Saturday, April 21 , 2018, 8:17 am | Fair 56º


The Daily Capitalist: Obama Is GM’s New Chairman of the Board

The underpinnings of America's greatness are suffering death by a thousand cuts. Will we just shrug?

It is happening here.

“We can’t theorize about the future,” cried Wesley Mouch, “when there’s an immediate national collapse to avoid! We’ve got to save the country’s economy! We’ve got to do something!” ...

“You’ve been making temporary adjustments for years. Don’t you see that you’ve run out of time?” said Rearden ...

“We can’t afford any theories!” cried Mouch. “We’ve got to act!”

“Well, then, I’ll offer you another solution. Why don’t you take over my mills and be done with it?” said Rearden. ...

“Oh no!” gasped Mouch.

“We wouldn’t think of it!” cried Holloway.

“We stand for free enterprise!” cried Dr. Ferris.

“We don’t want to harm you!” cried Lawson. “We’re your friends, Mr. Rearden. Can’t we all work together? We’re you friends.” ...

“We don’t want to seize your mills!” cried Mouch.

“We don’t want to deprive you of your property!” cried Dr. Ferris. “You don’t understand us!”

“I’m beginning to,” said Rearden.

Before you jump out of your chair, let me give you one more quote from Ayn Rand’s Atlas Shrugged:

“I wouldn’t exaggerate the importance of Buzzy Watts of the National Shippers Council. He’s been making a lot of noise and giving a lot of expensive dinners in Washington, but I wouldn’t advise taking it too seriously.”

“Oh, I don’t know,” said Mr. Weatherby.

“Listen, Clem, I do know that Wesley refused to see him last week.”

“That’s true. Wesley is a pretty busy man.”

“And I know that when Gene Lawson gave that big party 10 days ago, practically everybody was there, but Buzzy Watts was not invited.”

“That’s so,” said Mr. Weatherby peaceably.

“So I wouldn’t bet on Mr. Buzzy Watts, Clem. And I wouldn’t let it worry me.”

“Wesley’s an impartial man,” said Mr. Weatherby. “A man devoted to public duty. It’s the interest of the country as a whole that he’s got to consider above everything else.” Taggart sat up; of all the danger signs he knew, this line of talk was the worst. “Nobody can deny it, Jim, that Wesley feels a high regard for you as an enlightened businessman, a valuable adviser and one of his closest personal friends. Taggart’s eyes shot to him swiftly: this was still worse. “But nobody can say that Wesley would hesitate to sacrifice his personal feelings and friendships — where the welfare of the public is concerned.”

The above quotes come from Atlas Shrugged, a masterpiece of political philosophy and a powerful defense of individualism, freedom and free markets. Please spare me the lecture about her shortcomings or her writing style. Fifty years after it was first published, she still sells 200,000 copies a year.

For those of you who aren’t familiar with the novel, its premise is that the world needs entrepreneurs, their brains, their drive and capitalism to create wealth and make a better life for all of us. In the novel, increasing state control of the economy causes these doers to go on strike and let the world collapse until they can come back on their own terms. They see that being controlled by the state is just another version of slavery.

Rand spoke from personal experience. She was born in Russia to a “bourgeois” family and experienced the hardships of the Bolshevik revolution as a young woman. She eventually was able to get out and came to America in 1926. Her story is an American story of an immigrant who, with no knowledge of the English language, became one of our most successful writers. She also founded a philosophical movement that survives through her many books years after her death. She isn’t without warts and has critics on all sides, but she was an enormously powerful intellect.

The point of the above quotes is that what we are seeing today is not new. The actions of the Obama administration have been tried and tried before with the same bad results. While President Obama is generally left leaning, I think we would probably be getting the same from John McCain if he had won the election.

If it wasn’t clear to you before, it should be now: the federal government has nationalized GM. That, in effect, makes Obama the chairman of the board of that enterprise. My first quote from Atlas Shrugged points out the inconsistency between Obama’s rhetoric and action. Obama has stated many times that he is for free enterprise, yet he has nationalized GM and has made his first important decision by firing GM president Rick Wagoner. By firing Wagoner, Obama intended to send a tough message to GM and Chrysler that they haven’t done enough to satisfy the administration’s demands for a plan of reorganization. Obama doesn’t really believe in free enterprise. But, then again, neither does GM.

The second quote from Atlas Shrugged is about what Rand called the “aristocracy of pull,” which we all recognize as the requirement of knowing someone important in Washington to get something done. Wesley Mouch, the character to which they are all referring, is a nobody who importuned his way into the position of national economic czar. Naturally, Wesley screws things up, and the producers gradually and secretly retire from society and wait.

Which brings me to this story reported in The Wall Street Journal:

(GM CEO Rick) Wagoner was asked to step down Friday by Steven Rattner, the investment banker picked last month by the administration to lead the Treasury Department’s auto-industry task force. Rattner broke the news to Wagoner in person at his office at Treasury, according to an administration official. Afterward, Rattner met one-on-one with (Fritz) Henderson, who will fill in as GM’s CEO.

I don’t mean to suggest Rattner is a weak nobody. He’s a very smart and rich somebody. But this was purely a political act, not a business or economic decision. Forget the perception that Wagoner was probably in over his head. If a decision were to be made based on economics, GM would already be in Chapter 11. Washington runs on politics and when it ventures into economic endeavors, politics rules those decisions as well. Nothing new there. But Rand saw what happened in Russia, what happened in Europe, and what almost happened here during the New Deal, and wrote a powerful defense of freedom.

So, in homage to Rand, here is an entirely fictional account of how I envision the Wagoner-Rattner meeting:

Old Ebbitt Grill is a Washington favorite across the street from the Treasury. Rick Wagoner sits in the Old Bar waiting for Rattner. He’s there early because he needs money, lots of it. He’s positioned himself so he can look at the entrance to see who’s coming and going.

It’s 3:45 p.m. and Rattner is late. It’s a good time for a meeting because the room is nearly empty. Wagoner got there 15 minutes early and is thinking about a second scotch, but he doesn’t know Rattner well enough to risk that.

Wagoner needs money from the feds by next month or GM is broke and into Chapter 11. He’s got a number in mind, a big number: $16.6 billion. But he’s confident; he didn’t become the youngest CEO of one of the world’s largest companies for nothing.

Wagoner is new to politics but knows a lot about Rattner since his lobbyist, a well-known Democratic insider, is a longtime friend of Rattner. Rattner is a very well-connected Democrat and investment banker, friend and adviser to billionaire New York Mayor Michael Bloomberg, and married to a former DNC national finance chairwoman. But, is he friendly? Is he arrogant? Is he sympathetic? Is he pro-union? He drains his glass.

He looks at his watch again and it’s 3:55. He starts dialing the number of his lobbyist when Rattner walks in. Rattner looks around disapprovingly at the setting and goes over to Wagoner.

“Hi, Rick, great to see you. Hey, if it’s all right with you can we move the meeting downstairs to the Cabinet Dining Room — probably no one there.” Without waiting for an answer he tells the bartender to call Kyle the general manager to set it up right away, and walks away with Wagoner in tow. He never apologizes for being late, but that’s a sign of D.C. power and Wagoner knows it.

They settle at a table set with fine linen, crystal and silver at the very back of the mahogany-paneled room. They are alone.

Wagoner starts to ask him how he likes D.C. but Rattner calls the waiter over. “I’d like a Pellegrino and bring another drink for Mr. Wagoner.”

“So Rick, this is a tough time for GM, and well, for all of us, I guess,” says Rattner.

“Yeah, but we’re doing a god-damned good job of turning it around, Steve. If we can get the unions and the bondholders in line, we’ll be in great shape. We’re turning out incredible products now, Steve.”

“And the $16 billion, eh, Rick? You need the $16 billion.”

“Well, yeah, we need the cash to get us through the year. It’s the god-damned economy, Steve. Our sales were down 40 percent in February. Well, hell, everyone’s sales were down in February. It’s the economy, stupid. ... I mean ... Oh, hell, you know what I mean.”

Rattner gives him a benign smile as the waiter brings their drinks.

“What about the forecasts, Rick? My team has been there for a month and all we’ve gotten from you is shit. How do you expect the government to help GM if you don’t give us good numbers?”

Wagoner looked away, “If you can tell me when the economy will revive, Steve, I’ll give you good numbers. Right now it’s like trying to read entrails.”

After a silent moment, Rattner says, “He’s not happy. He calls me every day and bitches about you, Rick.” He looks right at Wagoner when he says this.

“I know, I know,” Wagoner said, staring into his scotch. “We just can’t change everything overnight, Steve. It doesn’t work that way. We’re coming up with a great new global strategy. Great new products. We just need time. More time.”

“Yeah, but you said things would be fine last year and you ran out of cash. I don’t like it any more than you, Rick, but you guys came to us.”

“I know, I know,” he said, shaking his head.

“He doesn’t like the idea that people think the government is throwing money down a rat hole, Rick. We’re catching a lot of crap for this. And then you miss the damned target date. He’s not happy.”

“I need time, Steve,” says Wagoner, lowering his voice. “We’ll have it ready by next month. And you’ll be impressed, I promise. This is a great company with great people, we’ll make it just fine. We just need time.”

“And $16 billion.”

“Look, Steve, we’ve got to have the money. The unions will shit if we go into reorganization. Then he will have a real problem.”

“He can handle the unions, Rick. They’ll do whatever he says. They know he’ll back up their pensions. B/K doesn’t matter to us.”

“You can’t be serious, Steve. We can’t go B/K! We’ll lose our customers. What about the auto warranties?”

“We’ve already decided that the government will back up the warranties, Rick. It’s too late.”

“What do you mean ‘It’s too late’?”

“You’re out, Rick. We own GM and he’s already decided. You’re a good guy, Rick, but we want your resignation ... today. I’m sorry.”

“I see. ... I see.” There was no expression on his face.

“We’ll announce it tonight.”

“But what about the board? They won’t like it.”

“New board, too. Let me worry about them.”

Rattner stood up and offered his hand to Wagoner, “Sorry, Rick. Sorry it had to end this way. But you’re a liability to him. Good luck to you.” Rattner walked out.

Wagoner ordered a double.

Sometimes it’s hard to see what is happening in front of your eyes. It seems rather benign and logical when you read about it, but it’s not. Nationalizing GM is just good old-fashioned fascism — just like what happened in Italy in the 1920s and ‘30s, and in Russia today. And now us. If you think I’m exaggerating, it’s probably because you think everything the government does is OK because we’re having a crisis. As Wesley Mouch said in Atlas Shrugged, “We’ve got to act!” That’s how we are losing our freedom, by a thousand cuts.

GM’s bankruptcy is good for GM and good for America.

— Jeff Harding is a principal of Montecito Realty Investors LLC. A student of economics, he has a strong affinity for free-market economics. This commentary originally appeared on his blog, The Daily Capitalist.

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