Rattner’s Bailout

/38 Comments/in /by

One key to reading Steve Rattner’s long narrative on his role in the auto bailout is this passage:

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.

It’s a thoroughly uncontroversial statement, presented as it is out of context. Of course the government had a right to ask Rick Wagoner to step down. Of course it made sense to ask for the resignation of a failed CEO sucking at the federal teat.

What didn’t make sense, of course, is that similar demands were never made on Rattner’s own industry, the finance industry, when it not only sucked far more federal dollars but laid the final straw that broke the auto industry’s back. And Rattner, who describes the outraged response to his complete lack of automotive experience as well as his close friendship with Jimmy Lee, who managed the Chrysler negotiations for JP Morgan Chase, seems utterly oblivious to that double standard (in spite of the frequency with which it was raised by those complaining about the bailout). Rattner mocks the arrogance of GM’s top management–with their private elevator–but doesn’t note that the auto execs, but not the bank execs, were forced to give up some of those perks by the government.

Which is another way of saying that the rest of the narrative tells of Rattner’s team’s shrewd use of financial arm-twisting to pull off the fast-track bankruptcies, without giving much confidence that the auto task force ever came to understand the auto industry well enough to weigh what came next. Did the auto task force really not understand the auto supply chain going into the bailout, with its huge impact on the economy? Did the task force really not know that Chrysler had no product in the pipeline? Did the task force really only weigh Fiat based on Sergio Marchionne’s “drive to win” and Fiat’s “advanced products … small, stylish cars and fuel-sipping engines,” with no consideration of Fiat’s own quality problems, not to mention how long it takes to adapt a European car to the US market? Was the task force unaware that GM’s huge debt load came partly from attempts (however inadequate) to conduct a turnaround? Did the task force really not account for the political meltdown that dealer shutdowns would cause–and did they really not factor the need for shutdowns both into brand turnaround and the need for bankruptcy? Does Rattner really believe the halo effect of a car like Prius or the Volt is no more than PR?

In short, even after the auto task force pulled off what I consider a least worst solution, I’m not convinced Rattner, at least, fully understands the market.

Which means this is a very informative narrative about how the banksters pulled off the auto bailout–a perfectly targeted story for Fortune’s readership. But just as much it is a testament to the ignorance of the banksters–not only about the real economy, but of how their own management is just as horrible and arrogant as that of the auto industry.

38 replies
  2. eagleye says:

    Emptywheel,

    Do you know if anyone has submitted a FOIA request to Geithner at Treasury for the documents that outline his secret deals with the banks?

  3. earlofhuntingdon says:

    Excellent summary. FIAT’s quality problems? Fix It Again, Tony. In my view, the banksters (and now, possibly, the insuresters) are the only private sector group more arrogant than what used to be the Big Three Auto companies, with GM leading on that ranking.

    Top managers at large companies are managing concepts, paper, a virtual reality. But at GM and its brethren, unlike at Rattner’s bank, the top managers had to have some experience pushing something besides paper. At GM, its top leaders almost uniformly came from its elite treasury operations staff. But they also had to have other experience.

    Most often, that was in manufacturing. That involved complex maneuverings with unions, machinery, plants, production and components delivery systems, customers, aftermarket support, community and political relations and the like. You couldn’t walk or drive a mile and not see your handiwork on the streets, the alleys, the repair shops and in homes.

    Once at the top, they may have been living in a virtual world, but they had some inkling of what the figures they were manipulating meant in the real world. On Wall Street, that wasn’t and isn’t true.

    One of the great concerns I have is that it has become less and less true in all companies. They are trying to mimic Wall Street not just in expecting immediate, outsized returns on their money. They are actively divorcing themselves from the reality of what they do. Corporate and divisional offices are no longer set alongside other operations; they are in leafy suburbs or different towns or states entirely, surrounded by as few employees as possible. Managers are actively encouraged to have no community ties, to consider no effects to what they do other than financial effects.

    There’s something faddish, lemming-like in this. It’s not to improve shareholder return. (Managers decide what that is anyway, and do so with their own interests first.) If it were, Goldman Scratch would be paying much smaller bonuses, because its shareholders would be demanding that the money be paid to them, not to managers, and those demands would be met.

    • robspierre says:

      You are spot on.

      One cause is the way that managers get onto the managerial track these days.

      In my first years in the work force, in the large companies that I have worked for, a large proportion of the managers had been promoted from the ranks. At the executive level, they tended to be engineers, chemists, former academics in related disciplines, or particularly successful salesmen. They were mostly within ten years of retirement at the time.

      Starting about ten years ago, this changed. Vertical mobility vanished. Middle managers came in with brand new MBAs in Finance and settled in to spend their careers more or less at their entry level. They started green and stayed that way. Executive management came in from an ever smaller circle of executive positions elsewhere in the industry or, increasingly, from financial businesses.

      Moreover, a large chunk of any large business is now pure finance, regardless of the nominal industry niche it inhabits. GMAC was a huge chunk of GM’s business. GE Finance is now rivals the jet engine, generator, and appliance branches of the business.

      So it is no wonder that senior management knows little or nothing about their own businesses and lots about running hedge funds. Management is now a specialty branch of finance. People who know an actual business are seen as specialized machine tools: they are at best a necessary cost that shuld be eliminated as the company pares itself down to the purely financial type of entity its management understands. Ultimately, that entity is a Ponzi scheme, finance at its purest.

      • readerOfTeaLeaves says:

        So it is no wonder that senior management knows little or nothing about their own businesses and lots about running hedge funds. Management is now a specialty branch of finance. People who know an actual business are seen as specialized machine tools: they are at best a necessary cost that shuld be eliminated as the company pares itself down to the purely financial type of entity its management understands. Ultimately, that entity is a Ponzi scheme, finance at its purest.

        I have heard several versions of this story; yours seems the cleanest, most cogent synthesis.

  5. person1597 says:

    I’d like to add one other industrial strength fraudster to the list of mon-sters.

    E-Voting machine makers who let their political patrons modify the machine code in-situ. Great way for Rove-sters to tip an outcome in a close election…

    Can you say Sequoia E-voting code scandal brewing…?

    from the whoops dept

    The federal rulebook is also clear that code can’t be interpreted, apparently to avoid modification “in the field” (generally county or city election offices).

    This could get interesting…

    The code is all available for study or download, “the first time the innards of a US voting system can be downloaded and discussed publicly with no NDAs or court-ordered secrecy,” notes Jim March of the Election Defense Alliance.

    It’s open season on E-voting Fraudsters!

  6. emptywheel says:

    Oh, this is precious.

    The Pay Czar has just dinged the 25 top paid employees of 7 firms, finally cracking down on executive comp!!

    The 7 firms?

    GM
    Chrysler
    GMAC
    Chrysler Financial

    AIG
    BoA
    Citi

    Good to see the penalties are tied so closely to how much money we’ve dumped into the companies.

    • Rayne says:

      Yeah, just read that, noted they get stock they can’t sell right away instead of cash. Mixed bag, that.

      I used to believe that stock ownership by management and staff was important to creating value, but I think it ends up encouraging short-term decision making which focuses on boosting stock value rather than long-term appreciation of stock value. Depends on how ownership is structured, I guess.

    • bobschacht says:

      The name most conspicuously missing from that list: Goldman Sachs.
      And JP Morgan Chase. I guess they must be beyond the writ of the Pay Czar.

      Bob in AZ

  8. earlofhuntingdon says:

    Not Goldman, no other banks, no hedge funds, no insurers? Hmmm.

    What criteria were used? Surely, Shirley, outlandish pay relates to more than gross pay. Tell me the criteria the pay czar used related to industry and national standards, foreign peers, individual company precedent, and the ratio of CEO pay to others in the company. Tell me it relates to company performance and profitability after as well as before the compensation was paid (to correct for sandbagging).

    The list seems so short and politically correct, it looks farcical.

      • Rayne says:

        And probably why there has been no further scuttle about Goldman-Sachs’ front running program…have a suspicion that’s what they used to repay the TARP.

  9. bobschacht says:

    I think one factor in this general situation is that a lot of big money folks are convinced that we are entering into a post-Industrial age. Making real stuff doesn’t make you rich enough any more. But then, what to make money on? Why, financial services! Megabucks can be made with smoke and mirrors! Enron showed the way, except they got caught.

    We really need to deal with the “too big to fail” problem. Volcker is on board with that, but naturally there is resistance. On NPR, someone was protesting, but what if we break up our big banks, but China doesn’t break up theirs, and others don’t either. Then aren’t we at a competitive disadvantage? The main disadvantage I see is that Goldman Sachs probably has more liquid capital than most countries in the UN.

    I’d go with Volcker, Galbraith, Krugman et al. on this one.

    Bob in AZ

    • readerOfTeaLeaves says:

      I think one factor in this general situation is that a lot of big money folks are convinced that we are entering into a post-Industrial age. Making real stuff doesn’t make you rich enough any more. But then, what to make money on? Why, financial services! Megabucks can be made with smoke and mirrors! Enron showed the way, except they got caught.

      We really need to deal with the “too big to fail” problem.

      Boy, howdy!

      Rattner’s inflated sense of self-importance and his ignorance about manufacturing are genuinely disgusting, personifying the mindset bobschacht’s comment describes.

      And what of the bankster bailouts? Why nothing from Rattner about those numbers? Because I’m still working my way through Nomi Prins’s superb “It Takes A Pillage“, when I read nonsense like this from Rattner:

      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.

      it’s infuriating. His being ‘stunned’ at the $13 billion lost by GM is a drop in the bucket compared with the TARP and other bailout figures (!). And where might we find handy summaries of those numbers?

      Nomi Prins’ website offers updated summaries of the TARP bailout figures.

      Assuming that all who read here kind of enjoy digging around in data, you might find page 3 of Prins’ updates of particular interest — see the heading: “Pillaging By Company”. (For those of us who have followed EW’s posts from a year ago about how the banksters are basically holding us all hostage over money, scroll down to p. 4 and get a glimpse of the damage Joesph Cassano of AIG-FP in London has inflicted on the US public, and the rest of the human race; if Cassano doesn’t personify bobschacht’s point about ‘post industrial’ bullshit smoke and mirrors, then no one ever will.)

      The main bailout summary links at Prins’ website can be found here.

    • bmaz says:

      Well, that is putatively contrary to DOJ/PIN practice due to the proximity to the election. The presumption can be overcome, and arguably here it should be as the putative misconduct is central to this election. Lautenberg ought to be leaning on the state AG to be doing something too though.

      • MadDog says:

        You’ll have noticed that Senator Lautenberg sent his missive to the notoriously laggard DOJ Office of Professional Responsibility, so I’m guessing this was merely for the political hay he could make and not for any timely investigation. :D

    • emptywheel says:

      Yeah, I’m totally not crazy about this. Maybe Lautenberg is just cranky that Christie took out Torch meaning he had to come out of retirement. But this seems overblown and–as bmaz points out–badly timed.

      • MadDog says:

        Yeah, nobody ever claimed that Senator Lautenberg was a rocket scientist. :D

        Again, I can’t see this as being anything more worthwhile for Senator Lautenberg’s purposes than to make some small amount of political hay about having “DOJ investigate crimes” theme.

        And even if he get’s a DOJ OPR response that they will proceed, it seems pretty small political potatoes.

  11. MadDog says:

    And more OT – Crew Posts More Missing White House Email Documents Released By Administartion

    I’ve been reading through the new “missing White House email” document dump (Why? Because someone had to do it! :D ) and most of it is snapshot correspondence of White House Office of Administration (OA) IT folks and IT contractors spinning their wheels trying to figure out which way is up and if they’re heading that way too.

    One comment I particularly enjoyed was from OAP00026333 (page 7 of 8 page PDF) which is a document of OA IT department views solicited regarding “Responses received of the review of InfoReliance Quality Assurance Plan, System Design Document, and Test Plan 12/17/2007”:

    Service Delivery Improvement Branch – redacted

    Probably want to delete the following sentence from the System Design Document (Problem Statement section):

    “There is also the potential that incorrect or incomplete information is provided to Legal Counsel due to these manual validations and corrections.”

  12. sporkovat says:

    But just as much it is a testament to the ignorance of the banksters–not only about the real economy, but of how their own management is just as horrible and arrogant as that of the auto industry.

    reminds me of progressives who maintain their ignorance to the reality that the Democrats are just as corrupt and inimical to the common good as the Republicans, but have slightly better table manners.

  13. MadDog says:

    OT – In case anyone missed it, from EFF:

    Ninth Circuit Grants Stay in EFF Case Seeking Telecom Lobbying Documents

    Today the Ninth Circuit postponed (2 paged PDF) a court-ordered deadline for the Office of the Director of National Intelligence and the Department of Justice to turn over documents concerning a legislative push to give telecom carriers legal immunity for their participation in the government’s warrantless surveillance program…

    …The Solicitor General has not yet decided whether to appeal other parts of the order, including the district court’s determination that the government must release communications between the agencies and members of Congress. Today’s order from the Ninth Circuit gives the government until November 9 to decide.

    The Ninth Circuit will consider the government’s appeal on an expedited schedule, with oral argument slated for the week of January 11, 2010…

    • bobschacht says:

      MD,
      Can you or bmaz or someone do a recap of this case for us?
      Solicitor General = Kagan?
      So is this a victory for Bush/Obama obstruction?

      Here’s the last sentence of the EFF presser:

      The practical effect of today’s order is that important documents shedding light on the telecoms’ push for retroactive immunity will not be available to the public as Congress debates whether to repeal that immunity, at least until January.

      My short summary: “Ha Ha! We got a delay to give time for our lackeys in Congress to cover our asses! Hahahahaha!”

      Is that about right?

      Bob in AZ

  14. Hmmm says:

    OT — New study related to our previous discussion about internet tapping:

    …the bulk of Internet traffic no longer moves across Tier-1 international transit providers. Instead, the traffic is handled directly by large content providers, content delivery networks and consumer networks. That is, it moves directly from one of these edge networks to another, rather than going over a Tier-1 carrier’s backbone.

    So far so good, from a privacy POV, however…

    You can probably guess what some of these rising providers are: Google, Microsoft, Facebook. Arbor says there are about 30 of these companies – which Arbor calls “hyper giants” – that generate and consume about 30% of all Internet traffic.

    And why would any of those guys play along…

    Hey, maybe it was MS and Facebook guys on the lobbying lists that they’re trying to hide.

  16. orionATL says:

    rattner is quoted as saying:

    “…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…”

    “stunned” ?

    really?

    didn’t you know the industry?

    any responsible official who tells you her/she is “stunned” by some event (excepting earthquakes, floods, volcanos, and the like)

    is

    a – dissembling

    b – not very knowledgeable about his/her subject matter

    or

    c – insufficiently analytical.

  17. bobschacht says:

    Late night, time to take out the trash– which is what the Phillies have done with the Dodger’s pitching staff. Heck, they act like they’ve been here before.

    Bob in AZ

  18. ferrarimanf355 says:

    First off, to the asshole who called me a “fucking idiot” for daring to dissent, I demand an apology.

    Secondly, I’m now seriously considering getting a Mitsubishi Lancer Evolution MR. I don’t care that it’s made in Japan, as long as it goes fast…

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