- Home
- News Grid
- Local News
- Green Hawk
- Business
- Politics
- School Zone
- Nonprofits
- Missing Pets
- Multimedia
- Arts
- Movies
- Outdoors
- Sports
- News Releases
- Columnists
- Blogs
- Opinions
- Classifieds
- Advertise
- Donate
- Partners
Larry Kudlow: A ‘Breathtaking’ Business Decision
Team Obama fired GM CEO Rick Wagoner Sunday afternoon, just a short time after Treasury Secretary Tim Geithner told the television talk shows that some banks will need large amounts of new TARP-money government assistance — even though the bankers don’t want it. Does this smack of big-time government planning and industrial policy? Another lurch to the left for economic policy?
Remember, as bad as Wagoner’s performance has been over the years, it was the federal government — not shareholders or the board of directors — that threw him under the bus. (By the way, GM’s board is being thrown under that same bus.) And I’m not arguing in favor of Wagoner or his board — they’ve made a zillion mistakes. But I am wondering if we’ve officially entered a new era of government-controlled business.
Sen. Bob Corker, R-Tenn., probably the most knowledgeable man in Congress about the car bailout, and someone who argued months ago in favor of a pre-planned government-sponsored bankruptcy for GM and Chrysler, calls the Wagoner firing “a major power-grab by the White House on the heels of another power-grab from Secretary Geithner, who asked last week for the freedom to decide on his own which companies are ‘systemically’ important to our country and worthy of taxpayer investment, and which are not.”
Corker calls this “a marked departure from the past,” “truly breathtaking” and something that “should send a chill through all Americans who believe in free enterprise.”
Corker has hit the nail on the head. And I think his idea of “a truly breathtaking” government departure from American free enterprise — whether it’s the banks or the bankrupt Detroit carmakers — is exactly what caused stocks to plunge 250 points Monday.
Incidentally, most of the big bankers who met with President Obama in the White House last Friday want to pay back their TARP money, not take more of it. But the Treasury is conducting stress tests that could stop the TARP pay-downs and force the banks to take more taxpayer funds in return for even more federal control.
The big bankers say they are profitable. And with an upward-sloping Treasury yield curve and some mark-to-market accounting reform coming from the Financial Accounting Standards Board, the outlook for banks should be getting better, not worse. So why is the Treasury jamming more TARP money down bankers’ throats, especially after announcing a new plan to use private capital to clean up bank balance sheets and solve the toxic-asset problem?
It kinda sounds like the Treasury doesn’t want to let go of its new uber-regulator status.
As for Detroit, the carmakers should have been in bankruptcy months ago. And it is a bankruptcy court that should have fired GM’s Wagoner and his board. Along with some serious pain for bondholders, bankruptcy would have broken the high-cost labor contracts with the UAW as well as carmaker contracts with dealers across the country. That’s what bankruptcy courts are for. They’re part of the free-market capitalist system.
Former SEC Chairman Richard Breeden is arguing against a systemic uber-regulator for banks and in favor of special financial bankruptcy courts. Once again, the story is court-ordered restructuring, not government control by political bureaucrats who like their power so much they want to keep running the various companies in question.
And why isn’t Obama’s special auto task force ordering a replacement for Ron Gettelfinger, the UAW’s president? Weren’t its oversized pay and benefit packages a big part of the problem? Well, that’s never gonna happen. The election power of the union is too strong. But this does reveal the political nature of these government bailout operations.
Incidentally, in Obama’s speechMonday about the Wagoner firing, as well as in Treasury term sheets for GM and Chrysler, there are multiple references to “the next generation of clean cars,” to new CAFE-standard mileage increases and to green power-train developments. All this is a big green climate-change priority for the new administration.
But the simple fact is, small, tinny and expensive green cars just don’t work for consumers. And even if those cars are designed better, the cost structure of the carmakers will have to be brought down so far that UAW wages will be forced below those of the nonunion shops in Detroit South (including Honda, Toyota and other foreign carmakers who are now producing in the United States).
So add the green revolution to the industrial-policy plans of the White House. Expect a big increase in CAFE fuel standards, even though small cars are simply not profitable. And plan on Bailout Nation taking a new left turn toward the kind of central planning that has held down economic growth in Europe and Japan for so very long.
Larry Kudlow is the founder and CEO of Kudlow & Co. LLC, an economic research and consulting firm in New York City, and host of CNBC’s Kudlow & Company. Click here for more information, or click here to contact him.
Comments
Noozhawk's comments are moderated, but by posting here you accept your responsibility to follow our rules as part of Noozhawk's shared online community. Please keep your comments civil and helpful. Don't attack other readers personally, and do not use vulgar, abusive or discriminatory language. Use the "Report Abuse" link if a comment violates these standards or our Terms of Use.
» on 04.02.09 @ 01:33 AM
Ah, there’s so much to discuss in the points Mr. Kudlow brings up; where to start?
If GM CEO Wagoner (and the board) have “made a zillion mistakes” should they stay on simply because a major stakeholder (the US taxpayer) is wearing its government hat? Call it “a new era of government-controlled business” if you will, but it still follows the Golden Rule: “He who has the gold, sets the rules.” If the major group of stockholders were NOT us collective taxpayers, but organized under some other guise (or guys), would Mr. Kudlow be so fearful?
So a Republican Senator called for GM bankruptcy months ago and didn’t get it but gets it now. It’s not structured or timed the way he wanted it so he calls it “a major power-grab by the White House.” How is this any different from partisan politics? Are we surprised by this from The Party of No?
I’m going to be unfair here because I have the advantage of a couple more days of Wall Street (Wealth Street) watching. Mr. Kudlow conveniently pins a 250 point Dow drop on the GM news when it could just as well have been profit-taking. We’ve seen virtually all that drop regained in the last 2 days and the Dow finished March up 20%.
Why Wagoner and not Gettelfinger got the axe? Because Wagoner ran the company. Wagoner was the coach and the team had a losing season (actually several losing seasons). Because Wagoner directed the design and marketing of a product that was wrong for the times and uncompetitive in its own market. His departure is ceremonial if not substantive.
I like Mr. Kudlow’s articles. He’s a good writer. He puts across his points well. He does the homework as he sees it. AND he leaves room for snipers like me to comment respectfully. I like it.
You don't have permission to flag this entry.
More Local News »
Larry Kudlow: Romney’s Attack on Crony Capitalism
The Republican presidential candidate is saying all the right stuff — is anyone listening?
Larry Kudlow: Stocks Get By with a Little Help From Our Fed
U.S. makes it cheaper for Europe to borrow dollars, but there are bigger problems yet to be solved
Larry Kudlow: A Super Tax Hike Would Spell Disaster
For now it makes sense to fall back on across-the-board spending cuts
Larry Kudlow: Modest Gains on Job Front Not Nearly Enough
Congress must be mindful of the tax and regulatory barriers that continue to impede the economy
Larry Kudlow: No Armageddon, But No Economic Victory Yet
Unemployment is down and incomes are up, but we're still way off where we should be
Weather: Fair with Haze 58.0º
Search Noozhawk »
