Overhaul (50 page)

More aggravating than McCain's wild ruminations was the second-guessing from people who should have known better. For example, in July 2010, the special inspector general for
TARP
released a report arguing that Team Auto had erred in pushing GM and Chrysler to accelerate the pace of dealer closings. Dealers again!

The report was ludicrous. Every responsible auto industry expert agreed that the dealer networks needed to be shrunk, the quicker the better. Not only did we never get involved with which dealers to close, but also we never dictated the
number
of dealers to shutter. What we did do was try to inject a note of urgency and intellectual rigor into the companies' analysis, particularly that of GM.

While I remain proud of how many decisions we got right, especially in light of the need for instantaneous action, I do have a few second thoughts (what on Wall Street we call buyer's remorse). I wonder in particular whether we achieved enough of the shared sacrifice that President Obama called for from the auto industry stakeholders. More sacrifice, of course, would have benefited the government, yielding greater confidence in recovering all of its $82 billion, perhaps even a well-deserved profit.

For all the Chrysler lenders' theatrics about the boot of government on their throats, the $2 billion that we ended up paying for their $6.9 billion claim was probably double what they would have extracted from a liquidation. Similarly, I wish we had avoided the crazy math that led us to give 10 percent of the new GM (plus warrants) to the old GM bondholders. They now stand to recover 35 cents on the dollar from claims that should have been worthless.

And I brooded about the UAW, struggling with the good questions posed by Chuck Lane of the
Washington Post
at our editorial board meeting there: Why didn't we ask active UAW workers at GM and Chrysler to take a pay cut? Why didn't we modify both companies' overly generous pension plans?

Several reasons, I ultimately concluded. First, we had met the specific test of the Bush loan agreements, that total compensation to UAW workers be competitive with the transplants, even though we had allowed the UAW to maintain its policy of protecting the existing workers at a huge cost to the $14-an-hour new hires. Second, as in every negotiation, we could succeed only if the parties met somewhere in the middle. If we'd pushed too hard—for example, by taking on the much-needed reform of both companies' pension plans—the UAW might well have walked off the job. Third, we were pressed for time. And fourth, while having the power and the money of the government behind us was an enormous advantage, it also probably led to a somewhat kinder outcome than a purely private restructuring would have done. Restructurings in the take-no-prisoners world of Wall Street are bloody fights over the wreckage of insolvent companies; taking it all the way with GM and Chrysler could have involved trying to break the UAW and crushing the creditors into the minimal recoveries that they deserved—steps that we believed unimaginable for the Obama administration.

I spent many hours revisiting our toughest decision, to save Chrysler. The company was moribund; under almost any other economic circumstances, I would have been among those arguing to let it go. Diana Farrell was surely right that government should not be in the business of saving losers. Austan Goolsbee was equally correct in his assessment that the long-term consequences of a Chrysler liquidation would be relatively minor. And Harry Wilson was spot-on in his calculation of how much Chrysler's demise would have boosted GM and Ford. But I believed then, and feel even more strongly now, that Chrysler has a very good chance of succeeding, particularly with Sergio Marchionne at the helm. In that context, at the critical moment, when we all felt as if we were looking down a bottomless black hole, the President surely made the right call.

The auto rescue succeeded in no small part because we did not have to deal with Congress. Before taking up my post, I didn't realize how important this would be. I went to Washington thinking I understood the strengths and weaknesses of our legislative branch. Either I'd been hopelessly naive when I'd covered Congress as a reporter or it had changed for the worse. I was stunned to realize that if the task force had not been able to operate under the aegis of
TARP,
we would have been subject to endless congressional posturing, deliberating, bickering, and micromanagement, in the midst of which one or more of the troubled companies under our care would have gone bankrupt. Congress yields authority only under the direst of circumstances, as the example of
TARP
shows.

As Rahm had presciently urged his team at the outset, "Never let a crisis go to waste." Congress had been bludgeoned into passing
TARP
by Hank Paulson and the Bush administration in the midst of the near panic caused by the collapse of Lehman Brothers. At Paulson's insistence,
TARP
granted the White House and the Treasury unprecedented discretion over the use of $700 billion, bypassing Congress's customary role in approving individual appropriations.

Almost immediately, Congress tried to walk back the cat. The Democratic leadership appointed an oversight panel, led by Elizabeth Warren, a professor at Harvard Law School, that seemed to spend most of its time second-guessing tough calls that the administration had made (including those on autos). Meanwhile, Republicans—particularly those running for reelection—stepped up their attacks on it.

When Congress did try to intervene, as with auto dealer closures, the result was an enormous, pointless distraction for the two companies at a critical time. Its interference left me wondering what in the auto rescue Congress might like to micromanage next—choosing factory locations or deciding which executives and workers stayed and which had to go?

The fact was that like the auto rescues, the
TARP
as a whole had been a huge success at little or no cost to taxpayers. It saved our nation's financial system and, as a consequence, our economy. If, instead of being able to inject $250 billion into struggling banks on Columbus Day 2008, Hank Paulson had had to subject himself to congressional appropriations hearings, the result would have been an economic Chernobyl.

In January 2010, I spent a day at the North American International Auto Show, at Cobo Center in Detroit. Outside, it was cold and snowy, but inside, the mood was celebratory. "What a difference a year makes!" exclaimed Michigan Senator Debbie Stabenow, who had questioned my qualifications, before dignitaries assembled for lunch in a sterile third-floor meeting room. Congressman Steny Hoyer, who had wasted so much time browbeating the task force about a couple of Maryland car dealers, was there, basking in the excitement.

Afterward, I mischievously approached Hoyer, curious to see what kind of reception I would get.

"Nice to see you, Steve," he exclaimed in his best politician's voice. "You did a fabulous job on the autos, except for the dealers. You should have closed dealers the way that Ford did."

With that, he was gone, leaving me to wonder what he was talking about. Ford's dealer-closing program had closely resembled those of GM and Chrysler in prebankruptcy—culling a relatively small number of stores, one by one, over several years. (Months later, I was gratified to see that the principal dealer about whom Hoyer had harassed us lost the arbitration to have his four Chrysler stores reopened. The arbitrator ruled: "I found little evidence that the dealer had a well thought out and sound business plan for fitting within the Chrysler business plan, which I considered as itself well thought out and sound, having been developed by experts in the field.")

I could not imagine that this sort of congressional behavior was what the founding fathers had in mind. We know from our high school history lessons that the framers of the Constitution created a powerful presidency only reluctantly, after the loosely structured government of the Articles of Confederation proved dysfunctional. In their fear of overly strong executives (such as, say, King George III), they took care to empower the legislative branch as a strong check on the President. Looking back two centuries later, some of our founding fathers' views seem quaint. James Madison envisioned the Senate as a "firm, wise, and impartial body" that would give stability to the "General Government." And the architects of the Constitution believed that serving in Congress would be more an avocation than a vocation. Congressmen would serve a couple of terms and then go on to something else. The founders would have been shocked at a Senate whose members today have an
average
tenure of thirteen years and an
average
age of sixty-three.

One day, stewing about our partisan, posturing, gridlocked Senate, I was struck by a thought about the layout of Washington. As we all know, the Capitol is built on top of a hill, a lofty perch from which the legislature is meant to look down on the White House and surrounding executive buildings. It's a sad irony to think how low the institution has actually sunk.

TARP
and autos were hardly the only examples of Congress worrying more about its prerogatives than the good of the country. The same dysfunction was evident in the battle to pass financial regulatory re-form. After the meltdown of 2008, who could doubt the need for an overhaul of our regulatory apparatus? And yet, after nearly coming up empty, what we got was disappointing.

Virtually nothing was done to bring order to the hodgepodge of regulators that oversaw banks and other financial institutions. What might have been logical seventy-five years ago, when much of the current regulatory apparatus was put in place, made little or no sense in the twenty-first century. But Congress blocked the way. For example, the Securities and Exchange Commission and the Commodities Futures Trading Commission had jurisdiction over increasingly overlapping trading activities, particularly of derivatives. The sensible thing would have been to merge the two agencies. However, the SEC was supervised by the banking committees and the CFTC by the agriculture committees. Neither set of committees was prepared to give up its authority, so the agencies remain separate.

In the short tenure of the Obama administration, I was interested to see the public's opinion of Congress catch up to my own. When I joined the administration, Congress had an approval rating of 31 percent. By July 2010, its approval rating had dropped to 11 percent, the lowest since the 1970s and well below ratings for banks and "big business." A stunning 32 percent of Americans rated the current Congress as one of the worst ever.

Either Congress needs to get its act together or we should explore alternatives. When I lived in London, I was impressed by the parliamentary system. Britain's prime minister stays in office only as long as Parliament approves his or her proposals. Since the members of the majority party of the House of Commons understand that rejecting an important piece of legislation will force a national election, they think seriously before voting against their leader. Thus, in 2010, when the new government of David Cameron proposed tough austerity measures to deal with gaping budget deficits, many were enacted almost immediately.

If our country wants government to do a better job of solving its problems, it needs to find a way to let talented government officials operate more like they would be able to in the private sector. Deese was struck by how often people in the White House or at Treasury talked about Team Auto in wistful tones, wondering how we were able to cut through the government bureaucracy, make decisions, and move forward so effectively. Had our model been used to address other problems—anything from small business to housing to allocating stimulus dollars—the outcomes would surely have been better for the nation.

I had seen this vividly demonstrated in New York City in recent years. New York has a city council, but the city's charter also provides the mayor with strong executive powers, much like what my Washington colleagues longed for. With someone like Mike Bloomberg as mayor, the result is government at its best—efficient, disciplined, and effective. Had Bloomberg fallen short, the voters could have ejected him, as they have done with subpar mayors in the past. In contrast, New York's state government, based in Albany, is saddled with a very powerful legislature that is even more dysfunctional than the U.S. Senate. In the summer of 2010, it was mired in stalemate over the state's massive fiscal crisis and about to face its fourth governor in four years.

Of course, as someone who came of age during the Nixon era, I understand why the public mood shifted toward more checks on executive power, not just by Congress but through watchdog innovations like inspectors general, such as the one who issued the silly report about dealer closings. Actions like the serious overreach by the Bush administration on national security matters present legitimate concerns. However, if we don't find a way to make our government more effective, we will be much the worse for it as a country. In February 2010, a CNN/ Opinion Research Corp. poll found that 86 percent of Americans felt that government is broken, up 8 percentage points from 2006.

My sojourn in autoland gave me an uncomfortably clear vantage from which to observe the negative consequences of globalization for U.S. manufacturing. I knew the broad outlines from the business press: our manufacturing base was being threatened by increasingly high-quality output from countries with much lower wages. China was, of course, a prime rival, but so were lots of other countries in Asia as well as in eastern Europe. Not surprisingly, the potential solutions are less clear. To oversimplify, the left believes the remedy lies in limiting free trade; the right puts its hopes in pro-business, anti-union policies.

As a product of Brown University's classical economics department, I was a signed-up, paid-up free-trader. I had studied Adam Smith as well as David Ricardo's theory of comparative advantage and enthusiastically accepted the superiority of open markets. Consumers have benefited greatly from the availability of lower-cost imported goods. Those iPhones and iPads and iPods that Americans are snapping up would cost a lot more if they were being made in America instead of in China—as would the clothes, shoes, and other basic goods that make up a typical family's budget.