Editore"s Note
Tilting at Windmills

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July 30, 2010

A COMEBACK STORY AMERICANS (EVEN THE GOP) SHOULD LOVE.... The U.S. Chamber of Commerce gets a lot of things wrong, for a lot of wrong reasons. But of particular interest today was Steven Pearlstein's sweeping rejection of Chamber politics, most notably, how wrong it and its president, Tom Donahue, were about President Obama's rescue of the U.S. auto industry.

Perhaps none was more controversial than the decision to rescue Chrysler and General Motors, using $86 billion in taxpayer funds and an expedited bankruptcy process that wiped out shareholders, brought in new executives and directors, forced creditors to take a financial haircut, closed dealerships and factories and imposed painful cuts in wages and benefits on unionized workers. It was an extraordinary and heavy-handed government intervention into the market economy that left the Treasury owning a majority of both companies. As one participant recalls, public opinion was divided among those who believed that the companies should have been allowed to die, those who believed they would never survive bankruptcy and those who believed the government would inevitably screw things up. Among the most vocal skeptics: the Chamber's Donohue.

A year later, the auto bailout is an unqualified success. The government used its leverage to force the companies to make the painful changes they should have made years before, and then backed off and let the companies run themselves without any noticeable interference.

The results, which President Obama will tout on a visit to Michigan on Friday: For the first time since 2004, GM and Chrysler, along with Ford, all reported operating profits in their U.S. businesses last quarter. The domestic auto industry added 55,000 jobs last year, ending a decade-long string of declines. Auto sector exports are up 57 percent so far this year and, thanks largely to new government regulations, the industry is moving quickly to introduce more fuel-efficient vehicles. Most surprising of all, GM and Chrysler have already repaid more than $8 billion in government loans, while GM is preparing for an initial stock offering later this year that would allow the government to recoup most, if not all, of its investment.

There was a time, not long ago, when real business leaders encouraged these kind of public-private partnerships.

It's worth noting that the administration's auto industry bailout not only worked, it exceeded expectations. Just as importantly, it fit comfortably into an existing model -- every time the federal government bails out key national industries, the results are encouraging.

A year ago, the Monthly's Phillip Longman argued that "any honest reading of history suggests that the federal government has quite an impressive record of rescuing institutions considered too big to fail." Quite right. When the government bailed out Lockheed in 1971, the company thrived and taxpayers profited. The government bailed out Chrysler in 1980, and saw similar results. The government bailed out the railroad industry, and saw it flourish.

In each case, the government spent lots of taxpayer money, used bureaucrats to engineer the revival of an industry, recouped the money, and produced a success story. Conservatives howled in every instance, but as is usually the case, their complaints and dire predictions were wrong.

After Obama intervened to rescue auto manufacturers a year ago, the right insisted it was an example of his purported desire to be a communist dictator. A year later, his efforts look pretty smart, and his detractors' apoplexy looks pretty foolish.

For that matter, the conservative theme of the year is that government spending is the single most odious phenomenon in the known universe. And yet, it was government spending that prevented a depression, and it was government spending that rescued the American auto industry.
Maybe the right can pick something else to complain about? This talking point isn't working out well for them.

When the president takes a victory lap (so to speak) at a GM plant this morning, it will be well deserved. We can all be very thankful Obama didn't listen to conservatives, that there wasn't a conservative in the Oval Office, and that this industry was spared a looming catastrophe.

Steve Benen 10:30 AM Permalink | Trackbacks | Comments (30)

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Comments

Had Obama applied the same tough cuts, investor losses and stricter standards on finance and banking, we'd be in a Hell of a lot better condition today.
Sadly, he listened to the Summers and Geitner crowd.
Mpre' the pity...

Posted by: c u n d gulag on July 30, 2010 at 10:38 AM | PERMALINK

Steve - You are absolutely correct. The auto intervention was an unqualified success.

It won't matter.

No one will listen.

The narrative has been set in stone: Government under Obama and Democrats - BAD. Big Business and Republicans - GOOD.

Pesky things like facts don't matter for beans.

Posted by: kevmo on July 30, 2010 at 10:38 AM | PERMALINK

Why do Republicans have such contempt for American corporations?

Posted by: Basilisc on July 30, 2010 at 10:49 AM | PERMALINK

I guess I'll always be the naysayer around here but...
1) big business gets bailed under Repub govs too. They just change their rhetoric when it's a Dem in the WH. So to write "We can all be very thankful Obama didn't listen to conservatives, that there wasn't a conservative in the Oval Office" is, frankly, silly.

2) it's also entirely unclear as to whether gov bailouts of industry is actually a good thing. You only mentioned "manufacturing" ones. The financials ones have a different history: gov bailed out S&L in 1980s only to see Wall Street mess it up bigger in 1990s with the LTCM bailout. After twice enabling the screwups, the same people effed it up again, only bigger, in the 2000s.

We are in this damn mess today because the gov keeps on bailing out financial sector firms and their CEOs who then go on to f** up even more.

Posted by: Observer on July 30, 2010 at 10:54 AM | PERMALINK

Why do Republicans have such contempt for American corporations?

Why do Republicans have such contempt for America?

These unpatriotic bastards have been doing everything they can to prevent any economic benefit from accruing to the nation and its people ever since they got thrown out in 2008.

Posted by: Cap'n Chucky on July 30, 2010 at 10:59 AM | PERMALINK

-We are in this damn mess today because the gov keeps on bailing out financial sector firms and their CEOs who then go on to f** up even more.-

That cuts across party lines, all the time.

Posted by: Freddie on July 30, 2010 at 11:00 AM | PERMALINK

"These unpatriotic bastards have been doing everything they can to prevent any economic benefit from accruing to the nation and its people ever since they got thrown out in 2008."

Yeah, the Repub President Obama is in such close contact with Wall St companies like Goldman Sachs and gives them hard-earned money. Makes my stomach turn!

Posted by: Outrage on July 30, 2010 at 11:08 AM | PERMALINK

Steve - You are absolutely correct. The auto intervention was an unqualified success.

Factually WRONG.

You know that new workers are making $14 an hour while the old ones are making $28? You know how this worked? By making sure that if you work in an auto factory you are never-ever-EVER going to be middle class.

Posted by: MNPundit on July 30, 2010 at 11:12 AM | PERMALINK

The GOP can't wrap their heads around the the concept that Government is a tool, like fire. Yes it can burn you if you use it wrong. Yes, you can hit your finger with a hammer. But it's a bad workman that blames his tool, and an incompetent fool that won't use a valuable tool to save his life because he's afraid of it.

Posted by: Jon on July 30, 2010 at 11:17 AM | PERMALINK

MNPundit on July 30, 2010 at 11:12 AM

I'm not sure that I understand your point. Autoworkers were being overpaid. Management hadn't cared and allowed this to happen. I assume old workers could have agreed to a lesser wage so that every one could make $21 an hour. they didn't. and that's OK a workable compromise was reached.
How could it be a success if companies losing money?

Posted by: Johnny Canuck on July 30, 2010 at 11:20 AM | PERMALINK

The GOP can't wrap their heads around the the concept that Government is a tool, like fire. Yes it can burn you if you use it wrong. Yes, you can hit your finger with a hammer. But it's a bad workman that blames his tool, and an incompetent fool that won't use a valuable tool to save his life because he's afraid of it.
----
The unemployment rate has gone up. Sounds like bad workmen to me. Bad tools too. However, the GS mobile got an upgrade!

Posted by: Snap On on July 30, 2010 at 11:22 AM | PERMALINK

The pity of it is, this is the recipe they should have applied to Citi and B of A: "an expedited bankruptcy process that wiped out shareholders, brought in new executives and directors, forced creditors to take a financial haircut" and imposed pay cuts. This combination works reasonably well across industries, and provides the taxpayer with significant potential upside. I still don't get why the Obama administration just couldn't see the wisdom of applying this same formula to the most troubled banks.

Posted by: Rich C on July 30, 2010 at 11:23 AM | PERMALINK

The GOP line is already being rolled out. A caller on the Michael Smerconish show this morning was going on about how Obama only bailed out the auto companies so the union could save their cushy jobs. It's all about the unions. You will hear that a lot over the weekend, especially on the Sunday shows.

Posted by: zmulls on July 30, 2010 at 11:30 AM | PERMALINK

Two points:

1. When the right whines about the "takeover" of the auto industry, remind them that the auto industry requested the help. He didn't write some executive order against their wishes.

2. It has NOT been an unqualified success -- while executives at banks that received 10x the amount of money are rolling in billions in bonuses, factory workers are getting fucked over, taking half the pay they used to. I guess their contracts weren't as sacred as those for execs.

So, yes, we still have an auto industry. But, no, it's not a total success -- just ask any of the families trying to get by on half the income they used to receive.

Posted by: Mark D on July 30, 2010 at 11:30 AM | PERMALINK

"I still don't get why the Obama administration just couldn't see the wisdom of applying this same formula to the most troubled banks."

Can't imagine why...

Posted by: Lloyd B. on July 30, 2010 at 11:32 AM | PERMALINK

So, yes, we still have an auto industry. But, no, it's not a total success -- just ask any of the families trying to get by on half the income they used to receive.
----
Too bad they don't work for Fannie Mae or Freddie Mac. Highly successful industries that hand out bonuses like crazy!

Posted by: Barney on July 30, 2010 at 11:33 AM | PERMALINK

following on from mark d and others: just read an article where the fact that the old [jeep?] workers making $28 an hour interacting with the new hires making $14 is creating a bit of tension on the line...however, i live in ohio, and the economy would have flat-lined [if not gotten wiped off the map] if gm had been left to die...as for the bank bailouts...once wall street saw congress come to the rescue of the s&ls in the late 80's, all bets were off...they could game the system endlessly, and if if all went south they could depend on uncle sugar...interesting that the folks that shower before work get better deals than those who shower after work...

Posted by: dj spellchecka on July 30, 2010 at 11:43 AM | PERMALINK

MNPundit: You know that new workers are making $14 an hour while the old ones are making $28? You know how this worked? By making sure that if you work in an auto factory you are never-ever-EVER going to be middle class.

Well yeah. But how much would those workers be making if GM shut down entirely?

Look, nobody in the middle class is making the money they used to. My business has dropped 35% in the last two years. My wife has had three major promotions in the last two years — but not a single raise.

Sure the middle class is in grave danger right now. But, do you really think the middle class is going to grow before the economy does?

Posted by: chrenson on July 30, 2010 at 11:44 AM | PERMALINK

If this President is successful, even remotely, the GOP is scared out of their collective minds that he will be the next FDR and that this will usher in another 40 years of successful, popular Democratic rule. They're living in the past, big time. They would much rather risk the country's being in trouble, at minimum, and raising their popularity than doing anything right and good for the country. Count on it.

Posted by: Mo Rage on July 30, 2010 at 11:47 AM | PERMALINK

Government doesn't do things perfectly and crony capitalism is a constant irritant. That said, I wish all the liberals here eager to find the worst possible interpretation in any set of facts might take a deep breath. Obama is going to be further weakened, and liberalism will suffer, for all your objectively pro-reactionary posturing.

Posted by: walt on July 30, 2010 at 11:48 AM | PERMALINK

So much BS floating around here, it's hard to know where to start.

1) The unions agreed to the terms of the bailout for the auto mfgrs, and they received a stake in the companies in exchange.

2) The financial firms that are still in business are paying back, or have paid back, the majority of the direct TARP money. The government is still on the hook for quite a bit, but to say that this is the fault of the banks is BS. The fault lies with us - we didn't vote for a government that would keep the players in check.

3) You couldn't write off debts for the banks in the same way as the auto industry without causing a daisy-chain failure of banks throughout the US and Europe. The leverage would cause a total meltdown of the entire banking system. Remember, banks and corporations were writing all sorts of credit default swaps, and often the terms were known only to the two parties involved. There was no way to know what the end result would be of letting any one major player fail (see Lehman Brothers). This is why it is such a good idea to have these transactions take place in a public clearing house.

Some of you (I'm looking at you MNPundit) are a non-stop bitch-fest. Nothing's ever good enough. It's like you have a political OCD combined with short-term memory loss, selective hearing, and limited reading comprehension. If you spent a few days reading about the topics being discussed instead of spending that time bitching, you'd realize that we are a *lot* better off right now then we were two years ago. Structural changes take a *long* time to implement, and this is just the beginning.

Posted by: OhNoNotAgain on July 30, 2010 at 11:56 AM | PERMALINK

OhNoNotAgain your right on the money.

Posted by: Gandalf on July 30, 2010 at 12:02 PM | PERMALINK

Walt wrote: Obama is going to be further weakened, and liberalism will suffer, for all your objectively pro-reactionary posturing.

A common thought and line. Jonathan Cohn wrote basically the same thing a few days ago in TNR.

No one in any real numbers reads these blogs. The average voter gets info from TV, radio and newspapers. Word of mouth is passed down from there.

Whenever the Democratic wants to show up on those mediums and make a case for liberal values then maybe you can complain about the complainers. So far, though they're non existent when it comes to that.

Whether Obama is weakened is his job to worry about not ours. "Pols are pols, they do what they do".

Posted by: Observer on July 30, 2010 at 12:04 PM | PERMALINK

"...you'd realize that we are a *lot* better off right now then we were two years ago. Structural changes take a *long* time to implement, and this is just the beginning."

Hysterical. Being unemployed = more vacation! What does greater debt equal?

Posted by: Cracking Up on July 30, 2010 at 12:08 PM | PERMALINK

Observer, I disagree. It is our job. For all his faults, Obama is our guy. We don't have the luxury of patiently waiting through the next political cycle to evolve another liberal hero. It's either Obama or it's no one. The problem is that we're so hyper-critical about our leaders that we effectively neuter them. Republicans, by contrast, tribalize around theirs and keep their movement cohesive. I'm not stating we have to be tribalists but it might help our cause if we stopped whining about absolutely everything.

Posted by: walt on July 30, 2010 at 12:25 PM | PERMALINK

"It's either Obama or it's no one."

You're not Goldman Sachs. Good luck.

Posted by: 777 on July 30, 2010 at 12:26 PM | PERMALINK

Walt wrote: For all his faults, Obama is our guy.

With respect, but you need to read and understand why this (No More Heros) and this (Misunderstanding 'Pols are Pols') and this (They All Disappoint ) is the correct way about these things.

Obama has a multi-billion, nay trillion dollar budget, an army of people working for him, media professionals, fundraising people, a virtual roldex to die for, a Nobel prize, leverage via appointments and most of all charm, gravitas and charisma. If a couple of lowly blog commenters can take him down then tough sh*t. But they *can't and you know that.

Posted by: Observer on July 30, 2010 at 12:40 PM | PERMALINK

"Cracking up" and like kind - do you even understand basic logical concepts like "what things would have been like if we'd done B,C, ..." instead of what we did do? Hint - a lot worse. For example, see:
Why the Recession Ended.
And Obama may have been too helpful to GS, but the alternative = worse by far.

Posted by: neil b on July 30, 2010 at 1:11 PM | PERMALINK

This is a(n Obama) success story that gets better the more often I hear it. I think it's a story that should be broadcast by Democrats this fall. Cars, jobs, innovation. Out-of-the ditch and rolling again. Who do you know doesn't want to buy a new car?

Posted by: NealB on July 30, 2010 at 1:16 PM | PERMALINK

As a drunken friend once said during a late-night college bull session, "I can see valid points on all sides of this argument."

Really enjoyed reading all the comments, folks.

Posted by: beep52 on July 31, 2010 at 2:43 AM | PERMALINK




 

 

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