Steven Rattner v Mitt Romney, Round 3
The two companies had been handed government loans to stave off bankruptcy and liquidation in the dying days of the Bush administration in 2008. Governor Romney, frontrunner for the Republican presidential nomination, opposed the bailout and he and Mr Rattner have been conducting a war of words across newspaper op-ed pages this month.
I spoke to Mr Rattner this weekend, in the run-up to the Republican primary in Michigan, where Governor Romney’s opposition to the Detroit bailout has been a major issue, as my colleague David Usborne and I report in The Independent today.
Here is a transcript of the conversation:
Q: Do you think that Governor Romney believes now, and believed in 2008 when he was writing the New York Times op-ed, that a non-government managed bankruptcy was possible? Are you claiming it has been political expediency from the very beginning?
I’ve written lots of things that have turned out to be wrong and I will freely admit that, but the idea that with the benefit of three and a half years of experience he keeps insisting that that original point of view was right just boggles the mind.
In fairness to Governor Romney, when he wrote the first op-ed piece in November 2008, nobody really knew what was or was not possible. Even when I arrived in January 2009 it was a jumble. I remember being inundated with emails and reading stuff from everybody, people with frankly with much more expertise than Governor Romney in this area. It was a such a unique situation that nobody really had thought it through clearly.
I would actually have given him something of a pass on that 2008 piece if he didn’t keep repeating it. In other words, I think he actually got a lot of things quite right in that 2008 piece but the problem is he then went on for the last three-and-a-half years insisting, including in his Detroit News op-ed piece, that these companies would be better off if government had never gotten involved.
If he had simply said, ‘You know, I got most of it right in my 2008 piece, but I didn’t really understand that government would have to provide the capital because there was no other capital, so government’s involvement was necessary and appropriate under these distasteful circumstances’, I’d say, ‘Great, we agree’. But he keeps insisting that there was some alternative to having the government provide the financing that allowed the bankruptcy to continue.
Now, he did in the 2008 piece say something about the government providing financing on the way out, but there would have been no way out if we had followed his advice and insisted that the companies go through the so-called managed bankruptcy before the government provided any financing. So it may seem like a relatively narrow point, but the fact that he, even now in the fullness of time and with three and half years to dissect and understand it, keeps insisting that it should have been done a certain way that now in retrospect seems completely obvious to me was impossible is where I part company with him.
Q: What do you feel Detroit and Michigan would be like now if we had let these companies go?
The problem is it’s almost completely unimaginable. It’s like saying to someone – and this is maybe not a good analogy – I won’t use this analogy, it’s not appropriate – I’m trying to think of some kind of devastation that does not involve the taking of human life, because that’s really what I’m trying to equate this to. It would be like some incredible natural disaster or act of war, but one that didn’t involve the taking of human life. It would have been the economic equivalent of that kind of disaster.
It seems to me inarguable you would have had something over a million people out of work at least for a while. You would have cities that were bankrupt. You would have had a state that was probably effectively if not officially bankrupt. You would have had enormous costs loaded on the federal government by the way for unemployment and healthcare and bailing out states and all this other stuff that people seem to forget about, that would have almost certainly exceeded what the net cost of this rescue will turn out to be.
I cannot think of an event in economic history – the Great Depression was certainly worse but that occurred over many years – but I cannot think of a single event in business history that I could equate to this and that’s part of why people have trouble processing the enormity of the impact that would have occurred.
Q: Tell me about the estimates of the job losses that would have cascaded through the economy, estimates that the bailout was based on. Where did they come from and how confident are you as to their veracity?
The honest answer is I’m not at all confident of their accuracy. I’m confident of their directional veracity. The 1.4 million number comes from the Centre for Automotive Research. The fact was we knew the job losses were going to be massive. Whether they were going to be 800,000, or 1.4 million or 2 million didn’t really matter frankly. We knew the cost of our intervention was going to be pretty low, and it did turn out to be pretty low. Given it was going to be low, we didn’t feel the need to do some kind of rigorous cost-benefit analysis. We did not have time to do long analyses. We were really living this in real time.
Q: Have you got a handle yet on how you can persuade people that this needed to be done?
The problem with persuading people of the need to do this – maybe not quite as acute but directionally the same problem as for my former colleagues who are working on the bank bailout, or bank rescue as I prefer to call it – is you are trying to prove a counterfactual. You are trying to convince people that something which we all agree is distasteful is better than the alternative. Nobody likes having the government having to do this kind of thing. Since you can’t prove what the alternative is, even if we had a study that calculated the job losses to four decimal points, people would then dispute that. You can ever prove to people – i certainly have not been able to prove to Governor Romney – that the alternative would have been the king of disaster that i firmly and fervently believe it would have been.
You are left in a position where people can continuously debate whether the stimulus program was necessary or effective, they can debate whether the bank rescue was necessary or effective, and they can debate whether the auto rescue was necessary or defective, That is just a fact of life and there’s nothing I can about that except do what I am doing which is continue to try to make my points and argue my case.
Q: Has anything changed that if Detroit were to get into trouble again today, would we have to do the same again today?
If you are asking did we do anything like Dodd-Frank [Wall Street reform Act], no, the law hasn’t changed. We would be facing the same set of dilemmas and issues. But what has changed is that these companies are now in very sound financial shape. Of all the things that I worry about when I go to sleep at night the idea of General Motors or Chrysler having another problem of that sort is not something that I think about. And I would say immodestly on President Obama’s behalf the fact that he insisted on a very fundamental restructuring of these companies, I think, has put them in a position where there won’t be another event like this in our lifetimes.Tagged in: auto bailout, bailout, chrysler, detroit, general motors, gm, michigan, rattner, Romney
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