In forcing Rick Wagoner's resignation as CEO of General Motors, the Obama Administration is doing exactly the the sort of thing that LBO firms and hedge funds have been doing for years: conditioning their (further) investment of money on strategic and personnel changes. WaPo quotes a "senior administration official ... who spoke on condition of anonymity because of the sensitivity of the matter": "This doesn't make any of us happy, but we are the custodians of taxpayer dollars."
While this latest intervention may not seem much different from the government-negotiated sale of Bear Sterns last spring or the restructuring of AIG over the past six months, in those instances we at least had the sense that the Bush and Obama Administrations were doing something extraordinary. By contrast the "taxpayer primacy" principle articulated by the senior administration official above would justify an (almost) unlimited menu of actions by the federal government with respect to private industry. Coupled with last week's call for a systemic risk regulator, the detailed demands to be made on the automobile industry suggest an aggressive evolution in the Obama Administration's approach to reform. While most of the early actions of the Obama Administration could be justified, even if insincerely, on grounds that they were market enhancing, these more recent actions are more ominous.
Yesterday, President Obama called for an auto industry plan that is "realistically designed to weather this storm and to emerge, at the other end, much more lean, mean, and competitive than it currently is." What became clear in the wake of President Obama's remarks is that the auto industry itself would not be creating that plan. Instead, that job would be entrusted to the President's Auto Task Force.
So what is the business plan for GM? A commenter over at Asymmetrical Information channels South Park:
Step 1: Wagoner resigns, and a government functionary replaces him as CEO.
Step 2: ???
Step 3: Profit.
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1. Posted by Mike Guttentag on March 30, 2009 @ 19:06 | Permalink
Is this really “more ominous” or just more intelligent? In terms of ideological implications, these measures are, once again, not so different from the actions of the Bush administration (albeit with a bit of a nod from Obama) to provide emergency capital to some players in the US auto industry. And, as with the legacy asset program, the goal here appears simply be to provide the emergency capital in a more thoughtful and responsible manner. From afar, it is impossible to know whether or not getting rid of Waggoner is the right business move.
2. Posted by Jake on March 30, 2009 @ 20:39 | Permalink
Hold on a minute. The crystal ball is channeling Truman's seizure of the steel industry. A court had some kind of problem with that policy move a number of years ago, if memory serves.
Which is the point. Memory is finite. Nascent totalitarians count on that human weakness in their ascendancy to power. A large proportion of the electorate who voted for the present administration have no memory of Carter's failed command-and-control experiments of the late 1970s. Certainly any memory of the earlier Steel Seizure Case is naught by now.
Under the new administration, our republic careens down the road to serfdom. And where is the news of lawsuits filed to annul such ultra vires conduct by the Federal government?
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