The two-face Obama administration
It’s difficult for me to write this, being someone who supported Obama’s presidential campaign and his ideas for America including the stimulus plan and probably the upcoming budget. But in the face of recent developments regarding the negotiations over the bailout of auto-makers, it seems quite indefensible not to. Yes it’s that serious. The Wall Street Journal reports today that long-time General Motors (GM) CEO Rick Wagoner is quite literally a “goner”:
The Obama administration used the threat of withholding more bailout money to force out General Motors Corp. Chief Executive Rick Wagoner and administer harsh medicine to Chrysler LLC, marking one of the most dramatic government interventions in private industry since the economic crisis began last year.
The administration’s auto team announced the departure of Mr. Wagoner on Sunday. In a summary of its findings, the task force added that it doesn’t believe Chrysler is viable as a stand-alone company, and suggested that the best chance for success for both GM and Chrysler “may well require utilizing the bankruptcy code in a quick and surgical way.”
Now I don’t want to defend Wagoner’s record at GM, for the reason that I do not know the extent to which he has mismanaged the company. But it seems difficult to reconcile how the administration has treated the banks’ whom have received far more in bailout funds compared to the automakers. Citi’s CEO Vikram Pandit, reportedly received US$11M in ‘compensation’ last year even as his company was bailed out with US$45 bn of taxpayers’ money.
The auto workers’ union and bondholders, on the other hand, are coerced to make even more compromises:
The bondholders have said that they are willing to make concessions, but they wanted to see the union make further cuts. The fact GM raised most of the unsecured debt to fund union health-care and pension costs is also seen as a reason why the union needs to take bigger steps.
With Mr. Obama potentially holding off on new loans until concessions are made, analysts said GM likely has enough cash on hand to weather at least another month before its need for more government aid becomes urgent. Chrysler may need another infusion of cash sooner. Ford Motor Co. hasn’t sought federal assistance.
Both GM and Chrysler are negotiating with the UAW to accept a range of cost-cutting measures, including a greatly reduced work force, lower wages and a revamped health-care fund for retirees.
Indeed the Wall Street Journal has already asked this question:
WASHINGTON — The ouster by the government of General Motors Corp. Chief Executive Rick Wagoner could put pressure on the Obama administration to deal more aggressively with the management of banks receiving federal aid.
Since the financial crisis bloomed in September, the Bush and Obama administrations have replaced management only in cases when they took control of struggling companies, such as mortgage giants Fannie Mae and Freddie Mac and insurance concern American International Group Inc.
Citigroup Inc., by contrast, has received three government rescues since October, under which the U.S. will own up to 36% of the company’s stock. Officials have in the past considered removing CEO Vikram Pandit, but demurred, in part because of the paucity of candidates to replace him, people familiar with the matter say. A spokesman for Citigroup couldn’t be immediately reached for comment.
For the nation’s top banks, a test of whether President Barack Obama’s tough stance will extend to Wall Street will likely come in late April with the result of the government’s “stress tests.” These financial examinations are designed to see how well banks can weather even tougher economic conditions. Those that don’t make the grade will be required to raise more capital.
It seems the administration isn’t considering nationalisation as a viable alternative for the financial institutions. As noted earlier, the U.S. govt. is willing to wait out six long months for the banks to raise capital should they fail the stress test. Now contrast this with how Obama has treated the automakers so far (again the WSJ article):
After over a month of analysis, the administration’s auto task force determined that neither company had put forward viable plans to restructure and survive. The verdict was gloomier for Chrysler. The government said it would provide Chrysler with capital for 30 days to cut a workable arrangement with Fiat SpA, the Italian auto maker that has a tentative alliance with Chrysler.
If the two reach a definitive alliance agreement, the government would consider investing up to $6 billion more in Chrysler. If the talks fail, the company would be allowed to collapse.
Now look at that. Thirty days vs. six long months. And on top of that the administration has indicated that it was willing to let the company file for bankruptcy should they fail to come to an agreement. Has the administration made the same threat to any of the financial institutions? No they haven’t. And we’re talking about a mere $6 bn, compared to the dozens of billions already doled out to the banks.
Much has been said earlier about Obama’s choices for his Cabinet and White House staff appointments during the presidential transition. Most commentators noted that his nominees were very moderate choices for someone who was frequently protrayed as a liberal. If that didn’t ring any alarm bells then, it should now. Who exactly is Obama taking advice from? Why is he listening to them and engaging Wall Street on more favourable terms compared to Main Street?
What’s particularly troubling is the idea that President Obama may be unduly influenced by those moderate free-market Clintonite idealists he chose to surround himself with. It’s a little reminiscent of how Bush often took Cheney’s frequently bad advice, being the clueless goon he was. Is the same thing happening to Obama? If this appears far-fetched, the New York Times has written about Obama’s obsession with the teleprompter, as though he is unable or unwilling to speak spontaneously:
Presidents have been using teleprompters for more than half a century, but none relied on them as extensively as Mr. Obama has so far. While presidents typically have used them for their most important speeches to the nation — an inauguration, a State of the Union or an Oval Office address — Mr. Obama uses them for everyday routine announcements, and even for the opening statement at his news conference.
He used them during a visit to a Caterpillar plant in Peoria, Ill. He used them to make brief remarks at the opening of his “fiscal responsibility summit.” He used them during a visit to the Interior Department to discuss endangered species, even as he recalled a visit to some national parks as an 11-year-old. “That was an experience I will never forget,” he said, reading from the teleprompter.
If the Obama plan to save the automakers amount to some form of quasi-nationalisation, where the government steps in rather often to correct executive decisions and guarantee worried car-buyers of their purchase, then I’d be less set against it. Otherwise, Obama has a lot of explaining to do for practising double-standards. So far it seems like they’re taking on more than they ordinarily would:
To assure consumers reluctant to buy GM or Chrysler cars, the government plans to take the unusual step of guaranteeing all warrantees on new cars from either company. These guarantees would lapse back to the companies once they return to health.
Which isn’t too bad of a sign. But I guess that just means we’ll have to wait and see what transpires next.
Update: The headlines hasn’t portrayed Obama in a positive light.
Washington Post: Obama Says Automakers Not Moving ‘Fast Enough’
New York Times: Obama Issues Ultimatum to Carmakers
Financial Times: Obama slams car industry leadership
USA Today: Obama hammers GM; Chrysler, Fiat deal takes shape
Now it remains to be seen if he’ll treat the banks’ in a similar fashion the next time round.
Update 2: Shortly after Obama issued his ultimatum, Chrsyler announced an agreement with Fiat:
Chrysler has reached agreement on a global alliance with Fiat, the ailing automaker said on Monday not long after President Barack Obama set it a one-month deadline to link up with the Italian automaker.
“We are pleased that Chrysler, Fiat and Cerberus have reached agreement on a global alliance, supported by the U.S. Treasury,” Chrysler, which is owned by Cerberus Capital Management, said in a statement.
That deal took less than 24 hours, far shorter than the 30 days deadline the administration gave Chrysler. Maybe that’s why the company was named ‘Fiat’. Perhaps I underestimated Obama. Looks like he’s smarter than I had anticipated. He sure knows how to turn up the pressure on them.
Update 3: Perhaps too early to celebrate? LA Times reports:
But Chrysler and Cerberus Capital Management L.P., the private investment majority owner of Chrysler LLC, announced this morning that it has reached an agreement with Fiat S.p.A. to establish a global strategic alliance, according to a report on the Wall Street Journal’s website.
In a later clarification, Chrysler said the agreement was a “framework” of a global alliance with the Italian auto maker. Chrysler said it still has “substantial hurdles to resolve.”
“The proposed alliance would be consistent with the terms and conditions of the U.S. Treasury financing to Chrysler,” the companies said in the posting, meaning the new venture could be eligible for $6 billion dollars more federal aid.
Well at least they’ve moved forward somewhat. The perils of blogging in real time.