Crisis and Opportunity
In ancient China, the character for “crisis” was associated with “opportunity.” This month Congress will be faced with both challenges from General Motors, Ford and Chrysler, whose CEOS are begging for a very rapid $34 billion in emergency government loans.
The three auto giants have few cards to play other than the domino effect on the economy, should they collapse into bankruptcy and liquidation. Once Congress signals that, on behalf of its sullen taxpayers, going into this abyss will not happen, our national legislature will hold all the cards.
So if Congress and George W. Bush agree to have Uncle Sam bail out the auto bosses and their tanking companies, important reforms and models can emerge from this multi-faceted mega rescue.
Let it be called the coming of a vigorous government capitalism, based on rigorous conventional reciprocity. First, since the government is contributing tax dollars, taxpayers should receive taxpayer warrants and preferred shares held by the Treasury Department, for stock in the companies. Second, since the government would be a senior creditor, it should exercise restructuring powers to remove the top executives and the Boards of Directors along with other functional re-alignments.
Third, since the government is essentially performing as an insurer, basic standards of loss prevention should be applied. In this context, this means stronger fuel efficiency, emission-control and safety standards to enhance sales and increase the pressure on foreign auto companies. This insurance-driven requirement would further long-existing federal statutory missions in three areas of engineering performance.
In the past ten weeks, “government capitalism” has been a patsy, absorbing huge taxpayer dollars and liabilities to save an assortment of Wall Street financial corporations. Washington is guaranteeing a clutch of securitized mortgages and consumer loans and even guaranteeing, for the first time, 4 trillion dollars of money market funds.
The bailout of Citigroup illustrates the paucity of reciprocity. It is a sweetheart deal. With Citigroup’s co-executive. Robert Rubin rushing to Washington to structure the deal to save his bank and his own stock portfolio, the Bush regime took on $20 billion in preferred shares and put taxpayers at risk for over $300 billion in the big bank’s loan portfolio. Earlier in October, taxpayers were compelled to buy $25 billion in Citi preferred shares.
Whereas the Feds earlier took a potential 79% ownership of Freddie Mac and Fannie Mae to save those companies, for Citi the government only took 7.8% stake and left the management and board of directors intact.
Since these enormous bailouts and revisions of bailouts largely occur over weekends in frantic secret huddles between government officials formerly from Wall Street and their former colleagues from Wall Street, the actual agreements are not disclosed. They are considered official secrets, assuming they even have been finalized beyond mere memoranda of understanding.
Since all these deals, and more seem to be coming from other commercial and industrial pleaders, are general and appear to be open-ended, resourceful government capitalism can advance shareholder rights across the board and compel a variety of corporate reforms and accountabilities long-desired by progressives and conservatives alike.
At least the auto companies are being subjected to public Congressional hearings for this latest bailout round. In contrast, the CEOs of the financial goliaths got private roundtable treatment at the Treasury Department and the Federal Reserve for far greater rescue packages, revealed in brief statements on Monday morning.
Let’s have a level playing field here and treat all corporate welfare demanders under equal procedural rules shaped on Capitol Hill. Remember the Constitution. It says all spending bills start with the House of Representatives and then go to the Senate and then to the President. Secret taxpayer bailouts by Executive Branch press releases are not what the framers had in mind when they wrote the Constitution.
With the installation of a new president and a new Congress next month, the process must be reversed and these White House-corporate “understandings” have to be reconsidered and, if maintained, revised.
This is a rare moment in American economic history. Just as the multinational corporations were about to complete the entrenchment of the corporate state in Washington, D.C., — what President Franklin Delano Roosevelt described in 1939 as a condition of fascism—their speculative greed, recklessness, mismanagement and de-regulatory license turned them into massive supplicants at the taxpayers’ trough.
In early October, Washington has Wall Street over a Congressional barrel. Still, Wall Street rolled Washington into a $700 billion bailout barrel and rolled it back to New York City.
With a supposedly reformist Democratically dominated Congress and Obama in the White House, the balance of power for the people of our country can turn. But it will take prompt new exertions by the people, citizen groups, organized investors, taxpayers and workers. Seize the moment.