Heckuva Job on the Auto Bailout, Rattie

Puffing out his chest in Tuesday’s Washington Post, Steven Rattner, former‐​head of President Obama’s auto task force and architect of GM’s and Chrysler’s restructurings, asks, rhetorically: “Isn’t it time to agree that the auto rescue has been a success?”


Rattner’s declaration of “Mission Accomplished”—based on one calendar quarter of mediocre financial results—is a galling display of arrogance and deception, and betrays a disturbing cluelessness about the broader costs and consequences of the government’s heavy‐​handed intervention.


Rattner’s verdict rests on the singular consideration that “a year after the government‐​sponsored bankruptcies of GM and Chrysler, both patients are alive and progressing well toward recovery.” But that’s like hailing the stable medical condition of a drunk driver after an accident, while ignoring the injuries to the family in the vehicle he struck.


The impact of the auto intervention on its victims doesn’t factor into Rattner’s analysis.


Rattner’s claim of auto “rescue” success is the product of a straw‐​man set‐​up. The most compelling objections to the bailout were not rooted in the belief that the government couldn’t use its assumed power to help GM and Chrysler. On the contrary, the most compelling objections were over concerns that the government would do just that. It is the consequences of that intervention—the undermining of the rule of law, the confiscations, the politically‐​driven decisions, and the distortion of market signals—that animated the most serious objections.


Thus, any verdict on the outcome of the auto industry intervention must take into account, among other things, the billions of dollars in property confiscated from the auto companies’ debt‐​holders; the higher risk premium built into U.S. corporate debt, as a result; the costs of denying Ford and the other more successful auto producers the spoils of competition (including additional market share and access to the resources misallocated at GM and Chrysler); the costs of rewarding irresponsible actors, like the United Autoworkers union, by insulating them from the outcomes of what should have been an apolitical bankruptcy proceeding; the effects of GM’s nationalization on production, investment, and public policy decisions; the diminution of U.S. moral authority to counsel foreign governments against market interventions that can adversely affect U.S. businesses competing abroad, and; the corrosive impact on America’s institutions of the illegal diversion of TARP funds under two presidential administrations.


In the Washington Post analysis that leads to his pronouncement of success, Rattner considers none of those costs.


Instead, citing GM’s positive first quarter 2010 financial results, higher prices, smaller inventories, and a reduction in the use of rebates and other sales incentives, Rattner attributes the company’s success to the efforts of his task force, which oversaw the establishment of a new board of directors and reduced GM’s North American operating costs by $8 billion.


Indeed it may tempting for Rattner to take credit for GM’s first quarterly profit in nearly three years, but the truth is that cost reductions and the appointment of a new board of directors would have happened under a normal Chapter 11 reorganization (without the task force) anyway. Likewise, economic recovery would have increased demand for and prices of GM vehicles—even without the guiding wisdom of Rattner’s task force.


Despite claiming success, Rattner recognizes that making taxpayers whole for their $81 billion investment in the auto indutry would help sell his version of history. He even hints that it may soon be in the cards. But even under the extremely unlikely condition that taxpayers get all of their money back, there are still the more difficult to quantify short‐ and long‐​term economic and institutional costs of the intervention that should counsel against ever doing something like this again.