October 26, 2010
In a freewheeling conversation with The Fiscal Times, former ‘car czar’ Steven Rattner says that our leaders – including President Obama – haven’t been straight enough with the American people about what’s needed to get deficit spending under control.
Rattner is the mild-mannered, tough-minded journalist-turned-banker-turned-auto task force leader who oversaw the administration’s auto industry rescue. He left abruptly to deal with charges that he was involved in a pay-to-play scheme that resulted in his private equity firm landing an investment from the New York state pension fund.
Covering everything from the inheritance tax to Obama’s leadership style (but not the potential settlement he’s currently negotiating with the SEC or the New York attorney general), Rattner let loose.
TFT (The Fiscal Times): Why do so many Americans still feel that the bailouts of the auto industry and the financial system were wrong?
Steven Rattner (SR): I’ve been trying to push back on that, as a proud alumnus of this administration. First of all, you’re trying to prove a counterfactual, that if we hadn’t done these things, a disaster would have occurred. That’s a very theoretical conversation and not one that many people can relate to. Secondly, we’re in the middle of the election cycle, when people say wild things that may resonate with some sectors of the public. Republicans and some Democrats are running around talking about how the bailouts were terrible, that TARP was terrible. And that is just completely and utterly wrong.
TFT: Why are they wrong?
SR: Because TARP is the most important piece of economic legislation to come along in this country in the last 70 years. Without TARP, our financial system would have collapsed along with our auto sector. And if those two things had occurred, the entire economy would have collapsed. Without TARP, the administration would have had to go to Congress, and as we all know, Congress is completely dysfunctional. I don’t believe it would have gotten its act together in time to prevent a very substantial amount of damage.
TFT: But in a very tough economy, the idea that huge amounts of federal cash went to big institutions grates on people.
SR: I agree with you. The American people are hurting. We have 9.6 percent unemployment, maybe 15 percent real unemployment. Wages have not gone up appreciably from 10 years ago, and people are worried. If you were to ask the famous question, are you better off than you were X number of years ago, very, very few people would say yes.
TFT: And we haven’t even discussed taxes yet. That’s another big concern on the minds of voters, as we approach the midterms.
SR: Taxes are part of life. The size of the budget deficit, which is unsustainable, can only be dealt with in some combination of raising taxes or cutting spending. Not to be overly simplistic, but there is no other way. People say they don’t want to pay more taxes, but in the same breath they say they don’t want to cut Social Security and Medicare. Yet without cutting those programs and without raising taxes, it is mathematically impossible to bring the budget deficit down to any reasonable number.
‘I would pretty much fault our leaders for not being straight
with the American people about what it will take. Nobody
wants to lose an election, nobody wants to be unpopular,
so nobody wants to stand up and tell it is like it is.’
TFT: So how can it be dealt with in a way that’s palatable to a big segment of the public – or can it?
SR: It can be dealt with by convincing a big segment of the public that it’s necessary. The U.K. announced a dramatic series of spending cuts, and the public seems to get it. They seem to understand that you can’t run a government with a huge budget deficit any more than you can run a company or a household that way. It could get worse because the cuts haven’t taken affect yet. But people have to come to grips with the reality. I would pretty much fault all of our leaders in this country for not being straight with the American people about what it will take. Nobody wants to lose an election, nobody wants to be unpopular, and as a result, nobody wants to stand up and tell it is like it is.
TFT: What about President Obama and his administration – have they stood up and ‘told it like it is’?
SR: I’m not sure they really have, in terms of what has to happen. It’s the problem again of trying to prove a counterfactual. The president is trying to convince everybody that but for what he did, the economy and the financial system would be in much worse shape. And that is a totally true statement.
TFT: Why are the president’s ratings so low?
SR: When you have this level of unemployment and economic malaise, people hold the president responsible. They say, ‘You’re the CEO, you’re the commander in chief. You should be able to figure out how to get stuff done, and you can’t just blame Congress for it.’
TFT: You left the Obama administration after only six months, at a time when the ‘pay to play’ controversy was coming to the fore. Any lingering thoughts about how you were treated when you left?
SR: I did my job. I finished it. It would have been difficult for me to take on another assignment at that point, and I’m not sure I would have wanted to. So I came home, and I have nothing but good feelings about my time in Washington. I feel that the auto task force was able to do something pretty extraordinary in the history of government intervention.
TFT: Tell us about the settlement you’ve accepted.
SR: You can ask me about it, but there’s really nothing I can say because nothing’s been finalized. The press, maybe not surprisingly, was ahead of the reality, so until it’s resolved there’s really nothing I can say. Hopefully that will not be too much longer.
TFT: In your new book, Overhaul, you say you’ve had second thoughts about some of that government intervention, though. What are those second thoughts?
SR: It’s a question of whether we should have asked the bondholders of GM to take a smaller piece of the company or get less back, or whether we didn’t press the UAW enough on the pension issue and whether the pension plan should be restructured. In retrospect, we could have. But given the time we had available to us, the probability of success even if we had pushed harder, and the question of how heavy we wanted the government’s hand to be – I think all of this combined to lead to the outcome that we got, which I think was a very, very good outcome. I had an extraordinarily fortunate experience in Washington, in that I was asked to take on a problem that actually could be solved. We didn’t have to deal with Congress. Most jobs in Washington are far more difficult than that, in terms of having to go to Congress, having to deal with independent regulatory agencies and other players. Institutionally, the government doesn’t function all that well.
TFT: Name an example of something that, in your view, isn’t working.
SR: The inheritance tax expired in January, and Congress cannot get its act together to renew it. As a result, everybody who has died this year has paid no estate tax, and that includes billionaires like George Steinbrenner. That is, to me, inexcusable and irresponsible. Revenues from the estate tax must be well into the billions, and that’s money that was just left on the table.
TFT: Who do you blame for this?
TFT: Anyone in particular?
SR: There were not enough votes presumably in either the House or the Senate to extend the estate tax. I don’t think that it’s Nancy Pelosi’s fault or Harry Reid’s fault, per se. I think the blame belongs to all the members of Congress.
TFT: What is your position on financial regulatory reform?
SR: I think the bill that was passed is better than nothing, but it’s far from ideal. We did not fundamentally change the regulatory apparatus that oversees that industry, and so you still have a whole patchwork of different agencies that were created for different purposes 50, 60, 100 years ago now trying to deal with a 21st century set of issues. And all this again, to some degree, we should put at the feet of Congress.
TFT: What about the new consumer protection agency – right thing to do?
SR: I think it was probably necessary politically, if not substantively. I don't think that anybody could point to a reg reform package as being complete without doing something to protect consumers. We have these regulations for many other products that consumers get, whether it's insurance at the state level, or credit cards and things like that. The devil will be in the details. There needs to be a balance, because the financial sector is one of our biggest growth industries, and you don't want to throw the baby out with the bathwater.
TFT: So many corporations are leaner and meaner these days.
SR: I hope and believe that as the economy continues to recover, they will begin to hire at a faster pace, but there's a limit to the extent that we want to muck around with private business. We shouldn’t tell them how many people they can hire or need to hire.
TFT: Yet you’re worried about the growing labor force outside of this country.
SR: It's a huge problem, and I saw this in autos, where GM pays $28 an hour to its existing workers in the U.S., $7 in Mexico, $4 in China, and $1 in India. A lot of those workers are just as productive. It's a real problem in the long run for this country. How are we going to avoid becoming a low-wage country? There’s no simple fix for it. We can concentrate on industries where we still are much more competitive, like financial services, technology and media and entertainment, rather than trying to prop up a lot of old businesses.