JONATHAN COHN FEBRUARY 22, 2012
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Are you getting tired of parsing Mitt Romney’s statements about the auto industry rescue? I am. But Romney makes it impossible to stop, because his position keeps shifting. As Tom Walsh, columnist for the Detroit Free Press, put it recently:
Mitt Romney must be on the verge of exhaustion from all the verbal contortions and mental gymnastics he puts himself through, trying to make his past words and current positions sound palatable to presidential primary voters.
During Wednesday night's CNN debate, with Michigan's primary less than a week away, he was at it again.
To review the history – skip ahead a few paragraphs if you’ve heard this already – Chrysler and General Motors came to Washington in late 2008, unable to pay their bills and desperate for federal help. Normally, companies in such desperate straights would have declared bankruptcy, then turned to the private sector for money to finance reorganization.
But this was the middle of the financial crisis: The private sector wasn’t about to make those loans. And without those loans, the likely result would have been liquidation – a firesale of Chrysler and GM assets, mass layoffs, and a potentially fatal blow to the companies’ suppliers. The entire Midwest and, possibly, the entire nation would have felt the economic repercussions.
With this in mind – and with even Ford, which did not need government loans, endorsing Chrysler and GM’s request – the Bush Administration offered temporary assistance. It was enough to keep the companies alive until Obama, then president-elect, took over. Once in office, Obama agreed to rescue the companies, on the condition they go through a “managed bankruptcy” in which they renegotiated contracts with their workers and suppliers. Today, the companies are selling cars, making money, and hiring back workers.
That is the crux of Romney's problem. Conservative dogma demands that Romney reject this kind of government intervention. Republican dogma demands that Romney oppose anything Obama did. But the government intervention seems to have worked and Obama seems to have made the right call.
On Wednesday night, Romney tried to finesse this problem with the following statement, according to CNN's rush transcript:
These companies need to go through a managed bankruptcy, just like airlines have, just like other industries have. Go through a managed bankruptcy... (APPLAUSE) ...and -- and if they go through that managed bankruptcy and shed the excessive cost that's been put on them by the UAW and by their own mismanagement, then if they need help coming out of bankruptcy, the government can provided guarantees and get them back on their feet. No way would we allow the auto industry in America to totally implode and disappear. That was my view. Go through bankruptcy. When that happens, then the market can help lift them out.
It’s confusing, much like Romney’s recent interview with the editorial board of the Free Press. (Walsh was writing in response to that interview.) But I suspect Romney is implying one of two things.
The first possibility is that Romney believes the government should have been prepared to provide, or at least guarantee, “exit funding” – but nothing more. When companies emerge from bankruptcy, a new financier (or financiers) frequently takes over from whatever financier was supporting the company during the reorganization. The problem with this argument is that such an approach would not have saved Chrysler and GM, which needed loans while they were in bankruptcy.
The second possibility is that Romney thinks government should have assisted the companies, but only as part of a bankruptcy deal. That would be fine. In fact, it’s a totally sensible position. The problem for Romney, as Benjy Sarlin has noted, is that Obama took the same position. It’s exactly what Obama ended up doing.
Romney has made additional arguments, about the role of the United Auto Workers. But that's a separate issue. The single most important question of in late 2008 and early 2009 was whether the federal government would put taxpayer dollars on the line, in order to save an economically vital industry.
Obama answered yes, even though that position invited a political backlash. Romney can’t bring himself to say Obama was right. And I think that's because that position would invite a political backlash.
If so, that says a lot about the judgment of the two men. And their character.
Follow me on twitter @CitizenCohn
20 comments
If only Republicans could bring themselves to say they want to cooperate with Democrats and Independents to help the American people. They would make things so much better for their party. But cooperating with the opposition on a project is seen by today's GOP, at least in public, as the work of the devil, even when that project helps Americans to a great degree, like the auto bailout did. This reminds me of totalitarianism. And if we ever have a totalitarian government in America (which I doubt) the Democrats certainly won't be the party in charge. It's amazing that Romney would be an outcast in his party, if he acknowledged that the auto bailout has helped millions of Americans and will help the whole country, including Republican businessmen, in the future. It's more than amazing--it's surreal. I grew up in the birthplace of GM, Flint, Michigan, and later worked in a Chrysler plant in Detroit, and I know how critical the auto industry is to our national economy. It certainly was critical to my family's economy. Romney will have to find a way to spin his anti-bailout position to accommodate the Republican Governor of Michigan. Rick Snyder endorsed Romney, but he also enthusiastically supports the resurgence of the auto industry in his state (gee, I wonder why). Get busy, Romney. Spin till your head comes off.
- magboy47.
February 23, 2012 at 1:17am
If we would have lost the auto industry, we would have lost the whole, extensive supply chain and the skills of hundreds of thousands of workers. We would never get it back. We would have torn our heart out. Saving this vital industry was one of Obama's greatest accomplishments.
- paskunac
February 23, 2012 at 7:22am
It's like there was a big close sports game and the coach on one team made a controversial coaching decision that won the game and Romney is saying it was the wrong decision to prove that he is a better coach. How does that work?
- Nusholtz
February 23, 2012 at 8:31am
NOT at all wanting to defend Romney on his "managed bankruptcy" point, but there is residual angst about how pre-existing bondholders, and many auto dealerships, got hosed in the final restructuring of GM and Chrysler. And that does even consider the strain with Germany over the sale, then not sale, of Opel. Or the way post-bailout GM screwed Saab. I fully supported the actions at the time of crisis, but Obama actually missed a big opportunity on his Russia re-set by letting GM have it's way on Opel & Saab. Never mind. It is what it is.
- K2K
February 23, 2012 at 8:44am
"...says a lot about the judgment of the two men. And their character." NO KIDDING!
- ballston
February 23, 2012 at 9:11am
What utter and complete nonsense from another moonbat cheerleader at TNR 1. Loans were available from private sources to fund the bankruptcy. It would have required huge concession from labor unions, however. 2. Tax payers will have lost 20-25 Billion as the stock price needs to more than double to recoup investment 3. It would have been cheaper to just give the union workers $500K each 4. They will ultimately fail as the real restructuring required was avoided. Unions didn't cut current wages or current pension benefits. First restructuring in history where the root cause -- costs -- wasn't addressed in meaningful way 5. The market knows this --- Ford has much higher PE as a results 6. This was nothing more than a payoff to union backers Republicans happy to make this a campaign issue -- taxpayers are going to lose $25B and unions got sweetheart deal.
- mr_rationale
February 23, 2012 at 9:26am
GM restructured wage scales in 2007, before the Wall Street crash, so that a beginning UAW employee would get $14 an hour. Average wages of non-union workers in foreign car plants in the U.S. were and are the same as those in UAW factories. The big difference between the two work forces is that UAW workers get pensions and health care after retiring. Those benefits used to be unsustainably high, but have gone down, as they should have, and are going down more. Both the UAW and the Big Three automakers have worked together to help keep the manufacturers afloat and thus maintain and even increase employment. Cooperation and compromise make for success in America, something the GOP is obviously ignorant of.
- magboy47.
February 23, 2012 at 10:18am
"Loans were available from private sources to fund the bankruptcy. It would have required huge concession from labor unions, however." Evidence? Any evidence whatsoever? Even from the comments section on Larry Kudlow & Company's webpage?
- wildboy
February 23, 2012 at 11:02am
so if GM had such potential, why didn't Romney just call up his buddies over at Bain Capital and they could have bought GM and imposed their own conditions on them. Oh, right, because GM looked like garbage at the time. And I wonder how much the rat man invested in GM at the time (remember Bush was President), yeah, I am sure he would have taken a second mortgage on his house to see to it that loans were available to them. Oh, wait, he means OTHER magical fairy type people would have been willing to throw their money away because he says so. Remember, in fairy tale land of the rat man, assertions without evidence are real if you are a rat man.
- blackton
February 23, 2012 at 11:09am
ratty says "First restructuring in history where the root cause -- costs -- wasn't addressed in meaningful way" Well, yeah. But could I point out that a move to a portable citizenship-based, and away from an employment-based, health insurance system would be the most significant and transformational way of addressing that root cause of U.S. business costs? But I don't see that at the top of the GOP's to-do list.
- ironyroad
February 23, 2012 at 11:32am
I'd say the bigger question this raises is about Romney's political instincts. Why even bring it up at all? It would appear to be a lose-lose-lose for him. By which I mean that it's an incredibly weak thing to go and re-argue after it clearly succeeded. It's one thing to say "I'd have done it differently" when something fails, but when it works pretty well? And is the benefit that he might accrue in the Michigan primary worth the cost of having all of this on record in general?
- Nari224
February 23, 2012 at 11:54am
"so if GM had such potential, why didn't Romney just call up his buddies over at Bain Capital and they could have bought GM and imposed their own conditions on them. Oh, right, because GM looked like garbage at the time." We had a real world test on how an equity capital outfit would run a car company. Go ask the guys at Chrysler how that worked out.
- tmmats
February 23, 2012 at 12:10pm
"By which I mean that it's an incredibly weak thing to go and re-argue after it clearly succeeded. It's one thing to say "I'd have done it differently" when something fails, but when it works pretty well?" Excellent point, Nari224. Romney's political instincts are okay when he stays away from the the presidency, but when he gets a whiff of the power of the office, something starts to get scrambled in his brain. He simply wants it too much.
- magboy47.
February 23, 2012 at 12:31pm
Mr. Rationale: 1. The credit markets were frozen. GM could not have borrowed enough money to buy a car, much less a car company. And the unions did make big concessions. Of course whatever they did, Romney can always say it should have been more. 2. It is too early to say what the government 'lost' on the bailout. The stock price may well rise. But more important is the fact that the government is not a private company and that is a strength. It is well worth the $25 billion (your worst case) to have saved the major part of the auto industry. The Midwest would have been devastated. It is taxpayer money well spent. The free market does not solve all problems. 3. Giving $500k to GM's 202,000 would have cost $100 billion and the Midwest would still have been devastated. How is that cheaper? 4 Costs were addressed. You are just flat wrong. 5. If the market knew that GM was going to fail, GM's stock would not be selling for $26 a share. 6. Bush and Obama both worked to save the auto companies. Even Romney is 'delighted' that it worked. If it had been nothing but a payoff to the unions, it would not have worked. The problem is that for free market purists, it could not have worked. It just can happen that government does something right. It is the same as if you tell a biologist that you saw a pig fly; he just will not believe you. Pigs can't fly. Never happens. Somehow you were mistaken.
- Vekert
February 23, 2012 at 3:18pm
Vekert - not sure the analogy to biologists and pigs flying is quite what you're looking for. After all, we have many years of observing pigs without them demonstrating the power of flight, and we also lack an understanding of a mechanism by which they could. On the other hand we have years and years of both observation and understanding of how government intervention can and does work (of course there are contrary examples, but there are no examples of flying pigs). So the biologist would reject the suggestion due to a lack of evidence. The right winger rejects the suggestion because they reject reality when it intrudes. Otherwise, pretty much spot on! Also (as if to just demonstrate the problem with rejecting reality), Ford's PE is about 2.5 right now, whereas GM's is just shy of 6. But clearly 2.5 >> 6 in Mr Rat's world! Perhaps the market "knows" that Ford is in a much tougher position as it didn't receive the benefit of the government restructuring? That theory would at least would be supported by the real world data!
- Nari224
February 23, 2012 at 5:24pm
It's funny that Rat man seems to knee-jerk his reply to anything that would illustrate the government performing admirably (as a last resort) in saving the auto-makers. As for Romney's capacity to turn Detroit around using his "Bain" free-market-majik roll-on faerie dust. Well I ain't buying that shit. I was listening to NPR's Marketplace Report this morning on the way to work and they were interviewing the guy who headed up Bain Capital's take-over of American Legal Pad. After admitting that Bain literally over-leveraged AmPad to point of bankruptcy Bain did an IPO and summarily took out their "profits". AmPad then actually went bankrupt 4 years after Bain took it over because they literally bleed it to death. The guy was asked if Bain's actions were of a positive lasting value. The guy hemmed and hawed a bit before saying "No." Romney represents the kind of free-market business parasite that literally sucks the life force from businesses for profit. Just as Romney is sucking the life force out this political race just as he will use his magic powers to suck the life force out of America.
- singlspeed
February 23, 2012 at 7:28pm
Nari224: Thank you for your kind comment. You are right that my analogy breaks down when you look at the reasons for out of hand dismissals by a biologist and a free market purist. The former's dismissal is based on indisputable facts (no wings! big and fat!) and latter on ideology that does not permit facts to get in the way. Compare the free market person to the physicists who were excited and surprised at the experiment at CERN that suggested that neutrinos might travel faster than the speed of light. They were skeptical but very interested to see if the results could be duplicated. If necessary they will change their theory to fit the facts, not vice versa.
- Vekert
February 24, 2012 at 10:06am
Mr_rat needs to get information from people who were actually involved. From today's NY Times Op-Ed by Steven Ratner, http://www.nytimes.com/2012/02/24/opinion/delusions-about-the-detroit-bailout.html: "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. If Mr. Romney disagrees, he should come forward with specific names of willing investors in place of empty rhetoric. I predict that he won’t be able to, because there aren’t any." Moreover, just providing employees with handouts would not have prevented massive job losses far beyond GM. "Those shutdowns would have reverberated through the entire auto sector, causing innumerable suppliers almost immediately to stop operating too. "Despite the relative health of its balance sheet, even Ford would have been forced to close temporarily, because critical parts would have become unavailable. And service providers — trucking companies, restaurants and more — would have been severely affected. "More than a million jobs would have been lost, at least for a time. Michigan and the entire industrial Midwest would have been devastated." Yes, the market should usually be allowed to do its thing. Yes, there is a moral hazard to government intervention. But sometimes circumstances have to take precedence over ideology. We can argue over whether coming to the occasional rescue will lead to more of these events and leave us worse off in the long term. But it looks to most people that we're better off now with this particular intervention than we would have been without it.
- dsimon
February 24, 2012 at 10:34am
I am not a soldier or a veteran, but I suspect the phrase, "Fog of War," makes a lot of sense; as does the catch phrase, "The victors write the history books." This wasn't a "war," but as close to falling into the 2nd Great Depression as we've come since the First. We won, and probably Obama gets to stamp his name on the chronicle record, which is that we're struggling but not (yet) in the next Big D. Sorry, Mitt; not much traction for your Cadillacs on this road.
- skahn
February 24, 2012 at 9:50pm
Once again, Mr_Rationale with the legendary fail at reality. He can't even get simple, well published information correct, like a company's PE, or basic mathematical statements like 2.5 > 6. You can have all the ideology your dirty little lascivious heart desires, but if you can't even get the simple facts straight, you're really just the punchline of a bad joke.
- GSpinks
February 28, 2012 at 8:52pm