No Good Deed Goes Unpunished

July 19th, 2012 at 12:59 pm

Presidents get credit and blame for all sorts of things over which they have no control.  Gas prices are a recent example (although, as I’ve stressed, there’s an asymmetry here).

But there are some rare cases where an outcome is clearly and unequivocally linked to executive action.  And one current example of that is President Obama’s decision to rescue the two auto companies — GM and Chrysler — that were facing liquidation in 2009.  (Disclosure: I was a member of the President’s auto taskforce.)

The President was faced with a stark choice to intervene by providing government loans and equity financing or to let the companies fail.  Given credit market conditions at the time, our conclusion, widely agreed upon by non-partisans, was that bankruptcy was certain, and that no private investors would step in a rescue the companies from liquidating their assets.

How did we know that?  We asked them.  As Steve Rattner, lead adviser to the auto taskforce recently wrote:

In late 2008 and early 2009, when G.M. and Chrysler had exhausted their liquidity, every scrap of private capital had fled to the sidelines.

I know this because the administration’s auto task force, for which I was the lead adviser, spoke diligently to all conceivable providers of funds, and not one had the slightest interest in financing those companies on any terms.

I vividly recall a meeting where the President was told he soon had to decide, one way or the other, which way to go on this.  He insisted on all sides of the arguments and he got them — there was not unanimity among his advisors about which way this should go.

Though he’s hard to read, I could tell the President was deeply torn over this decision.  As it happened, I was to introduce him for an internet town hall right after that meeting and we had a few minutes together before the show.  We talked about how tough the call was — it’s rare that government intervenes in industry so directly and deeply — but how much was at stake.  Not just jobs all along to supply chain, but communities that depend on them.  (I then deftly baited him into an argument on how my colleagues and I in the Office of the VP could take his office in bball.  He didn’t think anyone in our shop could post up Reggie Love…we never had that game, but it’s a little known fact that got Biden’s got a money set shot from 15 feet…)

He has said since that he didn’t put his finger in the air and test the political winds on this one, and that’s absolutely true.  In fact, the auto bailouts would later poll even worse than the TARP.  He made the call based on economics, a uniquely deep market failure, and the importance of the auto industry to the American economic landscape.

And as the chart below from a recent Treasury report shows, it was the right call.  So, when I hear something like this on NPR this morning, as I was driving in, it’s hard not to find it depressing:

Across town at Shorty’s True American Roadhouse, Michelle Maziars [sp] has seen that improvement.  She and her husband are taking their two young kids out for barbecue.  “Around here, a lot of people work at the auto plants… both my parents work for Jeep [a Chrysler product--jb].  And I can tell you, like a year ago from today, no one was getting overtime or anything like that, and now you’re starting to see third shift come back.”  Business is picking up at the mall where she works, but she doesn’t give this President credit. “I give that to our city, that credit goes to our city… that’s our people, in our community.”  She does not think that Barack Obama will get her vote again.

Like I said, there are lots of things for which Presidents get credit and blame, for no good reason.  And then there are rare cases, like this one, when they can credibly say, “my actions made a big, positive difference.”

I wish people could work just a little bit harder to sort out which is which.

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5 comments in reply to "No Good Deed Goes Unpunished"

  1. InfiniteThoughtsForever says:

    I find that people cannot break free from their political affliations easily. I was talking to a Republican who openly admitted that he would have gone down if the Auto industry wasn’t rescued. He had taken loans to put kids to college, to fund his house and if the companies went down, he would have lost his job and his lifestyle

    When i asked him if he would support Obama? He said, he wouldn’t. When i asked him whether he agreed that Obama rescued the Auto industry and not overly putting govt folks in GM or Chrysler, didn’t he show his economic acumen. He agreed but no matter what happens, he cannot be convinced that Obama is better than Romney.

    To me, whether the electorate rewards Obama or not, he did the honorable thing. If Obama wins, he would looked by history more like Bill Clinton and if he loses, he will be seen as GH Bush – great president denied a second term by fundamentalistic thinking


  2. fausto412 says:

    The voter who said that, I have serious doubts about how educated and well informed that person is. This is a failure of the press because they spend time covering nonsense instead of important things like the intricate details of actual policy and its effects.

    sad indeed.


  3. David Ross says:

    The numbers make sense to me, but have you (or someone else) responded to John Lott’s claims

    http://www.philly.com/philly/opinion/inquirer/20120506_GM__a_failed_investment.html

    …The money the government spent adds up quickly: $50 billion in TARP bailout funds, a special exemption waiving payment of $45.4 billion in taxes on future profits, an exemption for all product liability on cars sold before the bailout, and $360 million in stimulus funds. Other money of which it is harder to quantify GM’s share includes the $15.2 billion Cash for Clunkers program and the $7,500 tax credit for those who buy the Chevy Volt. And all those costs don’t even include the billions taken from GM’s bondholders by the Obama administration.

    “The accounting shows the trouble with claims that much of the TARP money is getting paid back. The Obama administration only compares the $50 billion in direct bailout funds with the price it will eventually be able to get for selling the GM stock it owns. But that assumes exempting GM from paying $45 billion in taxes and other subsidies don’t increase the stock price. By the Obama administration’s logic, if the stimulus simply gave large enough grants to all the TARP recipients, all the TARP money could be paid….”

    I claim to be a reasonably informed person, yet find it amazingly challenging to check the numbers I see in print or on-line; that much more challenging for my students and for most consumers of the news.


  4. Kathryn Crossin says:

    I don’t understand why this issue has never been noted in the national security context. Our manufacturing base is key to our ability to mobilize resources for national defense. Perhaps we will never need the extensive base that we did to mobilize for WWII, but I wonder if the Japanese, Chinese, or Koreans would respond if we had a sudden need to increase production. The logistics seem unlikely.


  5. Dave Thomas says:

    How can anyone claim that the General Motors bailout was a success when it has cost the American taxpayers $50 Billion upfront, and $45 billion over the next 20 years?

    General Motors is exempted from taxation on the first $45 billion dollars of profits it makes as part of the bailout deal with the US government. At General Motors average rate of profit it will take twenty years before GM is paying taxes again.

    In addition to private taxpayers covering $45 billion dollars in General Motors tax relief GM gets another $7,500 in tax credit for each and every Chevy Volt sold. When Ford sales a car tax money flows into the common treasury. When GM sells a car no tax money goes to the common treasury.

    The bottom line is that General Motors was given in current and future considerations over $100 Billion dollars in money that America Taxpayers have to pay for.

    The GM bailout is a disaster for the America taxpayer. It is a total success for UAW workers, Democratic political insiders, and Obama who can count on the votes from GM workers he has purchased with taxpayer money.

    By the way, General Motors profit fell 61% in the last fiscal quarter.

    I guess that is called “success” now.


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