the restructured companies. Rattner also added to my understanding of why GM needed help: he described the sheer ineptitude of GM CFO Ray Young and what Rattner describes as the ineffectiveness of GM’s chief lobbyist. And the last chapter, in which Rattner provides a partial explanation for the quick departure of Ed Whitacre, answers some, but not all, of my questions about the transition from GM CEO to CEO over the last two years.

One Missing Detail: Cerberus’ Role

One part of the story I wish Rattner had told more fully is the role of Cerberus in the bailout. There were a number of questions about Cerberus’ role in the initial negotiations with the Bush White House, particularly since that initial loan underfunded Chrysler in comparison to GM. But Rattner tells a story that is very favorable to Cerberus. For example, he rather amusingly attributes Cerberus’ offer–in December 2008–to just hand over Chrysler to the government for a dollar, to patriotism. Rattner makes that claim by neglecting any mention of Cerberus’ own desperate straits at the time. He doesn’t mention, for instance, that Cerberus had limited withdrawals from some funds, citing a desire for liquidity and invoking a “‘perfect storm’ in the auto and housing sectors.” And it’s over a hundred pages after his description of that December 2008 offer before he mentions GMAC’s successful effort to gain bank status and receive TARP funds, a move approved in that same December period and which has been an area of TARP that has come in for particularly sharp criticism. It turns out that private equity guy Steven Rattner tells a story that focuses primarily on the incompetence of manufacturing companies, even though private equity fund Cerberus’ failures and demands for a free ride were very much a part of the story of the auto bailout.

And these areas, where Rattner’s Wall Street perspective displays his own biases, are as interesting as the details about the bailout.

The Cost and Benefits of an Outsider

Take Rattner’s inconsistency over whether appointees overseeing industries should have any expertise in those industries. On page 48, Rattner repeats his complaint about politicians (in this case Debbie Stabenow and Carl Levin) questioning his qualifications for the job. But then, on the very next page, he endorses a view that the Treasury Secretary had to be someone with credibility in the financial world, precisely the equivalent of what Stabenow and Levin were asking for the Auto Czar position.

Essentially, only Larry and Tim had the necessary government experience, along with the credibility vital in the financial world.

This unquestioning endorsement of an insider for the finance world is shortly followed, on page 52, by one of the details that shocked me the most in the book: the report that neither Rattner, nor Geithner, nor Summers were cognizant of the degree to which the auto slowdown would affect (and was already affecting) the suppliers.

Automotive suppliers started to fail, which was how I discovered that the scope of my assignment was much broader than I’d anticipated. GM and Chrysler had dominated the conversations with Tim and Larry. None of us appreciated that, with auto sales down 40 percent, the collateral damage among related businesses would be vast.

Now, the stress the suppliers were (and are) under was a known fact to anyone with a basic understanding of the industry. The Center for Automotive Research (a group Rattner later relied on for industry analysis) produced a widely-cited report on the economic consequences of an auto collapse in November 2008, which projected the dire impact on suppliers in case of an auto contraction. And reports explaining Toyota’s support for a bailout covered the supplier issues as well. Yet, even as an inexperienced Rattner was learning this well-known fact on the job, thousands of supplier employees were already losing their jobs. (Rattner describes a similar rather belated discovery–how the financial collapse had dramatically hurt the auto finance companies, and with them the debt-driven market they supported–on page 145.)

Mind you, Rattner makes a good case in this book for bringing in outsiders to restructure any industry the government bails out, even while the evidence he presents, with this story and a few others like it, hint at the costs of having no one with expertise involved.

Which brings me to the question I’ll end this post with. So, to Steven: You suggest that the unhappiness with the bank bailouts has to do with the absence of the same shared sacrifice the auto bailout demanded. But that’s only half of it: The big problem is that finance is still broken, it’s still dragging the rest of the country down. Putting the question of firing CEOs aside, how did the Obama Administration insist on a complete overhaul for one industry, but status quo for the other? And what could be done, particularly as we learn more about the foreclosure fraud engaged in by top TARP recipients, to undertake the kind of overhaul that has served the auto industry so well? (Note, Rattner does address some of this in the book. He provides several–to me, unconvincing–explanations for the disparate treatment of the bankers and the auto makers–see pages 115, 216–and states he would have fired the bank CEOs that needed government help.)

168 Responses to “FDL Book Salon Welcomes Steven Rattner, Overhaul: An Insider’s Account of the Obama Administration’s Emergency Rescue of the Auto Industry”

BevW October 30th, 2010 at 1:59 pm

Steve, Welcome to the Lake.

Marcy, Thank you for Hosting today’s Book Salon.

Steven Rattner October 30th, 2010 at 2:00 pm

Thanks for having me!

emptywheel October 30th, 2010 at 2:01 pm

Steve, welcome! Great to have you with us.

Steven Rattner October 30th, 2010 at 2:02 pm

Thanks!

dakine01 October 30th, 2010 at 2:02 pm

Good afternoon Steve and welcome to FDL this afternoon.

Hi Marcy!

Steve, I have not had an opportunity to read your book so forgive me if you answer this in it but as part of your role as “Car Czar,” did you visit any of the auto plants outside of MI such as the Corvette plant in Bowling Green, KY and I believe the Saturn plant in TN?

Did you meet with any of the front line assembly workers or only with management and financial types?

bmaz October 30th, 2010 at 2:03 pm

Mr. Rattner, greeting and thank you for joining us.

egregious October 30th, 2010 at 2:04 pm

Welcome to Firedoglake – glad you could join us today!

emptywheel October 30th, 2010 at 2:04 pm

I already offered a question that I think a lot of people would love to solve: how can we fix finance in the same way we fixed the auto industries?

But here’s a more weedy question.

You repeatedly approvingly credit Bob Corker for developing a framework demanding shared sacrifice from key stakeholders. But Corker admitted (among other places, in a statement on December 11, 2008) that his plan didn’t ask for concessions from dealers. By using Corker’s framework as your own, did the team not prepare adequately for the dealer shutdowns, both with the public and the auto companies?

Steven Rattner October 30th, 2010 at 2:04 pm

Unfortunately given the incredible time pressure, we did not have the opportunity to visit plants outside of the MI area not to spend time with front line workers, although we spent a lot of time with UAW leaders.

Steven Rattner October 30th, 2010 at 2:06 pm

We used Corker’s framework for the most important concessions but not for all. Corker himself was on record as having said that dealer networks were too large and needed to be shrunk. And every single expert that we met with during our project — including NADA, the dealers’ trade association — agreed that the networks had to be reduced.

emptywheel October 30th, 2010 at 2:06 pm
In response to dakine01 @ 5

There is a description of the one day visit to MI the auto team made (though other team members spent more time looking at the plants, which is how they concluded GM really was as productive as the transplant factories).

dakine01 October 30th, 2010 at 2:07 pm
In response to Steven Rattner @ 4

As a technical note, there is a “Reply” button in the lower right hand of each comment. Clicking the “Reply” will pre-fill the name of the commenter and comment number to whom you are replying and make it easier for folks to follow the “conversation”

Note: Some browsers don’t like to let the “Reply” work properly if it is pressed after a page refresh before the entire page has finished loading

Steven Rattner October 30th, 2010 at 2:08 pm

Actually, we reached our conclusions about factory productivity by using consultants and other expert studies. Visiting plants is useful to get a feeling for what is going on behind the numbers but there is no way to figure out productivity by watching assembly lines.

Steven Rattner October 30th, 2010 at 2:08 pm
In response to dakine01 @ 12

Got it. Thanks!

Jane Hamsher October 30th, 2010 at 2:08 pm

Thanks so much for being here today Steve, and congratulations on bringing the auto industry through the fire.

It actually seems like the one quote-unquote “bailout” that did what it was supposed to do. How much impact did the anti-labor/EFCA demagoguery of the time have on the job of finding a workable solution?

emptywheel October 30th, 2010 at 2:09 pm
In response to Steven Rattner @ 10

Oh, I’m not questioning that–I was writing about how the car companies would probably have to go through BK in November because they needed to shed dealers.

The dealers all know that the oversaturation of the market is forcing them to cannibalize their neighbors with cash incentives. If the American companies can bring the number of dealers down still further, they will go a long way to improving their brand.

Plus, the transplants, but virtue of having newer contracts with their dealers, have a much easier time demanding certain standards from their dealers.

Unfortunately, that case was never made to the public.

Teddy Partridge October 30th, 2010 at 2:09 pm

Hi Steve (hi Marcy!) — your book really taught me a lot about DeeCee and Wall Street. There was something missing from it, though, that surprised me: cars. I guess it’s due to the financialization of our American economy, that this great industrial corporation gets torn down from what it makes, from what it contributed to the culture, how songs got written about GM ‘products,’ how GM was the engine of our post-war midwestern middle class — this heroic player is reduced to swaps, deals, bonds, and and an IPO: Wall Street stuff.

However, at the end of this tale, your nemesis (in the superhero/villain sense; I suppose you all might be best handball buddies) Jimmy Lee has purchased a $110,000 Corvette, making a symbolic and tangible investment in the future of American motoring and manufacturing. I was left wondering, though, Steve: what do you drive now?

Steven Rattner October 30th, 2010 at 2:10 pm
In response to Jane Hamsher @ 15

Honestly, not much. As you know, EFCA was a big issue during the campaign but little has been heard about it since. I would give the UAW and particularly Ron Gettelfinger a lot of credit for being constructive and realizing that shared sacrifice was necessary.

emptywheel October 30th, 2010 at 2:10 pm
In response to Jane Hamsher @ 15

One of the interesting things about the bailout (one that is reflected in this book) is that most people don’t realize that a huge number of supplier blue collar wokers (the ones that haven’t outsourced to Mexico or China) are non-union.

Steven Rattner October 30th, 2010 at 2:11 pm

An Audi, although I also own a Ford truck and a Jeep Wrangler.

emptywheel October 30th, 2010 at 2:14 pm

Aside from a technical discussion of VEBA (for those not familiar, that’s the fund that the Big 2.5 negotiated with the UAW, which the UAW now uses to pay health benefits for retirees, which was a critical issue during negotiations), there was virtually no discussion of health care costs and the way that contributes to profitability (or lack thereof) for car companies that manufacture in the US, as reflected most obviously in Toyota’s repeated decisions to source from Canada because it offers the best mix of highly skilled workers and affordable health care.

Is that in fact right? No one talked about the burden health care costs put on manufacturing in his country during the bailout? I find that particularly shocking given that the bailout took place at the time when all the policy decisions on health care reform took place, and if anything, health care reform will make manufacturing health care costs worse.

bmaz October 30th, 2010 at 2:14 pm
In response to Steven Rattner @ 9

Mr. Rattner, I understand there was indeed a time constraint involved as you describe, but don’t you think that if you had actually taken a little time initially and seen factory floor processes, how the chain is fed by suppliers and how the actual workers interact with this both vertically and horizontally complex manufacturing process, you might have avoided some of the mistakes and failures to timely understand that you yourself acknowledge in your book? Not to mention gaining a better feeling for the grit and substance of a bricks and mortar manufacturing enterprise diametrically different than the balance sheet financial papers you push in the financial products business of Wall Street you were steeped in?

Steven Rattner October 30th, 2010 at 2:16 pm
In response to emptywheel @ 21

I wasn’t involved in the broader discussions about health care reform, nor am I a health care expert. We were certainly aware of the burden that health care costs put on the Detroit 3, but the creation of the VEBA’s solved that problem with respect to the retirees.

emptywheel October 30th, 2010 at 2:17 pm

Local observers are concerned that’s where the current apparent success of the bailout may prove short-lived. Whitacre bumped up the development schedule on cars even beyond what Toyota uses (and Toyota is now slowing down on account of its brake problems). So there’s a worry that quality may suffer.

And there’s the even bigger question about product. The cars that are getting applause now were designed well before the bailout. What will we get later, particularly with Lutz gone?

masaccio October 30th, 2010 at 2:17 pm

A lot of us with bankruptcy experience thought it would take too long to save GM.

Can you tell us why you thought it would be possible to do it so quickly?

When did you start working with groups of creditors about what it would take to do a quick trip into Chapter 11?

Steven Rattner October 30th, 2010 at 2:17 pm
In response to bmaz @ 22

Sure. But these companies were burning through $2 billion plus a month of YOUR money so every day that we spent kicking tires (pun intended) was an expensive day for taxpayers. Also, GM had a bond payment of $1 billion due June 1, which created a deadline for us — we either needed to put the company in bankruptcy by that date or make that payment, which would have been a $1 billion windfall for a bunch of bondholders that didn’t deserve it.

emptywheel October 30th, 2010 at 2:18 pm
In response to Steven Rattner @ 23

Right. But in all your coversations with Geithner and Summers and Rahm, was there honestly never a discussion about health care? No comment about ways the health care reform could have been formulated to contribute to the success of the bailout (and, more importantly, make sure that the effort ended up keeping the jobs that were saved in the US).

Steven Rattner October 30th, 2010 at 2:19 pm
In response to masaccio @ 25

We weren’t at all sure that the “quick rinse” bankruptcy would work. But there was no alternative so we had to take the chance. It was, as one of my colleagues described it, a “hold hands and jump” moment. I could not start dealing with the various stakeholders until my appointment was announced, which was Feb. 23. So we only had about a month before the President’s first speech.

bmaz October 30th, 2010 at 2:19 pm
In response to Steven Rattner @ 20

What kind of Audi?

Jane Hamsher October 30th, 2010 at 2:19 pm
In response to Steven Rattner @ 18

It was my impression when Gettelfinger waived that memo at his press conference that the GOP Senators like Corker and Shelby were going to make sure the auto deal became a battle over union politics. Which immediately polarized public opinion and made the “rescue” extremely unpopular at the time. I seem to recall the approval numbers were just above Dick Cheney’s.

The irony, as you and Marcy out, was that there were millions of non-union jobs that would fall like dominoes if the auto companies failed. But that seemed to be an acceptable price to pay for many.

My larger question, I suppose, is how did the unpopularity of the whole endeavor make it more difficult?

Steven Rattner October 30th, 2010 at 2:20 pm
In response to emptywheel @ 27

No. There simply wasn’t time.

Steven Rattner October 30th, 2010 at 2:20 pm
In response to bmaz @ 29

S-4

Teddy Partridge October 30th, 2010 at 2:21 pm

Rahm Emanuel did not fare well in your story. I wanted to let you know, Steve, that you have a receptive audience here at FDL for any juicy Rahm yarns your editor made you remove from Overhaul. Beyond the outrage about the UAW, it didn’t seem as if Rahm really learned much about finance, financial players, or deals during his spin through MOTU-land, between the Clinton White House and Congress.

Is there anything else we should know about how Rahm made your project hell?

Steven Rattner October 30th, 2010 at 2:21 pm
In response to Jane Hamsher @ 30

Fortunately, we had the unwavering support of the President and the White House to “do the right thing.” As unpopular as bailouts were, we also believed that the failure of GM and Chrysler would be a political tsunami.

Steven Rattner October 30th, 2010 at 2:22 pm

Rahm did what he was supposed to do: challenge our ideas and assumptions.

fuckno October 30th, 2010 at 2:22 pm
In response to Steven Rattner @ 32

Ouch.

Quattro Quadrangle

Teddy Partridge October 30th, 2010 at 2:23 pm
In response to Steven Rattner @ 32

Did you shop any American vehicles before you bought it?

Steven Rattner October 30th, 2010 at 2:24 pm

No, but when I took the auto job, I thought about buying an American car and looked at some but then the project ook over my life and I didn’t have time to decide whether to buy.

bmaz October 30th, 2010 at 2:26 pm
In response to Steven Rattner @ 26

You were spending my money anyway, why would I not want you to take a day or two to understand the substance of that you were dealing with instead of waltzing in and considering yourself the smartest guys in the room, which is what the financial whizbangs like you, Harry Wilson, Ken Kay, Jeff Skilling, Bob Rubin and a cast of hundreds always think until you bugger up the pie so badly that you need to be prosecuted or bailed out to keep the world’s economy from collapsing?

I am not trying to be intemperate here, perhaps what you are telling me is you really did not have diddly squat to offer this critical equation, other than a willingness to jam the sucker through bankruptcy at light speed, so that was what you focused on. I will grant your success at that.

fuckno October 30th, 2010 at 2:27 pm

How do we square Billions in bonuses on Wall Street and severe worker’s concessions from the UAW?

masaccio October 30th, 2010 at 2:27 pm

Who among the creditors was the most hostile to the quick pace of the bankruptcy?

Teddy Partridge October 30th, 2010 at 2:27 pm
In response to Steven Rattner @ 35

The prohibition on “litigating in the Oval” seems to put all decisions below Obama: CoS, SecTreas, CEA head. It’s very disturbing to see that the Reagan model (“check here to approve our recommendation, sir“) survives in a White House with such intellectual firepower. I imagine Obama must be very frustrated not to participate in these debates about policy, politics, and competing approaches.

emptywheel October 30th, 2010 at 2:27 pm

I have several questions about your description of negotiations on the Aveo (it appears on page 234, but you don’t mention the Aveo by name).

First, the discussion started not because of the threat of GM importing the Aveo from Korea (which it obviously already does). It started because GM at that point was planning to import the Spark from China.

Of course, the negotiations resulted in the Aveo being sourced to Orion Township here in MI (though GM just announced that 40% of the workers there will be Tier Two employees making $15/hour, but that’s as much UAW’s fault as anyone else’s).

I’m curious about the discussions about importing a car from China. Right now, the industry sort of assumes the Spark will be made in Korea, but earlier this year, the woman in charge of small cars for GM would not rule out assembly in China.

Did Team Auto tell GM it could not import cars from China (which would amount to taxpayers doing for China what it has not yet managed to do itself)?

Also, you say that Tim Geithner personally signed off on selling Hummer to China (a decision I have a lot less problem with than the possibility that GM will import the Spark from China). Was he also involved in these discussions?

Steven Rattner October 30th, 2010 at 2:28 pm
In response to masaccio @ 41

Which company? At Chrysler, it was a small group of hedge funds and at GM, it was some dissident bondholders. All of the mainstream lenders at both companies were on board.

Jane Hamsher October 30th, 2010 at 2:28 pm
In response to Steven Rattner @ 38

You say in the book you like the Volt, that it was “fun but irrelevant to GM’s near-term survival.”

Doesn’t seem like you think it will have the “halo effect” for GM that the Prius did for Toyota.

Steven Rattner October 30th, 2010 at 2:30 pm
In response to emptywheel @ 43

We never told GM that it couldn’t import cars from China or Korea or anywhere else. GM and the UAW decided on their own to work out a deal to bring the Aveo to the US.

Steven Rattner October 30th, 2010 at 2:30 pm
In response to Jane Hamsher @ 45

Yes, but I wanted to push back forcefully on the perception that it could have a material, direct positive effect on GM’s finances.

emptywheel October 30th, 2010 at 2:31 pm
In response to Jane Hamsher @ 45

Yeah, I was going to ask: did you talk to anyone about Prius and the halo effect?

And did anyone consider the way in which, by supporting GM and with it Prius, it put an institutional player in place to conduct the negotiations w/municipalities to build out the infrastructure needed for electric cars. (In other words, w/o a GM involved, it’s not clear Leaf could be successful either, bc cities are going to be much more likely to deal w/GM, particularly after the bailout.)

That’s obviously not going to help GM’s bottom line, per se. At least not in the short term. But the Prius is a big part of the reason why Toyota has survived its recent quality problems.

emptywheel October 30th, 2010 at 2:32 pm
In response to Steven Rattner @ 46

So there is still the possibility that GM would source the Spark to China, thereby using taxpayer $$ to hurt the US competitively and probably create upheaval even for the transplants?

Jane Hamsher October 30th, 2010 at 2:32 pm
In response to Steven Rattner @ 47

I think that was actually smart & fair, because the expectation meter on the Volt is set waaay too high.

Steven Rattner October 30th, 2010 at 2:33 pm
In response to emptywheel @ 48

We did not view our job as trying to figure out whether GM should or shouldn’t make the Volt. That was GM’s job. Our job was to figure out what the financial implications were of the company’s product decisions. So we assumed no profit contribution from the Volt for the next five years.

emptywheel October 30th, 2010 at 2:34 pm
In response to Steven Rattner @ 44

As I noted in my post, you said that Citi was worried about consumer backlash here in MI. Was Chase not? Even with Chase’s much greater involvement in these states, and w/more state contracts that might be at stake?

masaccio October 30th, 2010 at 2:35 pm
In response to Steven Rattner @ 44

Ah yes, I remember the whining from the likes of Schultze Asset Management Co. Good on you guys for sticking the losses on the people who were on the wrong side of the gamble.

Steven Rattner October 30th, 2010 at 2:35 pm
In response to emptywheel @ 52

Yes, they were definitely worried.

emptywheel October 30th, 2010 at 2:35 pm
In response to Steven Rattner @ 51

OK. Seems fair, thanks.

emptywheel October 30th, 2010 at 2:38 pm

Can we go back to the question I started with?

The banks are back in a lot of trouble as it becomes clearer and clearer they’ve been engaging in large scale fraud so as to cover over the mess created during the housing bubble. That may or may not lead to systematic problems again.

But having done a bailout that worked, what would it take to do a finance bailout that actually fixed the problems in the finance industry, which appear to be as systemic as those of the auto industry? And why is there an absolute unwillingness to do this?

Teddy Partridge October 30th, 2010 at 2:39 pm

Were the Michigan Senators conflicted, trying to represent the interests of manufacturer who got bailouts, while Ford wanted to limit any advantage this conveyed? Having constituents on both sides of that argument must have been hard for them and even certain Congressmen, it seems to me.

bmaz October 30th, 2010 at 2:39 pm
In response to Steven Rattner @ 51

Well, what “profit contribution” had GM assumed contrary to what you just said? From my recollection, the Volt was always viewed to be a halo project that would undoubtedly operate at a loss that would gradually be closed to break even and eventually profitability only over time. So what was new about your statement here?

Steven Rattner October 30th, 2010 at 2:40 pm
In response to emptywheel @ 56

This is, unfortunately, too complex a question to answer responsibly in a chat forum. The problems of the finance industry are completely different from those of the auto industry. Among other things, bankruptcy is not a viable tool to restructure finance companies.

Jane Hamsher October 30th, 2010 at 2:40 pm
In response to Steven Rattner @ 51

Was there any thought given to the government guaranteeing the batteries? I know that the stress tests didn’t come out too well, and that’s what the auto industry lobbyists were pushing for. At $10,000 a throw, you could see why.

Steven Rattner October 30th, 2010 at 2:41 pm

Ford was very good about not opposing help for GM and Chrysler so I don’t think the Michigan legislators felt much conflict. They were completely, unambiguously in favor of our helping any part of the industry that wanted/needed our help.

Jane Hamsher October 30th, 2010 at 2:41 pm
In response to Steven Rattner @ 59

bankruptcy is not a viable tool to restructure finance companies

I’m sure I’m not the only person who would like to hear you expand on that.

emptywheel October 30th, 2010 at 2:42 pm

Yeah, but look at the Dingells. That’s built into the culture here!

I can’t speak for Steve, but in my conversations with the members of Congress and their staffers, they were trying too hard to stop the tidal wave to get involved in the nitty gritty. Ford obviously has benefited from being the one that didn’t need bailed out. The one area where I think they gave up the most competitively is on the dealer side. They didn’t get what was a pretty low cost way to drim their dealerships, and they need to do it as much as Chrysler and GM.

Steven Rattner October 30th, 2010 at 2:42 pm
In response to bmaz @ 58

Nothing new in terms of GM’s assumptions. As i said, my fear was that the public would view the Volt as a potential savior for GM.

Steven Rattner October 30th, 2010 at 2:43 pm
In response to Jane Hamsher @ 62

Banks have trillions of dollars of counterparties. In bankruptcy, those counterparties would be treated like unsecured creditors. That may seem fair, but it would have brought down our financial system.

Teddy Partridge October 30th, 2010 at 2:43 pm
In response to Jane Hamsher @ 62

Yes please.

emptywheel October 30th, 2010 at 2:44 pm
In response to Steven Rattner @ 59

Why not? Nothing in your book made a compelling argument that that’s the case. It seems that the problem with Lehman was not that BK didn’t work, but that Paulson spent months pursuing other alternatives to failing banks (including his hands on involvement in the Bear purchase), which had precisely the same effect as GM’s stalling on BK. The problem with Lehman was that no one spent a few months planning it out first.

What’s the big problem?

dakine01 October 30th, 2010 at 2:45 pm
In response to Steven Rattner @ 65

That may seem fair, but it would have brought down our financial system.

Given the actions of the banks in wreaking havoc on the global economy, isn’t that something that might not be such a bad thing to have happen?

Teddy Partridge October 30th, 2010 at 2:45 pm
In response to Steven Rattner @ 65

You guys and your financial system, don’t you understand it’s rotten to the core and we can see that out here in America? We don’t care about your counterparties. You guys have already destroyed OUR financial system; we just want a little of that ‘shared sacrifice’ to kick in at the top, where the accountability isn’t.

Steven Rattner October 30th, 2010 at 2:45 pm
In response to emptywheel @ 67

Obviously BK didn’t work with Lehman Brothers. The firm ended up getting liquidated instead of being restructured and it nearly brought the entire financial system down with it. Paulson could have studied it for months but bankruptcy is still bankruptcy.

Steven Rattner October 30th, 2010 at 2:46 pm
In response to dakine01 @ 68

Trust me, it would have been bad (unless you think that all the bank failures during the Depression was a good thing.)

masaccio October 30th, 2010 at 2:47 pm

There were a lot of credit default swaps outstanding on GM. Did the holders of those on either side contact you before the filing to discuss bankruptcy?

Steven Rattner October 30th, 2010 at 2:47 pm
In response to masaccio @ 72

No.

emptywheel October 30th, 2010 at 2:48 pm
In response to Steven Rattner @ 65

But a lot of people have talked about how canceling intertwined counterparty ties would minimize the effect of this greatly.

That is, once you take out what Goldman owes JPM and what JPM owes Goldman, you have a reasonably clear route forward.

This seems to be the mother of TBTF claims: The problem is not just that insolvent banks like BoA and Citi are themselves TBTF, but you can’t do anything about it because they’ve managed to intertwine themselves with a bunch of other firms with little social value and racked up the leverage.

It’s a nice game, but then why put Fannie and Freddie in the position of having to screw homeowners rather than screw the banks that created this mess?

Teddy Partridge October 30th, 2010 at 2:49 pm
In response to Steven Rattner @ 71

“Trust me” is exactly how Paulson framed his argument about the three-page TARP.

Don’t you guys understand that America has every reason NOT to trust you anymore? I mean, yeah, you showed all the stakeholders in the auto industry what ‘shared sacrifice’ means but Jamie Dimon and Lloyd Blankfein are still atop the predator banks.

Why is that?

dakine01 October 30th, 2010 at 2:50 pm
In response to Steven Rattner @ 71

It seems that having a few of the predatory “investment” banks fail as they did during the depression might indeed be a good thing.

bmaz October 30th, 2010 at 2:50 pm
In response to Steven Rattner @ 73

There was no contact with the swap parties?? Really?? And what did you do with all of them and why?

Steven Rattner October 30th, 2010 at 2:51 pm

Guys, I am not here to defend or attack the banking system. I’m here to talk about autos.

Jamie Dimon and Lloyd Blankfein are still running their banks because they didn’t go bankrupt or break the law. This is still America!

emptywheel October 30th, 2010 at 2:52 pm
In response to Steven Rattner @ 59

One more point that deserves to be said.

Here are some of the things you found to be a problem w/GM (and I don’t disagree with any of them):

Arrogance of the top execs
A failure to serve the customer
Horrendous book-keeping
A problem derived from labor costs

Those four all could describe the finance industry better than the auto industry.

Yes, there are competitive problems and debt problems; The stupidity of BoA was not primarily driven by its increasing lack of competitiveness w/say, Deutsche Bank.

But there are fundamental similarities.

Lorraine Watkins October 30th, 2010 at 2:52 pm

The only solution that occurs to me would have been to truly, if temporarily, nationalize those institutions necessary for stability. But one can imagine the popular reaction to that!

We were left like the alcoholic’s family when he has taken all the money and spent it on what ultimately is pee down the toilet. It’s gone.

Steven Rattner October 30th, 2010 at 2:52 pm
In response to dakine01 @ 76

I think we saw clearly in Lehman’s case that it would not be a good think, anymore than having GM or Chrysler liquidate would be a good thing. THERE WAS NO POSSIBILITY OF REORGANIZING BANKS IN BANKRUPTCY UNDER EXISTING LAW. IF YOU DON’T LIKE THAT (AND I DON’T) YOU NEED TO CHANGE THE LAW!!!

Jane Hamsher October 30th, 2010 at 2:54 pm
In response to Steven Rattner @ 78

Okay, well, let’s talk about Bill Gross. How much did PIMCO’s recalcitrance impact the process?

Steven Rattner October 30th, 2010 at 2:54 pm
In response to emptywheel @ 79

It could describe some of the banks (Citi and BofA) but not all of them.

emptywheel October 30th, 2010 at 2:54 pm
In response to Steven Rattner @ 78

Ahem.

I first learned of the ways in which banks were committing widescale fraud in their servicing business when a PI described how badly Chase was defrauding its servicing customers.

I believe the verdict is not yet out on whether Dimon broke the law or not. Blankfein even more so.

Steven Rattner October 30th, 2010 at 2:55 pm
In response to Jane Hamsher @ 82

Pimco behaved terribly and irresponsibly in late 2008 when GMAC was being recapitalized. They have not been sufficiently criticized for what they did in that situation. But we didn’t have any contact with them in 2009 nor were they a factor during my service.

Jane Hamsher October 30th, 2010 at 2:55 pm
In response to Steven Rattner @ 81

Yeah! Welcome to blogger-dom. All caps before we’re even at a hundred comments!

Teddy Partridge October 30th, 2010 at 2:55 pm
In response to Steven Rattner @ 78

Okay.

What autos have you driven lately? What do you think of the new Cadillac coupe? How about that giant hearse-like Lincoln? Do you think Lincoln will succeed with its same-price-as-regular hybrid sedan? Is the Chrysler/Fiat 500 gonna be cute enough to topple the Mini? Did you read the sad story about the guy who bought the last Pontiac Solstice, a chassis worth saving that I guess is kaput now? Where do you suppose all those very loyal Saturn customers are going to find their very special customer experience? Do you think the 2011 Ford Edge re-fresh is too stale already?

Or did you mean you wanted to talk about auto deals?

Steven Rattner October 30th, 2010 at 2:56 pm
In response to Jane Hamsher @ 86

This is my first (and maybe last) experience with this. It would be a lot easier to discuss in person!

Lorraine Watkins October 30th, 2010 at 2:56 pm

It might not be good to have let some of these banks fail. But to do as Obama’s Larry Summers, Geiithner doing a heck of a job in keeping the banks flourishing with obscene profits for share holders and salaries-bonuses for CEO hardly seems fair..

Watt4Bob October 30th, 2010 at 2:58 pm

We’re not going to have an honest discussion of the ‘Bail-out’ of GM until the first pictures of Chevrolets built in China, arriving at our ports, start showing up in newspapers and on TV.

Then we’ll see longshoremen lamenting being forced to unload cars that should have been built in the USA.

Then we’ll finally have an in-depth analysis that reveals the GM bankruptcy process for what it was, a union-busting, debt-transference, scam, that financed GM’s move to Asia on the backs of it’s workers, and the American tax-payers.

True Health-Care reform could have contributed to the actual saving of GM as an American brand and employer, as it is, GM’s ineffective, and unaccountable management team ran the corporation into the ground and then succeeded in shifting both the blame and its debt to it’s workers, and the American people, with the help of bought-and-paid for government, and the fawning corporate media.

Teddy Partridge October 30th, 2010 at 2:58 pm
In response to Steven Rattner @ 88

All caps, in person, doesn’t promote a civil discussion; it’s Rahm-like.

Steven Rattner October 30th, 2010 at 2:58 pm
In response to TalkingStick @ 89

There were definitely mistakes made in how the bank bailouts were handled. But remember that these decisions were made under far more extreme time pressure than we had to make ours.

emptywheel October 30th, 2010 at 2:59 pm

OK, another car question then.

You argue that the bailout would have been more successful had Obama been willing to work w/the Bushies on it (a decision you attribute to Rahm).

But you also quote Paulson saying, effectively, “how much do we have to spend to get this to the next Admin.”

One of the reasons I raised what you left out about Cerberus is that that’s effectively what the Bushies did with Chrysler: they gave it less than it claimed to need, and gave GM more, sort of stacking the deck for GM to eat Chrysler (which I agree would have been disastrous).

We know that Cerberus execs was the one “educating” Corker about these issues; he said so himself.

There were also reports that they were the ones representing Chrysler in negotiations, not Chrysler itself (though Nardelli’s loyalties were never clear in any case). Cerberus had very different goals than Chrysler.

So to the extent that a GOP-loaded firm was pushing the levers there, how would that have prevented the kind of cooperation you describe.

Jane Hamsher October 30th, 2010 at 3:00 pm
In response to Steven Rattner @ 88

Oh you’re doing fine. And being a good sport. This goes on every day. You’re actually pretty good at it.

Steven Rattner October 30th, 2010 at 3:00 pm
In response to Watt4Bob @ 90

I agree with some of this but remember that all labor costs — including health care — only amount to 7% of the cost of a car. So just as these problems are not principally labor’s fault nor would taking every penny of health care expense away from the automakers have avoided bankruptcy.

Teddy Partridge October 30th, 2010 at 3:00 pm

Well, are we gonna talk about autos or what?

Mauimom October 30th, 2010 at 3:00 pm
In response to Steven Rattner @ 81

Although you may not have the power [or, apparently the inclination] to “do anything” about the banks, I think part of the reason for folks expressing to you their disgust with, and distrust of, those institutions, is that you were, and perhaps still are, within the Administration’s “inner circle.”

The impression hereabouts is that no one within the White House bubble has a clue as to how much folks in the country are hurting. Voters no longer have ANY faith that the WH will do anything to help them, largely because of their attitudes — a number of which ["banks didn't do anything illegal"] you’ve voiced here.

THAT, in my opinion, is why the no-auto-industry flack is heading your way here.

emptywheel October 30th, 2010 at 3:01 pm
In response to Steven Rattner @ 88

You’re doing great: we’re a rowdy bunch but you’re doing far far better at engaging than, for example, Mark Penn or Bob Woodward (and Woodward has joined us twice).

Thanks for the effort.

Steven Rattner October 30th, 2010 at 3:02 pm
In response to emptywheel @ 93

First, I would have happily devoted more space to Cerberus but my editors didn’t think it was of sufficient general interest.

Second, I’m not sure i follow your logic: You suggest that Cerberus is a Republican firm (which it definitely is) but then you say that the Bushies tilted toward GM at the expense of Chrysler. What am I missing?

bmaz October 30th, 2010 at 3:02 pm

Mr. Rattner, you mentioned you have an Audi S4. A nice vehicle and a competent knockoff of the BMW 335, i.e. the cream of the smaller sedans for the respective manufacturers. Both Audi’s, and more notably BMW’s position in the US and global markets today came on the back of the design and marketing of the 3 series BMW into the US market in the early to mid 70s. That move is the foundation for the current existence of both brands, certainly at least as to the US market.

It was completely the work of Bob Lutz, a man you, starting on page 272 of your book, are rather dismissive of. Lutz also brought Ford back to life with the Explorer (bad vehicle but marketing genius) and is likely the only reason Chrysler was still around to become Cerebus’ toy. Why exactly did “Team Auto” become so dismissive of the actual car guys that new how to design and market cars?

emptywheel October 30th, 2010 at 3:03 pm
In response to Watt4Bob @ 90

It might be Buicks before it’s Chevys, actually.

No one outside of the auto dork world seems to be cognizant of the true relationship between SAIC and Buick. Granted, Buicks have the margin that you can make them profitably in the US. But since no one is looking at the BUick, why not try it there?

Steven Rattner October 30th, 2010 at 3:03 pm
In response to Mauimom @ 97

I totally agree with you about the country hurting. What do you think the Administration should have done? Putting a few bank CEOs in jail might make us all feel better but how would it lower unemployment or raise wages?

Jane Hamsher October 30th, 2010 at 3:04 pm
In response to emptywheel @ 98

I was just gonna say the same thing.

You’re not avoiding the questions you don’t like, you’re addressing them fairly and honestly, and you’re not afraid to scrap with people who are throwing sharp elbows.

The hallmarks of a good blogger.

Teddy Partridge October 30th, 2010 at 3:04 pm

I gotta say, your descriptions of the sclerotic GM’s presentations and decision-making were simply delightful. Somebody should make a movie of them, high atop RenCen via their private elevator, overlooking (!) the demise of Detroit all around them, while their top men tried to decide how much undercoating to apply in four years.

Here’s someone I missed meeting in your book, though, Steve: the auto worker. There was a brief bit during your plant visit, when you said you often thought back to those workers as you worked through your bailout. But they never actually appeared during the thought process; I didn’t hear anyone say, “But what about the worker.” Except, of course, for the union execs. But not on your team.

Was your team more attuned to the affected workers, at every level of the manufacturing stream, than the book let on?

Steven Rattner October 30th, 2010 at 3:05 pm
In response to bmaz @ 100

Not dismissive of Lutz’s car expertise; indeed I give him full credit for the success of the Malibu. But just as you probably think I don’t know enough about cars to be opining about them, I don’t think Lutz knows enough about business or finance (as opposed to design and marketing) to opine about that, which he did frequently.

emptywheel October 30th, 2010 at 3:05 pm
In response to Steven Rattner @ 92

That was sort of my point, above, when I said the reason why Lehman didn’t work is because it was so sudden.

Everyone in the real world is discussing the obvious direction the foreclosure fraud is going.

The Admin, though, wants to continue to extend and pretend, even if it means Fannie and Freddie are illegally screwing the taxpayers who nominally own them. Wouldn’t they be better trying to figure out a way to finally fix the mess made during the housing bubble? Are they still not thinking about who to unwind BoA and Citi?

Steven Rattner October 30th, 2010 at 3:06 pm

If you recall, in my first meeting with Ron Bloom, who became my deputy, he said to me, “just so you know, my agenda is to save jobs” to which I replied, “so is mine.”

Steven Rattner October 30th, 2010 at 3:07 pm
In response to emptywheel @ 106

The problem with fixing the housing mess (and it is indeed a mess) is that you need legislation from Congress and Congress, as we all know, is completely dysfunctional. The luck of the auto rescues was that we could do it from TARp and didn’t need to go to Congress.

Teddy Partridge October 30th, 2010 at 3:07 pm

Did firing the head of GM raise wages or lower unemployment?

No.

But it was a potent symbol, one you understood and communicated very clearly to the President. Aside from the handball court, can’t you see the symbolism important in frogmarching a few bankers?

emptywheel October 30th, 2010 at 3:09 pm
In response to Steven Rattner @ 99

The deal Bush signed put a default in place that Chrysler would go under and GM would eat it, because of the amounts they gave each company. That made sense for no one but Cerberus, but it did for Cerberus, bc it would have provided a way to unload Chrysler, which is what it was explicitly trying to do as early as November when it was lobbying COrker.

Obama (and you and Summers) to your credit did not take that default solution. The Obama team did the work to make the hard decisions to, first of all, go Fiat or nothing (which is another judgment I agree is the right one).

In other words, Obama was trying to do it right. Both Paulson’s statement and Bush’s solution and Cerberus’ role in it suggests they weren’t trying to do it right.

Steven Rattner October 30th, 2010 at 3:09 pm

Yes, and I said in my book, that in my opinion, anyone who runs their institution into the ground and needs a government bailout should be excused. The reason Wagoner was excused was because we could not justify putting another $30 bn of taxpayer money behind him. (I’m sure you’ll say the same is true of Citi and BofA.)

bmaz October 30th, 2010 at 3:10 pm

It would remind similarly situated executives in the future that the rule of law is actually more important than transcendental temporary employment or profit figures. Quite frankly, this seems to be a concept Wall Street is devoid of.

Teddy Partridge October 30th, 2010 at 3:10 pm

Yeah, your view on Congress is actually pretty scary. I’m not sure eliminating it is the solution; there are some rather basic reforms that could go a long way toward making it function a lot better. I’m unclear that the goal should always be ‘efficient’ government. The attempts we’ve seen worldwide at ‘efficient’ government always seemed to end rather badly for the efficient-ized.

emptywheel October 30th, 2010 at 3:10 pm

Well, not to do something w/Fannie and Freddie, and not to redesign HAMP, which still has billions, to add real pressure to the banks rather than act as an accomplice to them.

The Admin has been studying the servicers since May, and at some point in that process identified what we all know but what they won’t call fruad.

So why are Fannie and Freddie still working with those servicers? Why did F&F only ditch David Stern a few weeks ago?

Mauimom October 30th, 2010 at 3:10 pm

I’ll let the far more accomplished Marcy & Jane answer that one.

But believe me, there IS an answer, and it DOES involve putting some bank executives in jail, rather than using government funds to hide the trash on their balance sheets.

Government funds that could, for example, go to a jobs program, infrastructure, health care, or many places that would help those who are hurting.

Steven Rattner October 30th, 2010 at 3:11 pm
In response to emptywheel @ 110

Still not following you. The Bush loan agreements treated Chrysler and GM exactly the same.

Teddy Partridge October 30th, 2010 at 3:12 pm

Do you think you weren’t invited to stay on Team Obama because of this view of yours? They seem perfectly content to leave the finance malefactors in place. Your idea of ‘excusing’ them (lovely term, by the way, and so very polite) isn’t what they’ve done or seem to insist on, ever.

bmaz October 30th, 2010 at 3:12 pm

In what regard did Lutz impinge on “business and finance”? Can you give some specifics? And as one of the principle players, should he have not at least voiced his thoughts?

Steven Rattner October 30th, 2010 at 3:12 pm

No, of course it shouldn’t be eliminated. The simple solution is that voters should hold their electeds more accountable — voting out those who contribute to the problems. The more complex solution (and certain not to happen) would be to move toward more of a parliamentary system rather than the checks and balances that we have now.

Steven Rattner October 30th, 2010 at 3:14 pm

No, as I said in my book, I kept my views on non-auto matters to myself while I was in government. So I can’t explain or defend these decsions.

Teddy Partridge October 30th, 2010 at 3:14 pm

Cerberus is a Dan Quayle joint.
I can’t imagine him getting anything but a hero’s welcome in W’s West Wing.

emptywheel October 30th, 2010 at 3:14 pm

Another issue you raise in your book. You several times imply it is the correct for government not to be involved in industrial policy.

But doesn’t this country already have an industrial policy, called the military industrial complex? (Though the problem with focusing all your industrial policy on the miltiary, aside from the obvious ones, is that you lose basic manufacturing skills in the larger mfg base, which is beginning to hurt our capacity on the military side.)

It seems that we very much do have an industrial policy (to say nothing of our involvement in finance). It’s just a piss poor one. What can we do to change that?

That’s a particularly interesting question bc support for one thing is something that polls really well among both Republicans and Democrats. Heck, I think Thad McCotter was actually a much better spokesperson for the bailout than the Dems, until leadership made him quiet down.

Teddy Partridge October 30th, 2010 at 3:15 pm

How, then, has your book been received by Team Obama?

Steven Rattner October 30th, 2010 at 3:15 pm
In response to bmaz @ 118

To overgeneralize, his view was that if design and marketing people were given all the resources they wanted and were left alone, everything would be fine. Car companies are far more complex than that.

emptywheel October 30th, 2010 at 3:16 pm

The terms of the loans. Yes. Not the amounts. Chrysler got half of what it said it needed. GM got more than it asked for. Chrysler was given just enough to go BK on Obama’s watch, just as Paulson had first planned on doing. And that happened to be a least worst plan for Cerberus.

Steven Rattner October 30th, 2010 at 3:16 pm
In response to emptywheel @ 122

By definition, every government has an “industrial policy” since almost every action it takes has some impact on business. The question is whether the government should be more actively involved in the industrial sector. I think the risks of mistakes are far greater than the possibilityof benefits.

Steven Rattner October 30th, 2010 at 3:17 pm
In response to emptywheel @ 125

I don’t believe that’s true. And in 2009, GM ran out of money well before Chrysler did.

Steven Rattner October 30th, 2010 at 3:17 pm

I suspect mixed. They liked the general themes of the book — great Obama success, etc. — and probably didn’t like some of the specifics, such as the Rahm quotes.

Teddy Partridge October 30th, 2010 at 3:18 pm

You’re talking about ‘jobs.’

I’m talking about workers.

Steven Rattner October 30th, 2010 at 3:20 pm

Not sure I’m following the difference.

bmaz October 30th, 2010 at 3:20 pm

Um, well, don’t you think there is a bit of a dichotomy there though in that GM for years had been spending money to streamline, modernize and inject a whole new line of platforms where Chrysler had done squat save for merely existing? This strikes me as a false comparison.

Steven Rattner October 30th, 2010 at 3:20 pm
In response to bmaz @ 131

Yes, I agree with your comment completely but not sure how it relates to rest of discussion.

emptywheel October 30th, 2010 at 3:21 pm
In response to Mauimom @ 115

I think the answer is 1) conduct real and systemic investigations. The Obama Admin is trying to avoid doing that on the foreclosure fraud stuff, but there is evidence of much more criminal activity that has largely been ignored. 2) Tie ALL support (including the Maiden Lane stuff and the free money) on certain outcomes that have everything to do with lending to small businesses and nothing to do with reflating the system.

The problem with the bailout, thus far, is that there is no one like Rattner in the auto industry, with a fresh view and no allegiances to the industry, involved in determining what the outcomes should be. Yes, Liz Warren has that role in a very limited way. But you can’t have a Larry Summers deciding how to bailout the finance industry because it’s about as absurd as Rick Wagoner dictating the terms of his own bailout.

Watt4Bob October 30th, 2010 at 3:21 pm
In response to emptywheel @ 101

My comments are meant to be understood more in the abstract.

One of the great things about the history of American business is that when the big guys have failed, they’ve picked themselves back up and gone back to work again, often employing the same people that lost their jobs in the prior failure.

The situation has evolved to the point where the failures, real, and engineered have the effect of erasing the related jobs permanently.

Our government has colluded with those who are dismantling our manufacturing base and shipping it overseas in the interest of short-term profits.

The brand name emblazoned on the cars GM builds in China is of no importance, what’s important is that they’ll put the final nail in the American auto-worker’s ability to hold onto a middle-class life, and it’s only in retrospect that we’ll understand how and why the scam was run on us.

GlenJo October 30th, 2010 at 3:21 pm

Agree, Teddy, maybe even to an extent that Mr Rattner does not realize, the CEO sets the “tone” of the company. When the CEO condones crooks, crazy things start to happen.

Removing a bunch of Wall St CEOs would go a long ways towards effective changing Wall St.

Steven Rattner October 30th, 2010 at 3:24 pm
In response to GlenJo @ 135

I don’t disagree but if we decide to hold Salem witch trials, let’s at least maintain the rule of law and be sure the CEO at issue has condoned criminal behavior before we lop off his head.

emptywheel October 30th, 2010 at 3:24 pm

Yeah, pity we’re losing both jobs and manufacturing capacity to those countries that are still practicing mercantilism. In other words, that’s nice in theory, but it leads to precisely the kinds of trade imbalances that are at the root of so much of out international tensions.

If we’re going to spend so much time ratcheting up a currency war, shouldn’t we be investing the same energy in making sure we make something other people want to buy?

And obviously there are things like health care that are not at all about making the choices of who wins and loses, but simply about putting the US on a fair playing field on that issue with other developed nations.

Steven Rattner October 30th, 2010 at 3:25 pm

I need to head out now. Thank you all very much for your questions and thoughts.

Mauimom October 30th, 2010 at 3:25 pm
In response to emptywheel @ 133

Thanks, Marcy.

Dave Johnson October 30th, 2010 at 3:25 pm

Steven,

I’d like to know how much effect conservatives might have had on the thinking on the inside. Did their drumbeat against helping the carmakers influence you? Were they able to “play the ref” or “move the goalposts?”

masaccio October 30th, 2010 at 3:26 pm

You say that after the theorists and practitioners on Wall Street screwed the country and its citizens into the ground and then held us hostage for a gigantic bailout that left them in complete control? You must really hate government.

emptywheel October 30th, 2010 at 3:26 pm

I’ll have to go back and check my numbers, but I believe it is true.

Yeah, I’ve got no excuse for GM’s burn rate.

Teddy Partridge October 30th, 2010 at 3:27 pm

Well, thanks, Steve, this was really fun. Hope you know you gave about as good as you got. Except for the darn CAPS LOK slip-up, I see a great future ahead for you in blogging.

If the other things on your plate don’t, you know, work out….

emptywheel October 30th, 2010 at 3:28 pm

Agree with that.

We’d all do better if Obama weren’t playing such fast and loose with rule of law.

That said, the way to find out whether CEOs knew this stuff is generally to start at the bottom and work up. Thus far, even those who admitted to foreclosure fraud are still on their jobs.

masaccio October 30th, 2010 at 3:29 pm

Thanks for coming by, it was fun.

emptywheel October 30th, 2010 at 3:30 pm

Steve

Thanks for joining us and really engaging. I appreciate that almost as much as a bailout for my state’s biggest industry.

Teddy Partridge October 30th, 2010 at 3:30 pm
In response to emptywheel @ 144

Show trials seem to be perfectly acceptable in the national security sphere, I don’t understand why Team Obama can’t adapt them for domestic financial crime use.

bmaz October 30th, 2010 at 3:30 pm

Heh, fair enough, I may have misunderstood the thrust of your comment I was responding to; this format moves faster than my meager skills in reading and typing.

I would like to change subjects in a direction I do not believe the discussion has substantively gone yet today. First, could you give a quick rundown of what Ed Whitacre did in his term to effect the future of both design and production at GM?

Mauimom October 30th, 2010 at 3:30 pm

I did not intend to be rude to our guest. I was just trying to point out that an attitude that incorporates excuses ["they had to do the bailout immediately or the entire financial system would have failed"] and an unwillingness to think critically and creatively is what got this administration [and this country] into the current mess, and does not hold much promise for getting out of is.

I’m not seeing much change in that attitude.

GlenJo October 30th, 2010 at 3:31 pm

Mr Rattner, thanks for visiting today, and thanks for your service to the country.

And thanks for conforming to norms and using BK. Wall St and TBTF banks would be a better place right now if we held them to the same standards.

Mauimom October 30th, 2010 at 3:32 pm
In response to Mauimom @ 149

To be clearer [and remove any perceived rudeness]: I’m talking about the attitude of those within the Administration, not Mr. Rattner.

emptywheel October 30th, 2010 at 3:34 pm

Yeah, but I don’t endorse the use of show trials in either venue. I’d like not to stoop to that level.

bmaz October 30th, 2010 at 3:36 pm

I thought the standard agreement was for two hours with authors; will you be returning to follow up on questions later since you are prematurely leaving?

You also indicated @88 above that a discussion would be much easier in person, how can that be arranged? I stand ready any time.

BevW October 30th, 2010 at 3:36 pm

Steve, Thank you for stopping by the Lake and spending the afternoon with us discussing your new book and the auto industry bailout.

Marcy, Thank you for Hosting today’s salon and for staying around.

Here is a link to Steve’s book

Thanks all,

Teddy Partridge October 30th, 2010 at 3:40 pm

I recommend people read this book; it’s probably available at your library.

bmaz October 30th, 2010 at 3:44 pm
In response to emptywheel @ 152

No reason to stoop to show trials; there is plenty of evidence sufficient to prosecute for material criminal violations; there is only a lack of will by the government to take on the arrogant masters of Wall Street that petulantly threaten to crash the financial system if they are held to reasonable standards of ethics and accountability.

Kassandra October 30th, 2010 at 3:56 pm

Very interesting discussion. Thanks, Marcy, for putting it on.
bmaz, you’re a pistol!
I just feel like I’m watching the slicing and dicing of my country and my life when these people talk.
Next up, the republicans, whether or not we vote them in, I think we’ll get them.

Teddy Partridge October 30th, 2010 at 4:06 pm

great Book Salon, Marcy, very well done.

Suitably matched, host & guest, as always Bev, just superb.

Jane Hamsher October 30th, 2010 at 4:06 pm

Thank you very much for being here today. It took a lot of guts to enter the “public square” on the topic of quite contentious issues, and you handled it very gracefully. Kudos.

We invite you back any time.

Jane Hamsher October 30th, 2010 at 4:06 pm

Superb host, Marcy. Great salon.

October 30th, 2010 at 4:15 pm

I lived in Michigan for 40+ years and remember well when the Japanese starting selling small cars that GM hated which boiled over in which an Asian American car worker was shot dead because of his race. This was the time during the early 80′s and a huge recession in Michigan when people were lining up at gas stations to pump their gas. Also, Rep. Dingell who still reigns strong in the House of Rep. continued to vote against fuel efficient cars saying it would cost too much which of course was not true. The downward spiral of the US car industry was due to the lack of leadership on GM’s part and the transition to smaller fuel efficient cars. Also, when taking trips lately, I have tried renting some GM cars which have always been a disaster for me. Thanks, I’ll stick to my 1995 Honda Accord which serves me just fine.

masaccio October 30th, 2010 at 4:51 pm

On the substance, as I explain here, it is perfectly possible to resolve banks with bankruptcy. You put the bank subsidiaries into Receivership, and put the parent company into Chapter 11. Then the FDIC Receiver manages the problems of the credit default swaps if the bank subs have any. If there are any, most likely they are quite manageable, and the Bank may even be in the money on interest rate swaps or currency or other swaps. If there are guarantees of swaps, they are just claims like any other, and won’t get paid.

bmull October 30th, 2010 at 4:58 pm

Holy fuck, that was quite a Book Salon.

Watt4Bob October 30th, 2010 at 5:25 pm
In response to Steven Rattner @ 95

I agree with some of this but remember that all labor costs — including health care — only amount to 7% of the cost of a car.

Healthcare is not a part of the cost of labor.

Healthcare is accounted as a fixed expense.

Bob Williamson, an expert in manufacturing capacity-planning says labor accounts for 10% of the cost of manufacturing an automobile, and that healthcare is on top of that.

What about labor cost? Industry experts estimate that the labor cost accounts for about 10% of the cost of manufacturing and about 5% of the manufacturer’s suggested retail sales price (MSRP) of a vehicle. Roughly speaking, here, per industry insiders, are the auto manufacturing cost contributors to MSRP, highest to lowest: The number one cost is materials. Fixed costs (depreciation, R&D, pensions, health care, advertising and overhead) rank second. The third highest cost—dealer markup—is followed by number four—assembly labor and manufacturing costs. Fifth in line is price discounts and promotions. Sixth is transportation and warranty, followed by profit per vehicle at seventh.

You say 7%, which includes healthcare.

When I have the choice between the numbers offered by an industry expert, and those quoted by a financial guru from the media empire, the choice is easy.

Why would anybody appoint a big media finance guy to oversee the bailout of the auto industry?

Maybe because Washington though it might just take the whole of big media to sell such a colossal piece of BS to the American people.

The auto industry, like the financial industry, got off the reservation so to speak, GM management under funded it’s contractual obligations to employee’s healthcare fund and it lied about it’s tax bill in order to report higher profits and so ‘earn’ higher bonuses.

GM management, like any number of embezzlers, either thought they’d just pay back the healthcare fund and the taxman next year and it would be just fine, or they did not care.

Or maybe they thought they might find a generous sugar daddy to loan them $52 billion someday soon?

What do you do with an asset like GM’s manufacturing system when it’s out lived its purpose and you plan to replace it anyway with new plants overseas?

A certain kind of people leverage it to the hilt, loot it, and burn it down just prior to leaving town for good.

Sorry if this sounds harsh.

thatvisionthing October 30th, 2010 at 6:59 pm
In response to grumps @ 161

My ’95 Saturn is going to turn 300,000 next month, knock on plastic

jcgrim October 30th, 2010 at 8:48 pm

Is there a reason we should believe anything Rattner says about the bailout?

http://nycpublicschoolparents.blogspot.com/2010/10/comptroller-di-napoli-and-harry-wilson.html

A couple of weeks ago, Bloomberg and Sulzberger were the two co-hosts of Rattner’s book party, which was attended by the financial and power elite of NYC, including the head of Goldman Sachs, JP Morgan, Joel Klein etc. This very public celebration of Rattner and his accomplishments occurred just as Rattner was pleading guilty to a “pay to play” kick-back scheme of bribing the former State Comptroller to grant Quadrangle, Rattner’s investment company, millions in state pension funds to invest in 2004 when Hevesi was Comptroller.

Rattner paid $1.1 million in finder fees to Henry “Hank” Morris, Hevesi’s former chief political consultant, and he also agreed that Quadrangle would help finance a B-movie made by the brother of the pension fund manager. Rattner first claimed he had nothing to do with this B-movie deal, but emails apparently reveal that he helped put it together. As a result, he has agreed to pay a fine of $5 million and accept a ban from the securities industry for at least five years. He could also face perjury charges for lying about his involvement in the bribery scheme.

evok October 31st, 2010 at 5:26 pm

To Rattner:

As an auto analyst, I have seen GM slowly going bankrupt for years and yet under Wagoner given the contraints he had to deal with fix the company until it was too late. This is automotive and cash goes out the window FAST when production stops which is what happened in 2008.

Within reason, Wagoner’s only real option was to fix the company without pulling the trigger and filing for bankruptcy which would have cleaned up its balance sheet. The way I see it, you are trolling on message boards, taking credit for the job Wagoner did for you. If Wagoner did not get the reorg of the company going starting in the early 2000s, bringing in Lutz to get the product in the pipeline, and the 2007 contract settled to lower the labor cost GM would look like Chrysler right now. GM blew through billions in cash during the reorg because they bought out almost all their UAW staff. The $80b lost under Wagoner is over blown because app. 50% off the top of my head was on paper.

What save GM post bankruptcy was product. Is GM a better company today because of the balance sheet clean up – YES. But cleaning up the balance sheet is the easy part and that is what you did. The hard part was done before you walked into the situation – everything else. GM had a good team running the company. The balance sheet is cleaned up but what talent was lost?

In my opinion, I think GM will make money for the government and ultimately BK was the right move. But, I am calling your contribution to GM’s restructuing as overblown.

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