In the last debate Romney protested that he always supported government guarantees for post bankrupt auto companies. Obama said, "... you did not say that you would provide government help."
Romney's presentation in that exchange that led me to suggest in "The last debate" here on Oct. 22 that he looked real bad there, in part because I had bought into the idea that what he was saying was not true.
The following is an excerpt from Romney's op ed in the NYT on Nov 18, 2008.
"...
But don’t ask Washington to give shareholders and
bondholders a free pass — they bet on management and they lost.
The American auto industry is vital to our national
interest as an employer and as a hub for manufacturing. A managed bankruptcy may
be the only path to the fundamental restructuring the industry needs. It would
permit the companies to shed excess labor, pension and real estate costs. The
federal government should provide guarantees for post-bankruptcy financing and
assure car buyers that their warranties are not at risk.
..."
This proposal is more or less what Obama did (except that I think Obama provided some extra government payments to the unions which would not have been possible with a regular bankruptcy.)
So apparently Romney was right and Obama was wrong.
Or if I were to mimic Obama's current linguistic style: Romney was right and Obama lied.
PS The name of this post widely reported in the media as a quote from Romney is not a quote from Romney.
The fair minded editors at the Times wrote the headline.
There's the debate point and then there's the substance behind it. Romney was clearly right in the debate about what text was in his editorial.
ReplyDeleteBut the substance of the voting issue here remains: "which of these two men would you rather have had in office to diffuse the very near collapse of the auto industry?"
On this I don't know how one feels better with Romney. The deal Obama did worked. There are significant reasons to question whether Romney's plan would have. Specifically, as I understand it, his managed bankruptcy arrangement depends on securing financing that was famously collapsing itself at the time (http://online.wsj.com/article/SB122421475294443955.html), posing a challenge in terms of timing if not outright feasibility.
Romney's telling is, of course, that what worked for Obama is really just a delayed version of Romney's plan. From what I've seen, you have to pick your fact-set pretty carefully from the whole to support this view.
Bankruptcy is a legal construct that allows a business or individual, in conjunction with the courts, to take extraordinary steps to better ensure financial survival while being as fair as possible to creditors.
ReplyDeleteWhile GM eventually went into bankruptcy courts it was after the administration ensured that the union and retirees would be kept whole and the bond holders would accept (I believe 20 cents on the dollar) a drastically lower repayment level.
At the time I questioned where the Administration derived the authority to do what they did. I will say that I never heard the Rs question the authority so perhaps there is a legitimate genesis.
Based on the restructuring of GM before it got to the bankruptcy courts I doubt that GM is fixed.
Well,I like (regulated) capitalism. Capitalism without bankruptcy is an oxymoron.
ReplyDeleteI believe that the "moral hazard" issue is much bigger than the politicians believe that it is. It is clear why they do not want to focus on it. If you say you will fix those corporations that are too big to fail, then two things happen:
1. The corporations are not going to be as worried about failing (not as worried about being competitive) but
2. the politicians get to be heroes to the worker-voters by give the failed corporations and unions our money to compensate for their errors. (In this case, actually they are giving them our grandchildren's hoped for money.)
So on the substance issue, which of these two would you rather have dealing with the problem might depend on whether you take a short or long view. I believe that morality does matter and if you continually use the government to prevent reality from taking its toll, then you may very well be just building to a much larger crisis which will take the government down with it eg. Europe, California. The great depression was bad even though the government was virtually debt free. Imagine how that looks if the government and all the people and states started into it with a huge debt hanging over them.
We are starting to look more and more like an Ayn Rand novel.
I certainly agree on the entirety of concerns in the first paragraph, but I'm not clear on how you mean to get from there to which of our two options for president demonstrate a stronger "long view" based on their auto-bailout position (if that is what we are still talking about... I assume so given where we started).
DeleteSince both seem to want credit for how things turned out, the only question is who deserves to claim it. Romney is at a disadvantage here, but regardless, neither seems to have a real claim on addressing your (1) and (2) in this context. So who do you think is offering the long view? It sounds like Romney IYO but I don't see what you are connecting that to.
By the long view I mean the one that minimizes the frequency with which this kind of interference is done, in order to minimize the moral hazard.
DeleteIt seems clear to me that Obama gets the credit (if that is the right term). I did not think Romney wanted credit for how it turned out, I suspect he thinks it hasn't completely turned out yet. I thought Romney was fighting against the Obama claim, supported by the media, that he was totally indifferent about the outcome in the auto industry.
I guess I would prefer running them through a regular bankruptcy deal, but I see that the politicians cannot do that – electoral hazard trumps moral hazard.
So which will be most likely to oppose the moral hazard?
What Romney proposed would have involved a lot less government intervention and less distortion of the normal processes. So much less that, as you point out, it may be that it wouldn't have worked.
On the other hand Obama took the opportunity to do more than was necessary to keep it afloat (at least for now) and handed a very unusual deal to his union supporters at the expense of your grandchildren.
For another example, if (when?) California goes bankrupt during the next term the Feds will bail them out. Hopefully there will be conditions that California will have to meet in order to get Federal support. Which of the two do you think is more likely to oppose the moral hazard and make those conditions sufficiently stringent so as to discourage other states from following suit?
I would think a hint might be found in which of them has supported those states which have made hard decisions in order to avoid California's fate. For example IN, WI, OH, and NJ.
This argument is one of the negatives that I recognized about Obama before deciding that I would vote for him again.
Sending an entity to bankruptcy is an attempt to save the company from going out of business. There is a very real possibility that when Romney advocated that GM go into bankruptcy it never occurred to him that some ignorant (as in uninformed) individuals would interpret that as sending them into “going out of business”.
ReplyDeleteP.S. To the author of the title “Let Detroit go Bankrupt” the label of “ignorant” would be the best case scenario.