The Nationalization of Big Business
Published by Bob Foster
Good grief, what has happened to America’s capitalistic, free enterprise system? As a red-blooded American, native Michigander, and alumnus of Kettering University, I am more than a little shocked, disappointed, and angry at what I see as a major blow to free enterprise, and more importantly, to democracy. Here’s why:
Following is a condensation of a couple of articles that came to my attention today. These are excerpts from an article by Monica Langley and Neal E. Boudette in the WSJ’s Morning Brief, and an article by Dr. Jeffrey Feldman in the Huffington Post.
WASHINGTON — Inside a windowless, ornate room Thursday (3/26) just across from the Oval Office, President Barack Obama and a group of senior economic advisers began the job of remaking the American automobile industry.
The first order of business: Oust General Motors Corp. Chief Executive Rick Wagoner.
Steven Rattner, a former investment banker who is heading the administration’s auto restructuring; chief economic adviser Lawrence Summers; and Treasury Secretary Timothy Geithner were among those gathered around the polished wood table of the Roosevelt Room in the White House’s West Wing. They were there to decide under what conditions the government would continue to prop up once-powerful Detroit car companies GM and Chrysler LLC. At Thursday’s meeting, once the Obama administration concluded the pair were running out of money, their effective dismantling began.
The White House meeting at which Mr. Wagoner’s fate was decided came five days before a March 31 deadline when the administration was set to rule on the viability of the companies.
The auto team (headed by Steve Rattner) prepared briefs for Mr. Obama on his options, as well as viability reports on both companies. The car team wanted an executive who could accelerate the changes it (the administration) desired. Mr. Wagoner didn’t have any support within the group. “This is Obama, and symbols of change are important,” said one person familiar with the situation.
A much harder decision was what to do with Chrysler. A conclusion that the company wasn’t viable could lead to 40,000 workers losing their jobs. To combat that threat, the government is negotiating with Chrysler and Italian car maker Fiat SpA for an agreement that Fiat will continue to make cars in the U.S. if it buys Chrysler, according to an official of the Obama administration.
After the Thursday meeting at the White House, Mr. Rattner asked Mr. Wagoner and Mr. Henderson to come see him the next day. Mr. Rattner broke the news to Mr. Wagoner at his office at the Treasury, according to an administration official. Afterward, Mr. Rattner met with Mr. Henderson, and told him he would take over as GM’s CEO.
Once word started to trickle out that a White House decision on the auto makers’ fate was imminent, GM officials and some Michigan lawmakers began making calls. Michigan’s Democratic governor, Jennifer Granholm, called the White House to ask for a meeting with Mr. Obama. Told she’d need to come in by Friday, which wasn’t possible, she had a personal phone call with the president and urged him to consider the communities that could suffer.
Mr. Wagoner told GM’s board Friday evening that he was asked to step down and informed directors the administration wanted a majority of them to resign, according to two GM officials. Several volunteered to quit over the weekend. Other GM officials speculated that they would also be asked to resign.
On Sunday, …Mr. Obama made one call himself to some of the Michigan delegation, including U.S. Sen. Carl Levin and his brother, Rep. Sander Levin, and Michigan Sen. Debbie Stabenow. He told them that he planned to put some administration staff into the Detroit companies, according to one person familiar with the situation.
Sen. Corker, a Republican from Tennessee, said he told Mr. Rattner on Monday that he was alarmed that the administration would dictate what kind of vehicles would be constructed. “Deciding what vehicles and plants will survive is setting industrial policy,” the senator said.
For the complete article, click here.
Let me see if I have this correct-
- The administration does not give money to the auto industry-Congress does. (Unless the Treasury dept. is diverting funds Congress provided previously.)
- The President has formed a small group of people (the auto team) who are dictating how the American auto industry will be run.
- The head of the administration’s new auto team is Steve Rattner, a former Investment Banker.
- Steve Rattner personally fired Mr. Wagoner and personally appointed Mr. Henderson as the new President of GM.
- The administration is dictating what cars the auto industry will build, and what plants will survive.
- The strong-arm tactics by President Obama and his auto team run roughshod over the Articles of Incorporation and By-laws of GM, rending corporate law meaningless. (Nationalization?)
- The President told some of the Michigan delegation he was going to “put some administration staff” into the Detroit companies.
- The auto team is doing the negotiation between Chrysler and Fiat.
There also seemed to be a few people missing from the Thursday meeting–like:
- Where was the Board of Directors?
- Where was the Michigan delegation?
- Where were the shareholders (the government is only one shareholder)?
- Where were the “car guys?”
- Where were the “union guys?”
- Where were the Congressional leaders?
- Lastly, where is the fairness, executed by the administration, between the auto industry and the banking industry?
What does Michigan think of all this? Here is what Dr. Jeffrey Feldman had to say in his article in the Huffington Post today:
Fear and anger are rising in Michigan: Fear that things are about to get much, much worse than they already are; anger that the federal government is strong arming the Mitten State just a short while after opening up America’s coffers to Wall Street with no strings attached. New York gets what it wants, when it wants it from Washington, Michigan gets slapped in the face. The fat cats on Wall Street caused this problem, they sank the economy, and they got paid off…Executives in Detroit get tarred and feathered and escorted to the door.
For the complete article, click here.
Now, I am not saying that all these things shouldn’t happen to, or within the American auto industry; nor that they wouldn’t happen anyway, but I am shocked, and disappointed, at the way events are being dictated to the auto industry by the President, and his select few, who are taking over the entire industry. That is not how capitalism works. That is not how democracy works.
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7 Responses to “The Nationalization of Big Business”
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Yes, it does appear to be pointedly unbalanced when comparing apples to apples – but we’re not. The auto manufacturing industry is oranges. Oranges that are over-ripened on the tree right now and surprisingly nobody is picking them!
When I read this article on Forbes online about the Fiat/Chrysler deal, I about lost my lunch (http://tinyurl.com/clp9zc) “US$6 billion could last until the end of the year” and a “wild guess that Chrysler would need anywhere from euro50 billion to euro100billion to survive another 3 years”!! Have you looked at the current exchange rate of US$ to euros lately? (Getting close to an even match).
And that’s just Chrysler. Daimler tried it and didn’t like it – what’s Fiat going to do differently except bring their “technology” to the table for building smaller cars with that great Fiat dependability? LOL!
As far as strong-arming the GM CEO out of his seat, I’m still a bit shocked quite frankly, and don’t know how to respond to that yet… other than I agree that he shouldn’t get a $20 million severance package.
Bottom line is who couldn’t see this coming? Building all those mammoth SUVs for the past decade at a high profit margin has put them in this position – and Wall Street can’t be totally blamed for that.
Somewhere/somehow – the hemorrhaging has to be stopped or we will surely bleed to death on the battlefield. If the companies are incapable of making these decisions on their own, then somebody has to step in and make them for them – and in the end, 100′s of thousands of people might still have jobs as a result of it.
Jeff – Thanks for the comment. However, I fear you misinterpreted a couple of points in my post. Everyone knows the U.S. auto industry is dying and has been for decades—no question about it. But GM and Chrysler did not put our country in the deep recession we are in right now—Wall Street bankers did…the same bankers that, for the most part, are still running Wall Street, while burning up billions of taxpayer dollars, and making noises about needing more. Why is this?
The capitalistic, free enterprise system that made America great is a market driven system, and it is the market that dictates which products, and which businesses, succeed or fail. To support this system, volumes of corporate laws have been written to handle the process. For the auto industry, the market has spoken, and corporate procedures and laws should dictate what happens as a result. When the government circumvents those laws and procedures…the result is usually more chaos.
For the U.S. government to fire the CEO of GM; fire most (or all) of the Board of Directors; handpick a new CEO; “put administration staff” into the company; and also tell Fiat/Chrysler what kind of car the administration wants them to build; that is about as far away from capitalism as one can get.
Thanks again for the comment.
Bob Foster’s last blog post..The Nationalization of Big Business
While I completely understand the sentiment here, Great, post. I can understand exactly why the government has done what it has done. My point has been that it seemed like the removal of Rick Wagoner was a double standard with banks CEOs by and large being treated differently even though they have been given billions upon billions more. These executives along with their board members have largely failed and brought the world to financial collapse. Many of them should be removed.
Judith Ellis’s last blog post..Being Queen Elizabeth II
Judith – There are really two issues here. First, is the concept of capitalism…there should be a distinct separation between business and government in a free enterprise society. That has changed dramatically with the government involvement in operational issues of the auto industry. Perhaps we now have a “social capitalism” government. (I’m sure that is not even a term, but maybe it describes in small measure what is going on.)
I am also concerned that we now have the largest bureaucracy in the country not only telling the auto industry how to run their business, but actually involving themselves in the decision-making process of the companies. Yes, lenders normally dictate conditions a company must agree to before a loan is made, and sometimes these conditions are very restrictive, but the steps recently taken with GM and Chrysler, by our government, is appalling to me.
Second, (and I don’t need to beat this dead horse) is the lax manner in which our government handled, and is continuing to handle, the large banks, and pseudo-banks, that are receiving bailout money.
Thanks for your comment—I really enjoy hearing your thoughts.
Bob Foster’s last blog post..The Nationalization of Big Business
While I understand the concern, it seems like some private industries do not seem to be able to govern themselves, not that government will be able to do so effectively over the long haul. But it can most certainly apply sensible regulations and demand change especially when hundreds of dollars are given and the taxpayers are essentially 80% owners in corporations like AIG.
Regarding “socialism capitalism,” it looks like there are many such realities as seen throughout Europe and “capitalism communism” as seen in China. As all isms are made of people they will forever evolve. I don’t see what the White House is doing as a great alarm. It is what Taleb calls “socializing debt and privatizing gain” that concerns me.
I have written on my Blog and the Huffington Post about what appears to be a double standard between the banks and the auto industry. Although, I heard today that Treasury Secretary Geithner, perhaps being pressed by the American people who elected the President who selected the Secretary, is looking into the performance of CEOs. It’s pretty late after so many hundreds of billions. But I guess better late than never.
Judith Ellis’s last blog post..Being Queen Elizabeth II
I think many who may read your blog Bob will simply shrug their shoulders and say “So, they had it coming.” The real problem in my opinion IS the market. In a free enterprise system, it IS market driven. The market like most small children point to something they want and scream until they get it. The system responds by giving us what we want, Hummers, F150 pick up trucks, Escalades and various other SUV’s, McMansions, private aircraft, $4000 dinners, etc..and their isn’t a single congressman exempt from this act in some way, even the most liberal of the bunch who still fly home on weekends burning thousands of gallons of jet fuel to do so while at home they will give a speech about global warming or some other meaningless diatribe (not the topic itself mind you but the presentation being one of the pot calling the kettle black).
The point I’m trying to make is IF we were truly a free market enterprise system, then there never would have been a bailout. Those who ran strict lending policies would become our countries strongest banks, the auto makers would have switched gears and begun meeting market demand for smaller, more fuel efficient cars, etc..but no, we live in a finger pointing society where no one accepts responsibility and everything that goes wrong is someone else’s fault. That and we look to the “government” to bail us out of trouble so we can go right back to business as usual. This is NOT the kind of “change” we need.
Being in business myself since I was 15, if I made a mistake I paid for it. If I made bad decisions I paid for it. If I took a risk that paid off, I was rewarded for it. To me this is a free enterprise system. We have been moving away from this for decades and I have seen the writing on the wall. Trust me, our Free Enterprise System, is dead. RIP!! It will never come back. You may as well start ushering in the new social order. It started with the selection of Obama and his followers. I’m sure he is a great guy, he means well, but the change he will bring is socialism. The blog you just posted is proof of whats more to come. If the market won’t change itself, then by God (oops, we don’t say that in government anymore, in fact shouldn’t this word be removed from our money?) we’ll do it for them.
This is scary stuff Bob!! All of your points are very well taken. The government has completely sidestepped corporate law, boards of directors, shareholders and taken over. I see this type of strong arming every single day. Did I mention, I’m living in Shanghai?? By the time I get home, I won’t know the difference!
Should I just shrug my shoulders now too and say “Hey, what’s in this for me?” I’ve got a Hummer that’s sitting in the driveway of my McMansion that’s out of gas, can you help me too?? It’s somebody else’s fault you know!!!
Steve
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