Bank, auto rescues aren't getting the credit they deserve
Constant repetition of anti-government rhetoric in our political echo chamber has dulled Americans into overlooking an important and perhaps surprising fact: We have just lived through one of the more notable successes of government intervention in modern times -- the auto and bank rescues that almost surely saved the country from another Great Depression.
The current state of the economy, to be sure, is nothing to celebrate, with unemployment stuck at 9.6 percent. That's why President Obama was right this week to renew his call to invest $50 billion in creating jobs, present and future, by repairing the nation's transportation infrastructure.
But in the gale of anti-Washington sentiment, where any mention of government "stimulus" or "rescue" draws attack, this infrastructure-spending plan sadly has no chance of success. That means the Federal Reserve will have to use its less-potent tools for stimulating the economy.
What accounts for the public rage toward Washington? It's one thing to denounce government when it fails to achieve its goals. But to ignore government's achievements in times of crisis is willfully stupid. Especially when, as in the auto and bank bailouts, government was coming to the rescue of private companies that had endangered the country.
A good primer on what government can do in crisis is a new book titled "Overhaul," written by Steven Rattner, the "car czar" who led the $82 billion rescue of General Motors and Chrysler. I should caution the reader: Rattner is a friend. He lists me in his acknowledgments, and I was one of the hosts for a party celebrating the book's publication.
As Rattner tells the auto story, it has the same basic lesson as the financial bailout: Private companies made bad decisions that put the U.S. economy at risk; government made good (if politically unpopular) decisions to keep these mismanaged companies afloat, fearing that a collapse would mean much worse trouble.
And here's the point that nobody in politics seems to get: The government interventions worked. The companies were saved. Most of the money that taxpayers invested is likely to be repaid. Many politicians talk as if the whole process was a disaster, but it wasn't. Private actors made bad decisions, but public officials generally made good ones.
Rattner predicts that "the U.S. Treasury will recover most if not all of the $82 billion the American taxpayer staked on overhauling Detroit." Even if the government ultimately loses $20 billion, he notes, "that seems a small price to pay for averting a major economic calamity in the industrial Midwest and helping keep the national economy from spiraling from deep recession into outright depression." Since the government-forced restructuring of GM and Chrysler last year, he notes, the auto industry has added 76,000 jobs.
A similar success story seems likely with most of the rest of the money spent for TARP, the acronym that is a dirty word this political season. The Troubled Assets Relief Program, coupled with emergency facilities at the Fed, allowed a "work-out" for a financial system that was on the verge of freezing up. Most of the TARP investments, it seems, will be recovered, too, including loans made to the notorious insurance behemoth AIG.
Washington is such an easy target that we forget that the real villains of this story are the bankers and auto executives who steered their companies toward disaster. Rattner paints a devastating portrait, especially of GM, where top executives "seemed to be living in a fantasy that, despite the evidence of decades of decline, it was still the greatest carmaker on earth, in a class by itself." Looking back on this near-death experience of our auto and banking industries, it's clear that the successful rescues were possible only because Congress bit the bullet during the presidential transition and voted for the $700 billion pool of TARP money in the crisis months of December 2008 and January 2009. Rattner cautions: "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."
President Obama and the Democrats should stop running scared on this one. The truth is that the government rescue of the auto and finance industries was a success and a necessary condition for the economic recovery that's slowly gathering steam. Stop apologizing; start taking credit for policies that worked.