Overhaul (29 page)

Knowing the Fiat deal could still implode, Harry fine-tuned Plan B. His enthusiasm infected Osias and Calhoon, who shared his skepticism about Chrysler with or without the Italians. The thought of lending billions to a company whose long-term survival was uncertain worried them all. Brian and Clay wanted to revisit the costs and the net job losses of dismembering the business.

It was as if a team of doctors trying to save a patient were suddenly considering euthanasia.

Austan Goolsbee jumped in again too. He and the Council of Economic Advisers produced an analysis of the employment impacts of Plan B. Their original estimate for a Chrysler liquidation had been a net job loss in a wide range, anywhere from about 15,000 to 125,000. Now Goolsbee said that the job loss from Plan A would be around 25,000 and the loss from Plan B would be about 60,000, a difference of around 35,000 jobs—and a far cry from the 300,000 that had practically knocked Larry off his chair when the subject of a Chrysler liquidation first came up. Of course as with a liquidation, Plan B would entail substantial disruption along the way to its relatively small net job loss. And supporters of Plan A, like Deese, wondered whether the CEA had skewed its analysis to support its position. Some private economists, such as Mark Zandi, had projected far greater job loss from any dismemberment of Chrysler.

I watched all this with bemusement. On April 25, after Osias and Calhoon delivered their detailed financial projections to Harry, I tried out some simple math on my colleagues. By their reckoning, we were talking about putting in $15 billion less now and ending up with something like $12 billion more in 2014, for a delta of $23 billion without discounting.

When no one argued with my math, my stomach started to tie itself in knots. Plan A was very costly. At risk was perhaps $17 billion of taxpayer value—for what? The preservation of 35,000 jobs (that is, $500,000 per job), and the real but nebulous benefit of sparing our country more economic dislocation and the shock of another piece of bad news.

On April 26, a sultry spring Sunday with pollen so thick you could see it accumulate on windowsills, we filled the seats in Tim's small conference room for a final powwow before the President's fast-approaching national address. For all practical purposes, Sunday was a workday for Tim—he had been shuttling crisis teams in and out all day, particularly those working on the banking problems.

Larry, in khakis, had walked over from the West Wing. Most of Team Auto was present too, having decided to work all weekend as crucial problems remained unresolved. Two belonged primarily to me: I had yet to get regulatory approval for the Chrysler Financial-GMAC deal, and I had yet to finish the creditor negotiation. I took the opportunity to run by Larry and Tim our strategy with Jimmy and the banks. But the main issue on the table was a go/no go decision on Plan A.

Harry had detoured to Washington on his way to Detroit to make an impassioned plea for Plan B, bringing along an assortment of PowerPoint slides, which made me fear he had been spending too much time at GM. More importantly, he brought the backing of Osias and Calhoon, who encouraged him to push for the more cost-effective solution offered by Plan B.

Besides the testimonials and the numbers, Harry had marshaled other interesting evidence, such as an analysis suggesting that Chrysler's disappearance need not completely destroy its dealers. Most of the jobs and profits in a dealership come not from sales of new cars but from service and used cars. Both would be needed if Chrysler liquidated.

Ron was not left to fight on his own. Deese, savvy at playing the angles of public policy, reiterated his arguments about the billions of dollars of potential social costs (in unemployment insurance claims and the like) that a shutdown would trigger. Matt Feldman emphasized that switching to Plan B at this late date would severely complicate the bankruptcy process, resulting in added cost and delay. He believed that these complications could easily eat up all of the savings that the proponents of Plan B had set forth.

For the most part, the arguments were familiar and neither faction would budge. So inevitably came the big question: Should the matter be brought to President Obama again?

Tim and Larry were at a seeming impasse. A rarity. "This is all very interesting, but we're not going to risk the Fiat deal," Larry declared.

"Shouldn't the President hear this one more time? Shouldn't he have a shot?" asked Tim.

Larry demurred, but Tim tried again, insisting, "Maybe he should."

With that, they thanked us and adjourned. I assumed that Tim and Larry had silently agreed to take their disagreement offline. And when we heard nothing more afterward, I realized that whatever the merits of Plan B, the clock had pretty much run out. Plan A had to be made to work.

The day was hot by the time I went back upstairs to see Stephanie Cutter, Tim's media chief, and the air conditioning in her office was broken. The
New York Times
had asked to interview me for a story on Obama's first one hundred days. Stephanie would oversee the conversation to keep me out of trouble. I had nothing to contribute regarding the dramatic overall sweep of events. However, the
Times
had homed in on the auto rescue—of interest to all Americans and, unlike other Obama crises, a tale with a clear beginning and middle. For the White House, the subject posed a challenge. Obama, torn among many battles, had probably spent the least amount of time on the auto front. Unlike many issues involving multiple departments with different mandates and agendas, autos were firmly in the hands of Tim and Larry, who never had a disagreement requiring Obama's attention. The only significant question for him to adjudicate had been whether to save Chrysler, and he had been able to satisfy himself on that and decide quickly. Yet the White House publicists were eager to show the President at the center of the action, and they'd been working hard to spin the
Times's
story that way.

Stephanie put reporter Jim Rotenberg on the speakerphone and he started firing with questions about our interactions with the President—what decisions we had brought to him, who said what, where the points of disagreement were. Periodically, Stephanie, working her BlackBerry, would hear a question deemed too close to private White House business. Motioning to me not to answer, she would snap at Rotenberg.

The resulting article, "Early Resolve: Obama Stand in Auto Crisis," framed the President's intervention as "a case study in the education, management, and decision-making of a fledgling president." Without getting a single fact out of place, the piece showed him just as the White House had hoped: studying the issues in depth, delegating effectively, being decisive when necessary and frank about his beliefs. "With supreme faith in his ability to explain anything to the country, Mr. Obama shrugged off concerns and said he would openly signal that bankruptcy was a possibility," it read. On Rick Wagoner's ouster, the story reported that Obama "had advisers deal directly with the car companies and never spoke with the GM chief executive he effectively fired." It went on to add that the President "had no problem with anyone knowing he had toppled a giant."

I knew that line in particular would please the White House. At the time, some commentators were questioning the President's toughness, and Rahm Emanuel used every opportunity to counter that perception. He had poked his head into Larry's office before one of our press briefings to say, "Be sure you tell them that the President was muscular."

My personal dealings with the media were far less pleasant. A situation involving my firm, Quadrangle, back in New York, was increasingly drawing attention, and the sort of goodwill that Obama then generated as a matter of course seemed for me to be, at that moment, in very short supply.

Years before I'd become a public servant, we had hired a "placement agent" named Hank Morris to help raise money from New York State and other public pension funds. I had known Morris, a political consultant, for years. Both of us had worked on Chuck Schumer's first campaign for Senate in 1998. Before Quadrangle offered Hank the assignment, I'd checked him out with Chuck, who had confirmed my impression that, in a realm filled with shady characters, Hank was a straight shooter.

That wasn't how it turned out. On March 19, Hank and David Loglisci, the chief investment officer for the New York pension fund, were indicted on 123 counts of fraud. The Securities and Exchange Commission filed a parallel complaint. All of us at Quadrangle had been cooperating for months with the probes, and my involvement had been fully disclosed to the White House during the vetting process at the time of my appointment, a fact later confirmed by Press Secretary Robert Gibbs. The indictment named Quadrangle as a Morris client and described its role as a money manager for the pension fund. But the story remained mainly local.

All that changed on April 15, when the SEC amended its complaint, adding details about Quadrangle's involvement. This time, the roof fell in. The press went crazy, bombarding us with questions and casting my conduct in the worst possible light. White House reporters asked Gibbs about me the next day. "He's not accused of doing any wrongdoing," Gibbs replied. "And is not likely to face any criminal or civil charges as it relates to this. And a pending investigation was something that he brought up to us." Even that didn't help. I continued to be deluged with questions.

Now that I was in the national spotlight, New York Attorney General Andrew Cuomo and other state officials pressed the inquiry further. My daily chores suddenly included late-night conference calls with lawyers and former Quadrangle colleagues as we attempted to make our case to the authorities and the press. During my many years in business, I had certainly been criticized, but I had never before had my integrity questioned. Nothing in my entire professional life had been as painful as that episode.

None of this improved my appetite for dealing with a player who had emerged as a threat to Team Auto's whole endeavor. Not Jimmy, who lacked the leverage to block us on Chrysler and had nothing to do with GM. Not Sergio or Ron Gettelfinger. The new headache was Sheila Bair, the powerful chairwoman of the FDIC, which we needed to complete the GMAC and Chrysler Financial deal. Everything else in our charter depended on that. Without GMAC's help, Chrysler would have no way to finance ongoing sales and the restructuring would fall through. General Motors's survival would also be jeopardized.

I'd become aware of Bair's central role gradually, while arranging for GMAC to take over Chrysler Financial's lending activities. I had expected that obtaining the regulatory approvals would be easy. After all, didn't we work for the same government? Didn't we all want to save the economy from further shocks? That naivete fell away quickly.

GMAC had three regulators: the Fed, the FDIC, and the state of Utah, where its Internet bank, Ally, was chartered. Since the Federal Reserve and the FDIC were independent agencies, for the first time in our "caper," we could not use executive authority to direct the bureaucracy. No one—not the secretary of the Treasury, not even the President—could tell Ben Bernanke or Sheila Bair what to do. So the potential impediment at this point was not the recalcitrance of outside stakeholders but that of government colleagues.

We didn't need much from the Fed, primarily just relief from something called Rule 23A, a Depression-era regulation prohibiting banks from lending money to "affiliated companies." GM still had a significant stake in GMAC, but from our first meeting with Fed general counsel Scott Alvarez, we sensed a desire to help. Scott and his colleagues were diligent and careful—they made clear that they wouldn't support a full merger of Chrysler Financial and GMAC. Yet they also signaled that they shared our desire to solve the auto crisis.

The FDIC, more directly and intimately involved with the bank subsidiary, had the authority to lift limits on deposits that GMAC had agreed to at the end of 2008 and controlled access to the TLGP. Its cooperation on both fronts was essential to GMAC's plan for providing financing to GM and Chrysler customers. Our initial encounters were worrisome. Two Team Auto members, Brian Stern and Rob Fraser, had a Sunday session with the Fed also in attendance, where the FDIC was unyielding. A few days later, Deese and I accompanied Brian and Rob to FDIC headquarters to try to make some progress. But Bair's lieutenant Chris Spoth and her deputy general counsel Roberta McInerney listened, gave away little, and promised no cooperation beyond checking with their boss.

The only specific objection raised by Spoth was GMAC's financing of dealer inventories, which he viewed as excessively risky. The irony was that of all the possible reasons to worry about GMAC, "floor plan" was the least of them. In theory, GMAC can lose money on floor plan if a dealer won't or can't pay, but the deck is stacked in favor of GMAC. If a dealer defaults, GMAC has the right to seize the unsold cars and return them to GM for full value. What's more, most dealers are
personally
liable for floor-plan loans, a tremendous incentive to make good on the debts. The historical loss rates on floor plan had been close to zero. The new risk, of course, was that GM itself might no longer be around to honor its repurchase agreement. But the President of the United States had just stood up to tell the world that a GM liquidation was unthinkable. What was the FDIC so worried about? We couldn't figure it out.

It took me a while to understand that we were caught in the web of Sheila Bair's own agenda. She was a lawyer from Kansas who, like Ben Bernanke, was a Bush administration appointee. Like Bernanke, she had also been an academic, though of lesser distinction. Unlike Bernanke, she was a politician too—in 1990 she'd lost a Republican congressional primary in her home state.

Bair made her mark at the FDIC as an articulate early advocate of forceful action in the subprime mortgage crisis. At a time when the Bush administration was still wedded to its free-market, noninterventionist stance, she stood her ground. In 2008
Forbes
named her the second most powerful woman in the world after German Chancellor Angela Merkel. A few pundits even touted her as a possible Treasury secretary for President Obama. But inside the bureaucracy she had a reputation for being a sharp-elbowed, sometimes disingenuous self-promoter. My colleagues who dealt with Bair during the banking crisis found the experience frustrating.