Posts Tagged ‘Chrysler’

The Supreme Court Holds Up the Chrysler Sale

Tuesday, June 9th, 2009

I actually decided to write a short piece stating my hope that the Supreme Court would look into Obama’s and Bush’s expansion of executive powers in tackling the financial crisis before the Supreme Court delayed the sale of Chrysler to Fiat. Now that they have, I’m relieved if a bit nervous. The key issue is the use of executive power in a crisis – as Michael J. de la Merced explained the issue:

In a broader context, such a decision would also give the justices an early opportunity to consider the scope of the wide-ranging but not unlimited authority that Congress granted the president to address the economic crisis.

I think this is a good thing – though I’m not sure how the timing of this will affect things. Generally, the strongest decisions restricting the executive’s freedom in a crisis have come after the crisis has past. With the rash of bad news on the economic front – even as most indicators seem to be levelling off – this financial crisis is not yet over. On the one hand, strong action by the Court at this time to curb the power of the president could destabilize the economy, as it is confidence in the power and determination of the executive branch and the Federal Reserve to backstop the financial system that seem to have restored confidence in the market and economy itself. At the same time, the Supreme Court is less likely to challenge the president’s authority in the middle of a crisis – making it more likely the decision will be deferential.

It is possible that all of these competing claims could be dealt with responsibly – with a Solomonic decision along the lines of Marbury v. Madison. It’s also possible that the Court may find Presidents Bush and Obama both acted constitutionally in their response. But as a matter of policy, the recent government interventions into the market are ill-advised if they extend beyond the minimum amount of time. As I wrote regarding Obama and the Rule of Law:

The power of the executive branch has grown enormously in the financial crisis – between the Stimulus Bill and the bank bailout. While in the short-term this may be necessary, if steps are not taken, this would undermine the balance of power between the federal government and the states. While this in itself is not a violation of the Rule of Law – it does weaken the system which together helps maintain the Rule of Law.

The one issue that strikes me as worth considering – on matters of constitutionality rather than policy – is whether or not Bush and then Obama acted within their powers in providing loans to Chrysler and General Motors; perhaps a Court should also look at the broad authority given by the TARP bill itself and set some standards regarding what authorities and monies can and cannot be extended to the executive branch by the legislative.

The whole process of drafting and passing the TARP bill was obviously flawed – though it’s difficult to judge legislation passed in the midst of a crisis. The only logical way out of this I’ve heard mentioned would be to “stockpile laws” as Philip Bobbitt once suggested with regards to terrorism.

But even as there is a flawed process, it’s not clear what if anything was unconstitutional.

At the same time, I’m glad to see the Court looking seriously at getting involved. I’m all for these checks and balances.

Obama and the Rule of Law

Monday, May 18th, 2009


Right-wingers and some conservatives are trying out a new approach in their attacks on Obama – as you can see from the growing meme on the right that Obama has no respect for the Rule of Law. I’ve come across this meme in a George Will column, a Wall Street Journal editorial, and in a blog post by Jim Manzi for the National Review / The American Scene all last week. All three authors have focused on one particular event – Obama’s role in the Chrysler sale/bankruptcy/bailout. I for one am glad to see the National Review and Wall Street Journal finally coming around to accepting the importance of the Rule of Law after eight years of promoting George W. Bush’s blatant disregard for the law – but I digress.

The past eight years have demonstrated to many Democrats and liberals the vital importance of the respect for the Rule of Law to a well-functioning state – as President Bush concentrated more and more power in the White House and asserted authorities both beyond and over the law – which is why an accusation that President Obama is not respecting the Rule of Law must be taken seriously.

It is hard though to take the example all three authors use seriously – Obama’s intervention in the Chrysler mess. I can understand why people might object to what Obama did – if you consider unions to be a malevolent force, you certainly don’t want them helped out – and it is unseemly that they donated so much to Obama only to be rewarded now (of course, the creditors also gave Obama a great deal of support.) But neither of these objections is based on Obama disrespecting the Rule of Law.

Certainly, even these authors are not accusing Obama of disrespecting the Rule of Law in the same manner as George W. Bush – who did not believe he was bound by law when acting to protect Americans. The unitary executive theory he accepted and Cheney, Addington, and others used, is a direct assault on the idea that the president is bound by the law. Obama does not take this position.

These authors make a big point of the fact that Obama is abrogating contracts – but this objection is a bit silly. Obama is not a party to these contracts – and thus has no obligation to honor them personally. The Contracts clause of the Constitution – the Law which it is being alleged Obama has broken – was meant to constrain the individual states rather than the President or even the Congress. Congress was in fact given the power to abrogate contracts through bankruptcy proceedings in the Constitution. Obama – in intervening in the case of Chrysler – helped to negotiate an out-of-court settlement of the matter. Out-of-court settlements happen all the time – and are welcomed by overburdened judges who see it as better to allow all sides to come to an agreement rather than having to order them to agree.

To call this a violation of the Rule of Law is disingenuous at best.

What these authors are right to be concerned about is the concentration of power that undermines the system of the Rule of Law – as the government’s role in backstopping the finance and auto industries leaves it with enormous leverage. But their fears should be allayed by the fact that most of these interventions are temporary. (Of course, George Will is on the record disbelieving this based on the old adage – as are all of Will’s beliefs – that once government has taken a power, it will not give it up.)

Liberals have continued to voice a different set of concerns about Obama’s respect for the Rule of Law – pointing to the many Bush administration positions Obama has accepted. But they key difference between Bush and Obama is that even as Obama may be putting forward positions on these issues which are controversial, Obama has given the sense he will concede if his legal means of asserting these claims are defeated. Bush in at least one instance refused to end a clearly illegal program despite the fact that his own Justice Department had declared it illegal. 

I do find a few areas of concern. The power of the executive branch has grown enormously in the financial crisis – between the Stimulus Bill and the bank bailout. While in the short-term this may be necessary, if steps are not taken, this would undermine the balance of power between the federal government and the states. While this in itself is not a violation of the Rule of Law – it does weaken the system which together helps maintain the Rule of Law. And it is this that conservatives and right-wingers seem to be ojecting to – but their rhetoric about the Rule of Law being disregarded is hyperventilationist – and for those who did not likewise say the same of our previous president, hypocritical.

But by far the most disturbing manner in which Obama is undermining the Rule of Law is in how his administration is keeping Bush’s policies on the matter of Bagram. The Supreme Court’s ruling on the rights of detainees to certain basic rights at Guantanamo was in a large part based on the idea that our government should not be able to deprive an individual of rights merely by moving them to a particular location. But this is exactly what the Obama administration is claiming with regards to the detainees brought to Bagram from around the world. Our nation’s freedoms are grounded in our traditions. This includes a respect for contracts, a balance of various powers, and an energetic chief executive – but at it’s base, our traditions are grounded in a single, fundamental restriction on the state. To quote Winston Churchill:

The power of the executive to cast a man into prison without formulating any charge known to the law, and particularly to deny him the judgment of his peers, is in the highest degree odious, and the foundation of all totalitarian government whether Nazi or Communist.

The Detroit Investment Group

Friday, December 5th, 2008

Jon Stewart pointed out against last night how non-constructive the political debate regarding the bailout of the Big Three Automakers has been:

Clearly, politicians are applying a double standard. But I think the hypocrisy is worse than Stewart suggests – because the product financial companies are supposed to be creating is profit with the risks associated thoroughly managed and quantified. Their product has proved to be far more defective than the cars produced by the Big Three, as the financial products have not just malfunctioned, but acted as a virus spreading the failures around to everyone.

Stewart previously pointed out how the first story regarding the bailout of the Big Three focused almost exclusively on the method of transportation used by the CEOs of the auto companies to get to hearing instead of any substantive issues. The real controversy has barely been discussed:

Corporations, whose primary purpose is to amass wealth by any means available for their owners (and who always manage to simultaneously amass wealth for the managers) cannot be trusted with public money. There is no public purpose to such profit-making. The public value of a corporation comes from it’s incidental activities – the means by which it is able to amass it’s profits. By bailing out General Motors, the government would be giving it’s money away for no public purpose. But the government does serve a public purpose by keeping General Motors’ factories churning out cars – by keeping people employed, by providing stability, by keeping the economy going and producing usable items.

Within that distinction lies the difference between outrageous abuse of taxpayer funds and a valid public purpose. The more difficult question is how to avoid the abuse while serving the purpose. [edited slightly from my original]

Which is why I think a bailout should be postponed – to attempt to find the least worst of all the options – rather than to cause great problems with hasty solutions. If the automakers won’t survive without an instant cash infusion though, the government needs to step in one way or another.

Michael Moore described his common sensical solution to this whole mess earlier this week:

1. Transporting Americans is and should be one of the most important functions our government must address. And because we are facing a massive economic, energy and environmental crisis, the new president and Congress must do what Franklin Roosevelt did when he was faced with a crisis (and ordered the auto industry to stop building cars and instead build tanks and planes): The Big 3 are, from this point forward, to build only cars that are not primarily dependent on oil and, more importantly to build trains, buses, subways and light rail (a corresponding public works project across the country will build the rail lines and tracks). This will not only save jobs, but create millions of new ones.

2. You could buy ALL the common shares of stock in General Motors for less than $3 billion. Why should we give GM $18 billion or $25 billion or anything? Take the money and buy the company! (You’re going to demand collateral anyway if you give them the “loan,” and because we know they will default on that loan, you’re going to own the company in the end as it is. So why wait? Just buy them out now.)

3. None of us want government officials running a car company, but there are some very smart transportation geniuses who could be hired to do this. We need a Marshall Plan to switch us off oil-dependent vehicles and get us into the 21st century.

Moore’s solution seems like what was done with the railroad industry in the 1970s – when it was taken over by the government, revamped, and then privatized again. I think Moore’s almost got it right. But not quite. Moore’s solution seems very 20th century – like India’s Five Year Plans or other centralized, government-sponsored attempts to solve large problems. Instead, I think Moore could take a lesson from Nassim Nicholas Taleb, the philosopher, economist, and former hedge fund manager who has been explaining the underlying weakness of our financial markets since he made a killing in the 1987 crash. Taleb understands that if you put a bunch of geniuses in charge, you might get something great. But as he points out, the truly game-changing developments happen by accident. The computer, lasers, the internet – all of these innovations have accidentally changed the world in a way that could not be anticipated. He refers to this type of game-changing development as a Black Swan.

And a Black Swan is exactly what Michael Moore, Barack Obama, and the rest of us know we need to jump start the green energy industry. The best way to catch a Black Swan in Taleb’s parlance is to tinker.

In that spirit I propose to create a government-affiliated entity, the Detroit Investment Group (DIG).1  DIG would be a modern-day government intervention in the market that would take inspiration from the Tennessee Valley Authority (especially it’s regional focus), the Manhattan Project (it’s think tank aspect), NASA’s moon shot (in the specificity of it’s goal and it’s timeline), and the Department of Defense (in how it creates incentives for inventors to create new technologies with the promise of contracts.)

Government intervention is necessary as the marketplace has failed to invest in the long-term development of green energy. This tendency of the market to focus on short-term profits over long-term projects has certainly been revealed to be a significant flaw in our current economic structure, as, for one common example, corporate managers seek instant profits which lead to huge bonuses and leave before the long-term effects of their actions hit. Not knowing how to fix this tendency to focus exclusively on the short-term, a government agency can create incentives within the market to focus on long-term issues that are essential to our nation’s security and stability. This would be the purpose of DIG – to supplement the market rather than to impose it’s own hierarchical structure.

DIG would be given goals and rules rather than a typical bureaucratic organization. It’s goals would:

  1. To spur the creation of new green technologies and a green energy industry in America; and
  2. To rejuvenate Detroit and the surrounding areas.

To accomplish both of these goals, DIG would make Detroit the place to go for green industry – the way Silicon Valley is for computer technology. DIG would not have a specific method of encouraging green industry – but would use an infusion of cash and people to tinker and innovate and generate solutions. It would need quite a number of tools to spur this growth and innovation:

It would need the authority:

  • To offer government contracts to license green technologies or buy green products;
  • To sponsor a think tank of top experts in various fields to come up with technologies;
  • To offer prizes for creating products that meet certain benchmarks or accomplish certain ancillary goals;
  • To have input into a cap-and-trade program not managed by DIG;
  • To buy companies with worthwhile technologies or resources (including General Motors for example) and continue to operate them.

The point is – DIG would try everything. It’s task would not be to follow certain procedures, but to achieve it’s goals. It would be structured in such a way as to create market incentives and to centralize planning – on two alternate tracks – and let each influence the other. If this problem is fixable, then DIG would unleash the money and human resources to find the fix – and it would be agnostic about the ideology of it’s solution.

It is, in short,  a very Obama-esque approach to the problem.

  1. Dig.gov is not being used by any government agency at the moment. []

The Public Purpose of Bailouts

Monday, December 1st, 2008

As in the financial crisis generally, the executive branch, the media, and the Congress have all focused on the corporations whose brands are at stake rather than the people affected. This is understandable. Stalin’s famous aphorism that a million deaths are merely a statistic, while a single death is a tragedy, can be adapted to economic hardship as well. A million bankruptcies by individuals are a mere statistics, while the bankruptcy of a famous brand such as Chrysler or Citibank is a tragedy, affecting each of our lives – as signs come down, commercials stop airing, and the products and services we receive now have a different branding.

But saving a brand name should never be the business of our government. In a government intervention into the market, a brand name might be saved – but this should never be a policy goal. Yet, this is precisely the manner in which this question is presented to the public: Should the government bail out Citibank? Or Chrysler? Or Starbucks? Framed in this manner, the answer should always be, “No.”

The real issue concerns the proper role of government in a market economy.

In this crisis, the issue of how involved the government should be in the economy has largely been resolved. “Do nothing,” doesn’t seem to be a realistic option in the midst of a crisis. In times of panic, we are all Keynesians. The unwinding after the crisis promises to re-ignite a fight about the proper role of government in the economy.

The real issue at the moment then, is the follow-up question: how to balance market forces and stability in a market economy – and specifically, in the midst of this crisis. Mitt Romney, in a New York Times editorial that proved especially influential, made the case for why our current system can effectively deal with the bankruptcies of the Big Three Automakers. Paul Krugman took what has become the consensus liberal view: if only we weren’t already in a credit crisis, bankruptcy would be a good option.

For the past year, this has been the argument – with the same people sometimes switching sides depending on the particular company. Capitalism inevitably involves creative destruction – but in the midst of a crisis of confidence, any destruction becomes seen as potentially catastrophic, as the collapse of Lehman Brothers demonstrated.

But government intervention should avoid saving corporations. The government should, when it intervenes in the market, strive to change the forces at work rather than to inject money into corporations themselves.

Corporations, whose primary purpose is to amass wealth by any means available for their owners, and who always manage to simultaneously amass wealth for the managers, cannot be trusted with public money. There is no public purpose to such profit-making. The public value of a corporation comes from it’s incidental activities – the means by which it is able to amass it’s profits. By bailing out General Motors, the government would be giving it’s money away for no public purpose. But the government does serve a public purpose by keeping General Motors’ factories churning out cars.

Within that distinction lies the difference between outrageous abuse of taxpayer funds and a valid public purpose. The more difficult question is how to avoid the abuse while serving the purpose.

The Bush administration has failed to do this – which is why there is fresh outrage at every million dollar junket by AIG executives or private jet ride by auto executives.

(more…)

How the Media and the Politicians Failed to Understand the Detroit Bailout

Monday, December 1st, 2008

Al Gore, in his book, Assault on Reason, described a media and political focus on “gotcha” journalism, on gaffes, on irrelevancies and personal scandals, on the Freak Show – rather than a focus on long-term issues, on character, and on principles as one of the major factors that has led to our current crises. “News” coverage is dominated by questions of whether this or that politician has a mistress (he probably does) or whether this or that entertainer is secretly going out with this or that sports star. Our news has become tabloid.

If, as the drafters of our Constitution believed, a well-informed citizenry is essential to the proper functioning of any nation, then our nation clearly cannot be functioning properly.

This lack of good information, this focus on the trivial over the significant, was evident when the CEOs of Ford, Chrysler, and General Motors went to Washington to beg for handouts. As Jon Stewart sagely observed in a pox-on-all-your-houses bit:

Unable to understand the actual problem, Congress seizes on tangential details for grandstanding purposes.

[Cue tape of various Congressmen expressing various types of outrage in semi-novel ways regarding the fact that each CEO flew to Washington in a separate private jet.]

The media coverage did manage to convey a few things:

  1. All these big shot CEOs travel by private jet.
  2. The Big Three automakers support, directly and indirectly, some 2.5 million American jobs.
  3. These American car companies made a big mistake by focusing on gas-guzzlers on the assumption that oil prices would remain low indefinitely.

Everything else was clouded in some confusion – not all of which is the media’s fault. Many economists asserted that they would normally want the government to avoid bailing out these automakers, but in this economy, believed the government must act. Some opinion-makers blamed the automakers troubles primarily on union-negotiated legacy costs – on the various deferred wages and other forms of deferred compensation the automakers entered into contracts to provide. But what seemed lacking from either the Congressional hearings or the media coverage was any serious and sustained attention to the problems themselves.