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Paul Jenkins

Paul Jenkins

Posted: December 14, 2008 02:14 PM

Bailing Out Dan Quayle

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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.


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