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Thread: What Romney Gets Wrong About Detroit Automakers Bailouts

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    What Romney Gets Wrong About Detroit Automakers Bailouts
    What Mitt Romney gets wrong about the Detroit automakers’ bailouts

    By Justin Hyde
    Senior Editor of Motoramic
    By Justin Hyde | Motoramic – 12 hours ago
    Republican presidential hopeful Mitt Romney renewed his opposition to the Obama administration's bailout of General Motors and Chrysler today in several Michigan newspapers, contending President Obama's rescue made the companies worse. I wish I could leave politics to the professionals, but Romney's take just doesn't square with the facts as I lived them. Here's why:

    Romney's a Michigan native; his father George Romney was a well-liked governor and head of American Motors. Yet Romney is neck-and-neck with rival Rick Santorum in polls ahead of Michigan's Feb. 28 primary in no small part because of his opposition in November 2008 to the bailouts that saved GM, Chrysler and thousands of Michigan jobs.

    I covered those bailouts in Washington as a reporter for the Detroit Free Press, following them through Congress to the White House to the bankruptcy courts a few blocks off Wall Street. As a first-hand witness, I can attest that some of Romney's new arguments hold their own — but most don't. Let me explain, point by point:

    "Three years ago, in the midst of an economic crisis, a newly elected President Barack Obama stepped in with a bailout for the auto industry."

    In fact, the bailout began with President George W. Bush, who was forced to lend GM and Chrysler $17.4 billion in December 2008 after Senate Republicans blocked a rescue plan in Congress. Bush told reporters just last week that he was warned by Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson that if he didn't act to shore up GM and Chrysler, up to 1 million jobs could vanish. Knowing what we know now, says Bush, "I'd do it again."

    "The president tells us that without his intervention things in Detroit would be worse. I believe that without his intervention things there would be better."

    The crux of Romney's argument: If Obama had not acted, private companies would have stepped in and run a "managed bankruptcy." What this ignores is that in the fall of 2008, before Obama was even sworn in, no one on Wall Street or anywhere else was willing to lend GM and Chrysler a penny — let alone the $81 billion they and their financial arms eventually needed.

    Romney appears to argue that before UAW retirees could get medical care, Wall Street should have been made whole
    Both companies' bankruptcies required money on a scale not seen in legal history. Unlike airlines, which can keep running with much smaller short-term loans while they restructure, automakers need massive amounts of up-front capital to pay suppliers and workers while they build cars; their finance companies need even more to keep making car loans that can bring in revenues. The potential damage wasn't just layoffs; Chrysler executives testified on the first day of bankruptcy that without immediate cash the company risked destroying hundreds of millions of dollars' worth of equipment.

    Even after Obama took office, GM and Chrysler searched frantically for paths to avoid bankruptcy, including a possible merger. Chrysler held a one-week garage sale of its assets in February 2009, inviting anyone with enough money to bid for parts of the company. No one bit.

    "Ultimately, that is what happened. The course I recommended was eventually followed. GM entered managed bankruptcy in June 2009 and exited it a month later in July.

    The Chrysler timeline was similarly swift. But something else happened along the way that was truly egregious. Before the companies were allowed to enter and exit bankruptcy, the U.S. government swept in with an $85 billion sweetheart deal disguised as a rescue plan."

    No entity blocked GM and Chrysler's path to the bankruptcy court except their own executives. Had the government not intervened as Romney suggests, GM and Chrysler likely would have been liquidated by their Wall Street bondholders, some of whom held out for a few more pennies on the dollar at the risk of the entire bankruptcy case. One auto industry think tank estimated doing so would have led to 1.3 million job losses and threatened Ford, Toyota and other automakers.

    "Chrysler's 'secured creditors,' who in the normal course of affairs should have been first in line for compensation, were given short shrift, while at the same time, the UAWs' union-boss-controlled trust fund received a 55 percent stake in the firm."

    Chrysler's secured creditors were a group of Wall Street banks — including J.P. Morgan, Citigroup and Goldman Sachs — and investment firms, some of whom had bought the company's secured bonds in the months ahead of bankruptcy hoping to cash in. They could have rejected the government's offer of 28 cents on the dollar in cash for their $6.7 billion in bonds and paid to liquidate Chrysler themselves, but decided that not only would they come out even further behind, they'd also be blamed for destroying an American automaker. (GM's secured creditors − also mostly Wall Street banks — were paid in full, and endorsed the Obama bankruptcy plan.)

    As for the "union-boss-controlled trust fund," that's what's known as a VEBA trust that now pays the health care of 426,409 retirees from GM, Ford and Chrysler — and in return, owns all future health-care obligations from the companies for those retirees. With this, Romney appears to argue that before hundreds of thousands of UAW retirees got health care, Wall Street should have been made whole.

    "American taxpayers have been left on the hook for billions to benefit unions and the union bosses who contributed millions to Barack Obama's election campaign. Such a state of affairs is intolerable, and as president I would not tolerate it. The Obama administration needs to act now to divest itself of its ownership position in GM."

    If the Obama administration sold its 500 million shares in GM today, it would lose at least $14 billion. GM shares have struggled even as the company reported strong profits, in part over concerns about an underfunded pension plan. If GM shores up its pension costs, its shares could rise — although they would need to nearly double before the government broke even.

    There's ample factual reasons to criticize the bankruptcies — from the treatment of Delphi's retirees and GM's unsecured bondholders to the advantages GM, Chrysler and Chrysler's new parent Fiat gained over Ford. But doing so requires acknowledging that Obama's decisions, including his call to save Chrysler when some advisors were ready to let it go, were mostly right: GM and Chrysler came out stronger and leaner, keeping jobs in the country that would have disappeared if they'd gone out of existence.

    Even in Detroit's more conservative newspaper, the comments this morning on Romney's new op-ed are running about 2-1 against him. Romney has plenty of time to change minds, but these comments left the factory with a few too many defects -- and losing your home state over its keystone industry would be a political sting no amount of Vernors could soothe.

    Keep reading...

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    This might be redundant but you seem to need an education on the history of the auto bailout

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    "Let Detroit Go Bankrupt" column dogs Romney in Michigan
    By Brian Montopoli Topics Campaign 2012

    Back in 2008 - at the height of the financial crisis - Mitt Romney wrote an op-ed for the New York Times opposing the Obama administration's plan to bail out the American auto industry. The headline put on the column: "Let Detroit Go Bankrupt."

    In the op-ed, Romney argued that a "managed bankruptcy" could benefit General Motors, Ford and Chrysler because it would "permit the companies to shed excess labor, pension and real estate costs." Romney did not suggest the Detroit auto industry be liquidated, and he called the industry "vital to our national interest."

    But the striking headline - with its implication that Romney was willing to see the American auto industry disappear - has dogged Romney ever since. Democrats have used it to hammer Romney and other Republicans for what they suggested was turning their backs on the auto industry, as in the Democratic National Committee video at left.

    The Obama administration, meanwhile, has been quick to point out the positive impact of the president's decision to restructure two of the "Big Three" auto companies. Earlier this month, President Obama said some had been "willing to let this industry die" - though he didn't mention Romney directly. In October, the administration said its decision had saved over a million jobs and that the U.S. auto industry had created 128,000 jobs since the companies emerged from their restructurings.

    Speaking to the Detroit Free Press editorial board Thursday, Romney said he wishes he could have rewritten that headline to "How to Save Detroit." The notion that he wanted to see the auto industry liquidated, he said, is "absurd."

    "I can't even listen to that," Romney said. "Of course I wouldn't have allowed them to be liquidated."

    This isn't to say Romney's position is unassailable. Romney was adamant in the column that the government not provide loans to help the industry survive, writing that if such a bailout takes place, "you can kiss the American automotive industry goodbye."

    The bailout did take place - to the tune of about $85 billion - and the American automotive industry is very much alive. Just this week, General Motors released a 2011 earnings report showing the company with its largest profit in history.

    Both GM and Chrysler did go through just the sort of "managed bankruptcy" that Romney as advocated in his column. The difference is they did it with government support. At the time of the column, the financial crisis had created an environment in which banks were reticent to lend the sort of money the auto companies were seeking. The White House has suggested that the companies thus could not have survived without the government assistance, and would have had to liquidate.

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    The auto czar who led the bailout, Steve Rattner, has a simple challenge to Mitt Romney’s claim that private investors could have rescued Detroit: find me one.

    Rattner, writing in the New York Times, wrote on Friday that Romney’s contention that American automakers didn’t need federal loans to move them through a managed bankruptcy intact is ludicrous given that the only financiers big enough to step in were barely hanging on for dear lives themselves.

    “I know this because the administration’s auto task force, for which I was the lead adviser, spoke diligently to all conceivable providers of funds, and not one had the slightest interest in financing those companies on any terms,” he wrote. “If Mr. Romney disagrees, he should come forward with specific names of willing investors in place of empty rhetoric. I predict that he won’t be able to, because there aren’t any.”
    Without money to keep the doors open and reorganize their companies, the auto industry would have ended up being liquidated, according to Rattner, a view echoed by Romney’s top Republican supporters in Michigan. Romney has hinted that some federal support might have been necessary, but is extremely vague about the details, angering bailout opponents and supporters alike with his confusing position.

    Rattner accused Romney of playing politics with his position, since polls suggest a majority of Republicans in Michigan, which holds a primary on Tuesday, oppose the bailout.

    “Mr. Romney may have the primary politics right — though with a majority of Michigan voters supporting the rescue, he may want to pivot deftly before the general election in November,” he wrote. “But on the substance he’s dead wrong.”

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    TUE MAR 06, 2012 AT 12:30 PM PST
    Chrysler bankruptcy judge further refutes Mitt Romney's 'let Detroit go bankrupt' position
    byLaura Clawson
    Reposted from Daily Kos Labor by Laura Clawson

    (Jonathan Ernst/Reuters)
    Mitt Romney made his discredited claims about the auto industry rescue a centerpiece of his Michigan campaign—and they're being discredited still further just in time for Tuesday's primary in Ohio, another state in which the auto industry is an important employer. The federal judge who handled Chrysler's bankruptcy did an interview with ABC News in which he refuted Romney's central claims that the auto companies should have gone through managed bankruptcy and not received government funding:
    But Gonzalez, who retired from the federal bench on March 1, told ABC News: “One thing is clear, without government support in one fashion or another, there were no sources of funding.”
    Gonzalez, now a law professor at New York University, said Chrysler — then the weakest of the Big 3 automakers — did not have the ability to secure financing on its own and “it was not generating sufficient cash to operate without an outside source of financing.”

    Mitt Romney rarely clings this tenaciously to one position on any issue. It's truly bizarre to watch him do so on this one, where both the success of the America auto industry today and basically everyone involved in the industry rescue in 2008 and 2009 line up to say how very wrong Romney's one unchanging position is.

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