Bailing Out Dan Quayle

The battle over the bailout of some segments of the US auto industry has become increasingly defined in terms of class, with the head of the United Steelworkers union accusing Washington of bailing out "those who shower before work but not those who shower afterwards," a sound bite eagerly used by other populists such as Ohio Senator Sherrod Brown.

There may well be some truth to this, but the simplification hides the fact that the same type of players will benefit from both bailouts. Start with the fact that Chrysler is owned by Steve Feinberg's Cerberus, a New York-based private equity firm that boasts of $100 billion in current revenues, but has refused to bailout its own auto property. Eighteen months ago, Feinberg bet that he could "rescue a struggling American icon," ie that Cerberus could make a quick buck dressing up Chrysler for further sale. Perhaps cynically, the bet was that in the worst case, the government would bail out Chrysler and the rest of the auto industry. This is what private equity firms do, and there may or may not be anything wrong with that, but clearly the primary beneficiary of a Chrysler bailout will be Wall Street grandee Feinberg. Collateral recipients will also include a small army of other Cerberus principals and advisors, people such as uber blue collar worker Dan Quayle (yes, really) chairman of Cerberus International Investments, LLC. Quayle's own site proudly lists other current responsibilities: he is "President of Quayle & Associates, and serves on the boards of directors of IAP Worldewide [sic] Services, Inc., K2, Inc and Aozora Bank, Ltd in Tokyo."

Others who probably shower in the morning and will be among the biggest winners in an auto bailout are sure to include most members of the Ford family, headed by billionaire patriarch William Ford Sr, grandson of Henry Ford and the largest shareholder in the company. Of course, the chief executives of all three companies, great managers all of them, have more to gain than nearly anyone else from a Washington handout even if, for now at least, their security will be severely jeopardized by their inability to fly privately. Their relatives too will likely be asked to sacrifice in the name of accepting tax money: the family of Alan Mulally, CEO of Ford, may have to forego the corporate jet they used even when Mulally wasn't traveling with them. Dozen of other executives will also be handsomely rewarded for their ineptitude: people such as Mark Fields, head of Ford's North American business, who commuted to Detroit from Florida on the company's plane because his family could not possibly be asked to move to gritty Michigan.

None of this would really be any of our business if a) we were not asked to bail these people out; b) they did not present themselves as the able stewards of American enterprise and tradition; c) they did not hide behind their own workers' fate to hold on to jobs, perks and fortunes they do not deserve.

Of course, the same applies exponentially to the financial services industry, except it did not hide behind its own workers' fate. It went bigger, painting the entire future of the country, no, actually, the world, as being at stake. That Congress, and pretty much every political leader went along with a $700 billion blank check to people with a proven inability to manage money is a tragedy. Whether that means we now have to dig ever deeper into our future earnings to bail out every ailing industry is an open question that Congress, no surprise, is unable to answer.

Most Democrats (but not all) are eager to help the auto industry because jobs, union jobs nonetheless, are at stake. They are, though, unwilling to address the fact that many other jobs in many other industries in many other parts of the country are also at stake. Why Detroit, and only Detroit? Even leaving aside for a second that the primary beneficiaries will be the auto industry's wealthy gamblers, er, investors, at some point Democrats will have to explain why some taxpayers who cannot afford health insurance, for instance, are asked to subsidize the benefits of workers who can? Why are some people who lose their jobs and health insurance deemed unworthy of assistance, but others will be the target of heavy government subsidies that will allow them to keep both their jobs and their benefits? Is there a rationale behind these choices? Gail Collins of the New York Times is uncharacteristically murky in a recent column in which she pokes fun at the issue of fairness in bailing out companies, only to end with a call to "focus on the common good."

More broadly, why are Democrats not investing these funds into deeper, long-term changes, especially on health care, but also on education? It is nice that Barack Obama and others are presenting health care reform as necessary to put the economy back on track, but is it true in the short-term? Are there endless funds to bailout entire industries, jumpstart the economy with public works, and begin to seriously uphaul health care?

Of course, the fact that 20 Senators, mostly Republicans, voted for the financial industry bailout, and against the auto bailout, does not help the cause of consistency. Moreover, while in some cases, they are ostensibly protecting their own states' corporate car manufacturing interest, in many other cases their union-busting goals are disagreeably transparent (and sometimes both go hand-in-hand). What are these Senators, and their House counterparts saying? That they realize they made a dreadful mistake in subsidizing the financial industry a few weeks ago without any strings attached (and without the humiliating dog-and-pony show the auto executives were subjected to)? If so, they should say so loudly and clearly.

In general, one should not assume that anyone in any of this knows what they are doing. Without going as far as Jared Polis, an incoming congressman from Colorado who blasts his future colleagues in the Wall Street Journal for their financial incompetence, we do need to point out that the same people who did not see a crisis coming are the ones we are relying on to get us out of this crisis. Whether it is those of either party who opposed increased regulation, or those Democrats who were pathetically timid in their support for more structure, it is hard to see how they are apt to make the proper decisions now. More frighteningly, they are reliant on the same self-serving, greedy and/or incompetent industry "experts" who got us here in the first place. Hopefully, though, these will not include Robert Rubin, heretofore venerated for "overseeing" the economic policies that brought us the booming nineties, but now unmasked as Citigroup's pusher-man of junk real estate securities. It may be a small pool of people who theoretically have the credentials to steer the country's economic policy, but at this point it feels as if we would be better off if no one had been in charge. Or were in charge now or ever again.

It may be pushing the point to compare the current crisis to the Iraq war, but there is at least one eerie parallel. Most of the architects and cheerleaders for the ridiculously misguided and mismanaged war in Iraq have remained in place or been rewarded with a promotion and the task of getting US forces out of a place they should never have been sent to. Thankfully John McCain, so proud of his surge but who could never explain why we were in Iraq in the first place, is not among them, but Condoleeza Rice is, as is Hillary Clinton, who never took responsibility for her early support for the war. Dozens of others who actively supported the war (and often ridiculed those who did not) are in positions of diplomatic and military responsibility in both the outgoing and incoming administrations. It would be nice to say that if they had made such a dreadful mistake in private industry they would have long ago been put out to pasture, but we now know that they probably wouldn't have (see "auto industry" and "Citigroup" above). They would retain the confidence of the board and assume we would bail them out.

The link between risk and reward in both government and private enterprise has unraveled so fast that it is not even clear there will be a backlash. It is one thing when bad decisions in public policy are rewarded with reelection: after all if voters decide they prefer the incompetent incumbent to someone new, that is presumably the point of democracy. It is also one thing when dimwitted managers of private companies run them into the ground and get rewarded with grotesquely high bonuses: shareholders are presumably free to waste their money as they see fit. But when the ties that bind both private and public "leaders" are so tight that loyalty, clubbiness and self-dealing override all else, there is absolutely no incentive for companies to assess risk. Or rather the only risk worth assessing for them is how likely it is they will be bailed out, a calculation that surely includes the level of financial investment, legal and other, in those who will ostensibly be making that decision: elected officials. And that is how we end up with absurd situations in which a bailed-out insurance company finances convention parties; a Senator whose entire career is propped up by the finance industry returns the favor by bailing it out to the tune of $700,000 per US household; and a failed former vice president is financially rescued by the son of the president he served, at government expense.

Read More:

Should the Government Bail Out the Big Three U.S. Automakers? HuffPost Bloggers Weigh In

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Comments

[Aaror]

Mr. Jenkins,
I think you need to make a correction, where you say "bailing it out to the tune of $700,000 per US household.­" I am pretty sure there are more than one million households in the US (population 300 million). More likely the figure you were looking at was 100 million households, which would be a bailout of $7,000 per household. Unless there was a seventy trillion dollar bailout I didn't notice?
Please correct this math error, so that I can agree with your article.

[REinsider]

Inside Job or "Snow Job"?
Excellent article! Best I've read and first I've seen that begins to tell the "story behind the story" of the Big 3 auto industry bailout. That of identifying Chrysler as a privately held company owned by a Wall Street "private bank" (hedge fund) that is top-heavy with former high ranking government officials.
The only disappointment is, Paul, is that you failed to mention that the chairman of Cerberus Capital Management is former Treasury Secretary John A. Snow. Instead of focusing on Quayle, this article would have been much more powerful if it focused on Snow and the hand-off to Henry Paulson, then chairman of Goldman Sachs, to commandeer the financial industry bailout-th­en-pending­, while Snow takes in inside position in the auto industry bailout-th­en-pending­.
(Fact correction: Dan Quayle is "chairman of the international advisory board of Cerberus Capital Management, NOT chairman of Cerberus).
Still, an excellent article!!

[watchTVgetSTUPID]

More than jobs are at stake. Michigan's whole ability to survive financially is at stake and it affects everyone

The Government caused the Auto industry crisis.

The auto industry (including foreign) is hurting for 4 reasons all caused by our government.

1. Manipulate oil prices to $140 a barrel which drive gas to $5 a gallon. Since US automakers were building the SUVs & trucks that Americans wanted to buy, Cheney broke rthe 1st kneecap of GM.

2. Cause extreme tight credit that forced GM to stop leasing cars & forced many buyers out of the market. This is the tightest market for money since Volker and then the Depression. The Administration deregulated the financil markets and now the result is tight money. Paulson, Greenspan and Bernenke delivered the blow that busted GM's other kneecap. Also GM itself can not borrow.

3. The Government forced unfair trade agreements on our industry which is killing them all. TVs, Computers, Cars, Textiles, home appliances and furnature are all in death throws. Noone can compete against $1 hour overseas labor. Foreign auto makers assembling cars here import foreign parts. This is the bullet to the head of the auto industry

4. The government has so mismanaged the economy with huge tax breaks for the rich and spending for 2 wars, the economy is now in a recession. Just when the auto industry was desperate for cash flow, the Recession is hitting.

All these causes are due to government and not Auto management nor

[w8aminute]

I believe the main cause of this crisis is definitely our government - both the White House and Congress.
I would like to add one thing - I believe the housing bubble is to blame more than gas prices. The gas price run-up last summer was also due to greedy Wall Street speculators that had to get out of housing and looked to energy as a way to make money, knowing we'd need gas for all those SUVs we have. But the housing crisis plays more into this disaster than gas prices. People can't pay their bills due to the increased amount we are paying for housing. Even if you bought a house you can afford, real estate taxes have gone up, insurance premiums have gone up, energy costs, etc. Now that credit is tight, unemployment is up and housing values are falling - hardly anyone in the middleclass either wants to or can afford to buy a car. And the wealthy really have no need to buy as many in total that would offset all the cars the middle-class would and have been buying
.
Trickle down economics really is tinkle down - they just pee on us.

[billw8017]

Printing money will ultimately cause inflation. That's fine, it's a tax everybody pays so long as everybody pays it. That requires rising wages or the tax will be paid only by workers. Wages will only remain proportionate if workers have a power to pursue their interests. Raising the minimum wage is a move in the right direction, but, most of all, unions defend worker income.

We should look for a season of inflation to "dry" up the excess money by adjusting from its numeric value. Leaving wages low, squeezes money up class and invites investment fraud. At least, this is the lesson I draw from the Bush administration.

One thing we should not do is bust the UAW. It's standards spread to other workers as anti union managers try to damp the UAWs attraction.

[TruelyFedUp]

Alright, several on-line articles state that up to 80% of companies pay no income tax. I say "You pay no taxes, you get no bailout. Period."

Anybody know how to find out what AIG paid over the last decade?

TrulyFedUp

[LMPE]

Dan Quayle is a less funny version of GWB.

[billw8017]

Dan Quayle is much funnier that GWB. Remember how terrible it is to not have a mind? Yes, how true that is! Let us all throw potatoes at Dan Quayle!

[kimleehan]

Very confusing when six out of ten people out there complaining about the american auto industry collapsing are driving foreign cars, The best way for Obama to bring back manufacturing jobs to the U.S. is to bring back the made in america signature.­Try to get america to start buying american made products.W­e used to have that saying back in the fiftys and sixtys Buy american. Americans are for the most part very loyal people and if the president of the United States asked them to buy american than they will.

[TokyoDevil]

The best way for US manufacturing to recover is to build quality goods that people want at prices that compete with imports. Gasoline in Germany and Japan is expensive, and citizens in both countries demand quality and ergonomics; automakers responded to these market characteristics by developing well-designed, fuel-efficient vehicles. Americans buy these vehicles because they want a well-designed, fuel-efficient vehicle. Ford, Chrysler and GM have yet to grasp this fundamental truth despite 40 years spent watching more and more Americans choose imports over their products. Economic patriotism is a nice sentiment, but it's simply that -- sentiment. It ignores the reality that a free market rewards companies that meet consumer needs and is unremittingly brutal to those that do not. It also ignores the fact that Americans struggling to make ends meet want a vehicle on which they can rely. People bought American in the 50s and 60s because the products were good value for the money.

[cadsuch]

First of all, there can only BE one president at a time. And second of all, the "democrats" ARE the pay as you go party, with the pay as you go, track record.

Pay as you go, naturally assumes that the ONLY thing that is going to "bail" anything or anyone out, is a democratic, free enterprise open market system, that we have used and proved to be effective for many decades. We have been subjected to the so called "conservative" idiology for so long (you know - big government - low taxation - shrinking freedom) that we actually think that it really is suppose to be that way.

But because there are so many people who apparently are so young they weren't around when we actually USED a pay as you go system in our market place, you can't campaign for office and expect to get elected if you don't go along with the current "jump-start - kick start - bail out" dialog the we keep hearing in the media.

Kiddies...­....we need people working at real jobs, creating real value, in order to make our democratic, free enterprise, open market system work again. There is no amount of bailing out - kick starting or jump starting, that is going to make our market place work again, with a high productivity, motivated work force, working, paying taxes and creating value. Paper shuffling just won't get it!

[CaptD]

This is exactly why ANY BAILOUT MONEY needs to be earmarked to help workers not management!

As it is now, all this money is mostly spent paying "big shots" that have raped the UAW...

[research]

Yes! Let's BUY the big three, then Bail them out, them sell them for a profit.

[REinsider]

THIS is exactly the strategy of the hedge fund ("private bank") that bought Chrysler! Only to help make certain THEY get a bailout they first brought former Treasury Secretary and long-time Bush-Reagan confidant, John A. Snow, on-board as chairman. Yes, the chairman of the company that owns Chrysler (Cerberus) is the fellow who handed-off his post to Hank Paulson (who is now running the bailout). On an interesting related note, prior to his Bush appointment to TS, Snow was Chairman of CSX which sold its ports division to the Carlyle Group-Dubai venture. (You can't make this stuff up!)

[Lakrosse]

maybe they can bail Quayle out with a potatoe or two

[CaptD]

Or a shoe or two, like George got!

[bayside]

Since it is our money, then what is good for the goose, is good for the gander..So­uthern and central states have relied on handouts and subsidized money from us to survive. Did you hear that southern senators. We go down you go down..I cant help think that nev. Reid state who I am sure gets tons of subsidizes money from us for all those morman children may explain some of his actions..

[LS1958]

Nothing about this piece does much more than spin a few plates that have been in the air for weeks.

Just as the insurance and mortgage industries are part of our national infrastructure, so is the auto industry - it supports thousands of small businesses and millions of jobs. The effects of its collapse will be felt in every state, as retirees lose their income and health insurance and cities lose tax revenues.
And consider this: Many people who are seriously ill rely on corporate jets to get them to medical treatments at no cost. In Michigan, the industry execs contribute to schools, hospitals, arts and other worthy causes. We don't get anywhere by demonizing these people.

I see lots of talk about long-term implications and analysis from many people who stand far outside the reality Michigan faces every day. I see lots of people who perpetuate misconceptions about the auto industry, its executives and union workers, to justify not giving them a penny. Here's the reality: Either we support the industry with some cash as it retools, or we end up supporting millions of workers who will be without jobs, health insurance and retirement income. I have yet to see anyone propose any kind of action that adds another choice or offers an innovative solution.

Everybody's got an opinion. Where are the people with fresh ideas?

[pcjnyc]

Many other industries are part of our "national infrastructure," and are in deep trouble, and mostly not because of mismanagement. Why are they not being helped? The US auto industry will not collapse, thanks to Honda, Toyota, etc, and, perhaps, Ford.

No one is criticizing executives in general, just those who through their incompetence and greed threaten entire industries. And do you really think that corporate jets spent most of their life conveying sick children to hospitals? Please.

[Hank007]

Honda, Toyota etc already received hundreds of millions of taxpayer dollars to build plants in the south, and pay 0 income tax, yet receive all kinds of taxpayer funded services. They then take their profits back to Japan.

Americans hate paying for prevention, and love paying twice as much to clean up a mess. We hate welfare, but love prisons, we hate universal healthcare, but love paying for the uninsured. Now we hate auto bailouts and saving jobs, but we'll love having to support 3 million unemployed workers. We do, however, seem to love millionaire bankers the most.

[Beachrunner]

If the UAW had made some wage concessions, it would be one thing. But now . . . I guarantee you, no one in my family will ever buy a car made by GM, Ford, or Chrysler, or any of the brands they own.

Hope they enjoy their $76.23 an hour while it lasts (which won’t be too much longer.)

[sposton]

Do you know what is the percentage of cost due to labor in a typical car? Did you know it was around 10%?! Let's not be ridiculous and fall for the propaganda associated with interests that not only wish to kill whatever is left of unions in this country but to emasculate the rest of the wage earners. You don't get the fact that the Money has been engaging in a class warfare, do you? Instead, you just repeat the propaganda specifically created to screw you as much as any other of the 95% of Americans. Do you really believe that what is wrong with the Big Three has much to do with unions? If you do than how do you explain the success of German automakers? Give us a break and educate yourself.

[VioletDatura]

Well said, sposton.

[sposton]

Companies too large to fail ought to be nationalized, rationalized and then what is left over sold at a profit. That is what Cerberus planned to do and that is what our government ought to do. Why should our government be less savvy protecting the taxpayer than a corporation protecting their shareholders. If I am shareholder, of course, I'd want for government to provide me loans with no strings attached but why should we do it as taxpayers?

If we are protecting jobs then there are better way to accomplish the task. Let government buy or subsidize fuel efficient cars. Even if you have to crunch perfectly good guzzlers to replace the motor pool I think this would make more sense than what we are doing. At the end we would at least accomplish a social good of reducing the demand on foreign oil.

[customgreen]

I can give Cerebus a bit of a pass. They have only owned the company for a little over a year. After the disaster of Daimler Cerebus is actualy taking Chrysler in the right direction. They reduced the product line up by taking out poor sellers, they are increasing their economy lineup (which was removed by Daimler) They are increasing their profile overseas, and they brought in real car guys. Nardelli has some serious baggage from Home Depot and he most certainly is no car guy, but with Press from Toyota, and LaSorda working together things down the road looked good. The financial mess kicked them right in the teeth. I agree that Cerebus should pony up some serious dough, and if they don't it only proves that they are not in it to save the company. I find it very funny that most of the high powered Republicans at Cerebus including Quayle have ZERO clout in Washington. For the sake of jobs and manufacturing the industry must be helped. I say make Iaacoca the so called car czar. That man knows how to run a car company!

[jshubbub]

I'm not so inclined to give Cerberus a pass. They have the revenue stream to finance Chrysler adequately, and the fact that they're lining up with Ford and GM to ask for government assistance tells me that their strategy all along was to flip Chrysler like an old house. All they wanted to do was take a struggling company, pare it down to its profitable bits, increase the revenue stream, and either sell it to another investor (see merger talks from a couple of weeks back) or take it public again. They would have turned a tidy profit either way had the economy not tanked on them.

Now they're stuck with a property nobody wants, and it threatens their continued profitability. Instead of reminding them that that's how the capitalism cookie crumbles, the government is going through contortions that would make a yoga guru proud to hand them a wad of money to help them bring their buy-and-flip plan to fruition. When they manage to find a buyer, and everyone in Washington sings the praises of the deal as a justification for the bailout, just remember you read it here first.

[customgreen]

Well the government can certainly put stipulations in the money that prevents a sale. I agree the Cerebus was/is looking to make money off the company. However that doesn't change the fact that they were moving it in the right direction. Daimler devastated the company and the reputation that had been built up before the merger/takeover. There are a lot of good things in the wings that just need some more time to come out. All three are moving in the right direction, but the financial crash has magnified their vulnerabilities.

[REinsider]

I agree wholeheartedly with jshubbub (now there is a mind that is fully-functioning!)
Customgreen, you are totally off-base with your comment: "Cerebus (Cerberus) including Quayle have ZERO clout in Washington". Why don't you do a little bit of homework before you make such statements? The chairman of Cerberus is former Treasury Secretary John A. Snow (who handed his job off through Bush appointment to former Goldman Sachs chairman Hank Paulson, the man in charge of the overall bailout).
And as for your "lets bail them out with strings attached" comment in your subsequent post below, do you mean the "strings" Paulson asked for in his first 3-page bailout plan, or those attached to the already wildly successful $700 billion initial bailout round, OR the transparency and "strings" attached to the $2 trillion in bailout loans made to persons our government won't tell us who they lent to? :)