Obama makes his move on Detroit
The Obama administration has pressured longtime General Motors CEO Rick Wagoner to resign, and he has done so. That high-profile decision — the first of several as the government tries to force Detroit to restructure itself — will no doubt generate complaints that the federal government is overreaching.
Let’s review the situation:
First, the federal government is not requiring GM to fire its CEO. It has no such power or authority. Instead, the federal government is pressuring GM to fire its CEO AS A CONDITION FOR GETTING TENS OF BILLIONS OF FEDERAL BAILOUT DOLLARS.
That’s a very important difference.
In private enterprise, a distressed company facing bankruptcy will often beg outside investors to rescue it with an injection of cash. However, the company understands that the bailout will come with conditions. The outside investors or lendors will almost certainly demand changes in company operation and management. They may want control of the board. They may insist on a new CEO. That’s just how such things work. The assumption is that if the company was well-run in the first place, it wouldn’t be needing outside investment.
The federal government is doing the exact same thing. GM and Chrysler came to the government seeking huge sums of taxpayer money to keep operating. Barack Obama responded just as private investors would. He had outside experts comb through the automakers’ books and operations, and then he demanded changes as a condition of saving those businesses. To do anything less — to simply hand the money to Detroit without forcing changes in management, operation and labor contracts — would be grossly irresponsible.
Conservatives always complain that government ought to act like a business. In this case, it has.
It is fine to argue that the government should not bailout Detroit or Wall Street, that we should let those companies and institutions fail and deal with the consequences. I think that’s an overly purist and largely impractical approach in the face of this historic crisis, but I do acknowledge that it’s a logically consistent approach and I understand its appeal.
However, if you believe the bailout is necessary, you also have to accept the necessity that there will be strings attached to that money.
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123 comments Add your comment
Rush Limbaugh for President
March 30th, 2009
3:53 pm
I Report,
He rejected based on advice of experts. If they had said the plan looks great the news would have probably been different and Wagoner would probably still be CEO. You read the news to literally without context.
GM’s market share has been declining for years. The current economy just accelerated what was already happening.
Rahm, was never the CEO of Freddie Mac. Directors don’t run companies, management does.
I Report, can you not debate without the name calling or are you just to immature to overcome that unattractive part of your personality?
Gm’s loss of market share was a result of competitors stealing their customers. They made inferior cars for years and admitted it. Union costs are a problem and I don’t like anything about unions but poorly designed, low quality cars is what got them in trouble. Their cars are better now but the competition is also better. Please try to respond like an adult.
Yankee
March 30th, 2009
3:53 pm
I coildn’t grasp the real number, 70 BILLION
caz1158
March 30th, 2009
3:56 pm
Corp-This would be funny if not true. And to think we’re just begining to scratch the surface of Barry O’s agenda for us. It’s good to see his Sheep lined up nice and straight behind him.
Dave R
March 30th, 2009
3:58 pm
What we’re thinking is that it is a decision for the Board of Directors of the corporation to make, Yankee, NOT the President of the United States.
N.J,
March 30th, 2009
3:59 pm
Spoken like a true patriot, Mr Bookman.
The founding fathers original intent with regard towards large corporations was as follows:
1) Corporate charters were granted for fixed periods of time, usually between 10 and 40 years.
2) Corporate charters could be promptly revoked for violations of law or for causing public harm.
3) Corporations could engage only in activities necessary to fulfill their chartered purpose.
4) Corporations could not own property that was not essential to the fulfilling of their chartered purpose.
5) Corporations could not own stock in other corporations.
Corporations were not allowed to do anything or own any assets that were not specifically related to the purpose for which they were founded. Period.
6) The personal assets of corporate shareholders were not protected from the consequences of corpoate behavior.
What this last one means is that shareholders in a corporation would have to pay for a corporate bailout out of their own pockets, not the coffers of the taxpayers.
If the founders could see the mess created by the concept of “free market economics” which to a man, almost all of the Founders OPPOSED,
they would be shaking their heads and saying “We Tried to Warn You”. But their warning was not heeded, because from almost day one of this nation, the wealthy and powerful started to chip away at the laws created by the founders which were designed to PREVENT the wealthy from pooling their money corporately in order to tip the balance of government away from the people, and towards themselves. Which is why a small time thief can be sent to jail for stealing fifty dollars while shoplifting, but a member of the new monarchy, the CEO’s the COO’s and CFO’s can rob people blind and often get a mere slap on the hand, and more often than not escape without a day of jail time. As one of the founders once put it with regard to corporations:
“no body to jail, no soul to damn to hell”
The current economic system of the United States is very, very far from the original intent of the founders and very much out of synch with the original intent of the constition. The founders ALL differentiated between property and wealth. They all supported the right to property, but they also all supported limiting wealth, and finding methods of limiting wealth without limiting the right to property. Every one of the methods they suggested involved some form of progressive taxation of some form of income, whether by taxing luxury items that the wealthy purchased or by directly taxing income earned by certain methods, they did not make the mistake that conservatives make today by confusing property with wealth or confusing profits with wealth. One can create wealth without creating profit. The government creates wealth by targeted policy and targeted taxation. By not taxing capital that is directly engaged in creating goods and services, but highly taxing money that is invested speculatively, the government encourages earning money by the hard work of starting a company, working in it oneself, and discouraging wealth made by investing in a the casino of the stock market, which is where money extracted from companies as personal income usually ends up when this money can be extracted at a low tax rate. If the only way the wealthy can protect their wealth is by keeping it INSIDE a company they themselves own, they will do so and not be taxed a red cent, no matter how high the top rate is.
Its only when they decide they want to take it out to purchase a yacht or a Lamborghini that results in it being taxed. If it is going to cost them a 90 percent tax to take the money out as personal income to buy that yacht, they will think a lot longer and harder about taking it out than if the top tax rate is 28 percent.
Conservatives use much complex fraud in attempting to suggest that lowering the top tax rate on income is good for all. It is not. It is simply the deception used by those who want to become part of a new Monied Monarchy who use this deception to get their way. It is the cause of the current economic crisis. From Jefferson and Madison, to Lincoln and Teddy Roosevelt, Americans have been warned about the dangers of allowing too much power to large corporations and the hereditary wealthy class and the fruits of ignoring these warnings were seen in the Great Depression and are being repeated today as the lessons of the Depression are forgotten. The longest period in which our economy was relatively free of deleterious economic cycling was between the start of the New Deal and the election of Ronald Reagan. The post Reagan economy has been one of repeated economic recession, stock market collapses, every few years. This exactly mirrors the American economy between the end of the Civil War and the Great Depression. Economic depressions occured every ten years, like clockwork with smaller recessions in between them. Each sucessive economic cycle resulting in deeper depressions until a the huge one of the 1930’s. All Keynes did was return to the economic philosophy of the founders, which was simply to prevent extremes of poverty and wealth. The means of doing this was taxation.
Bosch
March 30th, 2009
3:59 pm
Corporal,
No, nothing is ever that simple, and I’ve never heard an argument for or against it. I know you like to make everything union bad, and while I know the pros and cons, I simply do not take that argument.
For all I know this could be some made up thing by the wingnuts that the unions are doing – I really don’t know and until I read about it from a reliable source (sorry Corp – that’s not you) I don’t have an answer for it.
I Report/ You Whine
March 30th, 2009
4:00 pm
The Malibu is the Car of the Year.
The Escalade is the most stolen automobile in America.
What?
Kamchak
March 30th, 2009
4:05 pm
N.J,
A thread at salon.com is debeating this same issue. Someone there suggested this a as a must read:
http://www.scribd.com/doc/13429468/Infinite-Debt
caz1158
March 30th, 2009
4:09 pm
I report/- American car companies just started to build somewhat decent vehicles. Don’t forget about the previous 30 years of SH*T they pushed on the American public all the while pushing the “Buy American” slogans. Car of the year status while a good start,talk to me in 2-3 years when American Vehicles have a history falling apart if still on the road. As for the Escalade being the most stolen car- not suprising.
Dave R
March 30th, 2009
4:12 pm
N.J. please cite your sources for that fiction you posted. It should be interesting reading.
Rush Limbaugh for President
March 30th, 2009
4:19 pm
I Report,
That’s great. It is too little too late. Even my most conservative patriotic friends drive Lexus, BMW, Mercedes, Volvo. Why? Ask my conservative friends and they will tell you that the American cars don’t have the quality or style they like. I drive an Audi, my wife drives a Honda. The last American Car I drove that was a GM car was an Aroura(sp). They don’t even make it anymore.
You continue to miss the main points about what happened; Obama acted on advice from experts. GM has been failing for years and Wagoner has been CEO for 9 years. Plenty of time to change things.
You don’t like President Obama so it really would not have mattered what happened you would have been critical. You lack even a whiff of objectivity.
david wayne osedach
March 30th, 2009
4:19 pm
Obama should be putting pressure on AIG next. There are more than a few executives there that need to go.
caz1158
March 30th, 2009
4:30 pm
I need the 800 number to Barry O’s office about a warranty claim for my quality built chevy truck.Anyone
Taxpayer
March 30th, 2009
4:34 pm
N.J.,
It looks like we have drifted quite a long way off from what the founding fathers intended regarding corporations. The next question is “How do we correct that little problem?”
Corporal
March 30th, 2009
4:49 pm
Bosch:
http://online.wsj.com/article/SB123837553079768121.html
DebbieDoRight
March 30th, 2009
5:03 pm
Any other businessman would not force healthy banks to accept bailout money, then go in and impose compensation limits after the fact.
Sorry that was BUSH and company not Obama. Don’t blame him for Bush’s mess. Read the following article below to refresh your memory. PS: Note the date is NOVEMBER 20, 2008 — Obama took office January 2009.
CAPITAL INJECTIONS
Shortly afterward, Mr. Paulson reversed course, and decided to use the $350 billion in the first round of funds allocated by Congress not to buy toxic assets, but to inject cash directly into banks by purchasing shares, an approach that many Congressional Democrats had pushed for earlier. In an initial round of financing, nine of the largest banks were given $25 billion apiece.
The Treasury also used the bailout to steer funds to stronger banks to purchase weaker ones. To the dismay of many economists, no strings were attached to the Treasury infusions, and many of the banks appeared to be using the funds to bolster their balance sheets rather than to make new loans.
On Nov. 12, Mr. Paulson announced that he was abandoning the idea of asset purchases, and said the bailout money would be used instead for a broader campaign to bolster the financial markets and help consumers seeking loans for cars or tuition and other kinds of borrowing.
To the anger of many Democratic members, none of the first round was used to prevent further increases in foreclosures. An oversight panel created by the original bailout bill also delivered a round of stinging criticisms in its first report, delivered Dec. 10. The report said that the Treasury had failed to create a system to track how bailout funds were being used or to require that banks use them to increase lending and unfreeze credit markets.
http://topics.nytimes.com/topics/reference/timestopics/subjects/c/credit_crisis/bailout_plan/index.html
Taxpayer
March 30th, 2009
5:07 pm
This looks like a good summary of the rise of the all powerful corporation.
Dave R
March 30th, 2009
5:12 pm
Debbie, do you even READ what you post?
“but to inject cash directly into banks by purchasing shares, an approach that many Congressional Democrats had pushed for earlier.”
“To the dismay of many economists, no strings were attached to the Treasury infusions, and many of the banks appeared to be using the funds to bolster their balance sheets rather than to make new loans.”
This is what CONGRESSIONAL Democrats voted for and expected. I’m not excusing the Republicans who also voted for this blank check, but it couldn’t have happened if Democrats didn’t want it. And Hope & Change voted for it as well.
vince neil
March 30th, 2009
5:27 pm
i am now driving my third Suburban/Yukon XL in 10 years and find them to be among the finest vehicles available…at any price……..but without removing the onerous elderly care support recklessly negotiated by GM management they are doomed…
It is a shame…anyone who has had to use union labor and will report honestly how it works relative to profit and loss please call in now….they must reduce cost per car construction costs or we will be buying product built(or sourced at least) elsewhere…period.
Carl
March 30th, 2009
6:50 pm
President Obama did EXACTLY the right thing. This guy’s raking in millions of dollars whilst running the company into the ground. Now if he could just undo the huge bailouts BUSH and crew gave out w/o any strings attached to the banking industry we’d be heading in the right direction.
Yankee
March 31st, 2009
9:20 am
Don’t take the money and make your own future. It’s working for Ford. You take the money, you give up your right to chart your future.
N.J,
March 31st, 2009
9:46 am
As long as the employer has the power to intimidate those who support unionization on the workplace, the right to simply unionize by signing a card rather than signing a card and then having a vote is the only way to go.
Virtually all of the economic problems we are seeing today can be directly traced back to many deregulations that started occuring with the elections of 1980, none more damaging than the insidious changes in the tax code which gave a company the right to deduct any amount of executive remuneration it chose to give. After this a company could choose to give CEO’s huge bonuses and stock options and take the same deductions it would if it chose to give its lowest paid employees raises or improved benefits like health insurance or pension plans. The CEO’s and other executives chose to give themselves massive increases in salaries and benefits, and chose to give little or nothing to the average employees in those companies.
Before the changes in the tax code, a corporation could not deduct remuneration in any forms that exceeded 25 times what the corporations lowest paid employee received in total remuneration. If the lowest paid person’s total remuneration cost a company ten dollars an hour, the maximum that the corporation could give an executive in total remuneration and have all of that remuneration be deductable on its taxes would be 250 dollars an hour for salary and benefits, etc.
So if it was decided that a CEO should earn 500 dollars an hour in total benefits, the company either had to eat the additional 250 dollars an hour as a non deductable expense, OR they had to also DOUBLE the salary of the lowest paid employee to 20 dollars an hour in order to be able to deduct all the executive remuneration on their taxes.
While this tax code was in effect, between 1950 and and 1979, the wages of Americans at all economic levels increased roughly at the same rate. The rich got richer, but the poor also saw similar increases to their own standard of living. This vanished under the Reagan Administration when they rewrote the tax code with the “Tax Simplification Act”. Which almost doubled the number of pages in the code. 99 percent of the changes benefited CEO’s and other executives and actually raised taxes on the lowest 50 percent of income earners in the United States, while allowing CEO’s to give themselves huge bonuses while cutting benefits to employees because executive remuneration was given the same tax benefit status as providing employees with health insurance or pensions.
The money for pension plans that collapsed in the last decade did not simply disappear, it was simply redistributed from the lower level employees to the executives of that company. Corporate remuneration which averaged 17 times the national median wage in 1979 increased to several hundred times the median income by the year that Reagan left office in 1988, and then increased to almost 500 times the national median income by the time George W. Bush left office. The principal Reagan cited for these changes was that those who do the most to create this nations wealth deserve to be paid in a way that reflects this. Which meant that Reagan thought little of the average American worker and beleived that it is the CEO who single handedly drives the American economy.
The attempt to sideline everyone with talk of high union wages is basically absurd. The average union wage in the automobile industry is not much higher than the average national wage, and the benefits that autoworkers recieve are not much greater than those received by workers in who perform other forms of skilled labor.
Originally, when this nation was founded, the federal government had the power to dissolve any corporation that behaved in a manner that was found damaging to the national welfare. Its time to return to those good old days.
Copyleft
March 31st, 2009
10:02 am
Well said, NJ. It’s sad how many conservatives treat corporations like gods… “We must appease the Mighty Ones, or they will grow angry and withdraw their favor from us!”