By Steven Mufson and Thomas Heath
Washington Post Staff Writers
Wednesday, December 10, 2008
In times of policy disarray, Washington turns to a "czar."
President Richard Nixon appointed the first energy czars, John Love and later William Simon, in the wake of the 1973 gasoline shortage. Congress mandated a drug czar during the crack cocaine epidemic in 1982. And President Bill Clinton named Ira Magaziner his health czar to craft legislation in 1993.
It's hardly a record of success; problems persist in all those areas. But with the automobile companies in crisis and the public tired of providing bailouts for American corporations, Congress and the Bush administration are on the verge of creating a new czar or committee to oversee efforts to rescue Detroit's largest automakers.
"If they can no longer pay their own way, it is entirely appropriate for someone to put the hammer down and say 'That's it,' " said Richard Breeden, former chairman of the Securities and Exchange Commission and the court-appointed monitor for the scandal-ridden communications giant, WorldCom. "If taxpayers are going to support General Motors, let's turn General Motors into a company worthy of it."
The choice of a czar -- or czarina -- is the plan's first obstacle. President Bush, who would appoint the czar or overseers, and Democratic leaders in Congress have very different ideas about who would make the best choice.
House Speaker Nancy Pelosi (D-Calif.) mentioned former Federal Reserve chairman Paul Volcker as the type of person she would support. As he exited an hour-long meeting with House Democrats yesterday afternoon, Volcker waved off reporters' questions, declining to state whether he was interested in the post. Volcker has already been tapped to advise President-elect Barack Obama on economic issues.
The Bush administration has advocated a mini-czar -- calling the job a "financial viability advisor" -- that would be part of the Commerce Department, whose secretary Carlos M. Gutierrez has been active in negotiations over emergency loans for the auto industry.
A variety of commentators have mentioned high-profile names such as Jack Welch, retired General Electric chief executive, and Kenneth Feinberg, a Democratic lawyer who oversaw the compensation fund for victims of the Sept. 11, 2001, attacks, but congressional leaders and administration officials have said little about candidates.
A car czar faces a series of challenges, such as dealing with a wide range of bondholders, haggling with unions and trying to satisfy lawmakers' calls for higher fuel efficiency. It appears as though the legislation being crafted will set many general goals, with few specifics.
"With only broad goals of viability and competitiveness outlined in the bill, the depth and pace of restructuring will depend on the tough-mindedness of the 'czar' to extract meaningful concessions from labor and bondholders," Barclays Capital automotive analyst Brian Johnson wrote yesterday.
Johnson has compared the government's intervention to the rescue of Chrysler in 1979. To overcome congressional resistance to a $1.5 billion loan guarantee, oversight was given to the Chrysler Loan Guarantee Board, which consisted of the Treasury secretary; the comptroller of the currency; and the Federal Reserve chairman, at the time Volcker.
That effort was successful by many standards. The government's backstop reassured private investors and helped stabilize the company's finances. "Luckily, the mini-van came along, was a hit, and Chrysler got back in the black, and the Treasury actually ended up making a little bit of money," said Robert Wright, who teaches financial history at the Stern School of Business at New York University.
Wright added that while the Chrysler bailout "worked in the sense that it didn't cost the American taxpayer anything," he noted that "it failed in the sense that Chrysler got into trouble again."
Joseph Pratt, professor of history and business at the University of Houston, said other lessons can be learned from the efforts of Jesse Jones, who headed the Reconstruction Finance Corp. during the 1930s and was essentially a czar for several industries.
"What the RFC did was . . . support companies that were temporarily in danger of going belly-up but had long-term value, like the railroads and auto companies," Pratt said. "It stopped the bleeding."
Yet that experience could also serve as a warning.
"Probably the less this person does, the better," said George Daly, economics professor and dean of the Georgetown University School of Business. He said that lawmakers' priorities about "overseeing everything from mileage standards to emission caps" worried him. "That would be most economists' worst fear," he said, "that it's going in the direction of mixing a whole number of agendas other than the need for the industry to become more efficient."
That, he added, would result in a corporate model more consistent with Britain before Prime Minister Margaret Thatcher. "Remember the British coal board?" he said. "They had a bunch of coal mines that were producing at a loss."
Wright also pointed to the U.S. nationalization of railroads as an example of unsuccessful government meddling.
The federal government nationalized and created Conrail in the mid-1970s and ran it for a decade before selling it for a profit, he said. But, he added, the government also took over passenger railroads, which it subsidizes to this day.
"Amtrak is a disaster," Wright said. "It's too expensive and too slow."
One thing a federal czar can prevent is excessive executive compensation, a priority for Congress.
Though he wasn't appointed by the government, court-appointed mediator Breeden took charge of WorldCom to stop what the judge in the case called "corporate looting." He eventually guided the company through bankruptcy while keeping 60,000 of its 75,000 employees, delivering $12 billion to the company's creditors.
"There you didn't have a public injection of funds, but the largest customer was the federal government. And by not pulling its business, the federal government gave them the time to reorganize."
Breeden changed the entire board of directors and contained executive compensation. On Breeden's first day on the job, the chief executive said his $1 million a year salary urgently needed to be raised, pointing to a consultant's report that suggested executive pay in the industry averaged $174 million. The chairman, meanwhile, wanted Breeden to approve reimbursements for use of his personal plane. Breeden rejected both requests.
"I said 'Look, let's keep this clear: The court didn't send me here to approve this garbage,' " recalled Breeden, who later hired a new chief executive.
Breeden said the government should have installed overseers and ousted boards of directors at Citigroup, AIG and other firms that have turned to the government for rescue funds.
"You can't price what Citigroup is absorbing [in taxpayer money], but it will certainly be way above the car companies," he said.