Thursday, November 11, 2010

Rattner on Rattner, and the Campaign to Save Big Auto

Steve Rattner's Overhaulhis surprisingly cheerful account of his campaign to save the American auto industry, may be the best book I've ever read about what actually happens in a Chapter 11 bankruptcy.  Does this strike you as odd?  It surprises me.  Rattner's case--two cases actually,Chrysler and GM--was not remotely typical in so many ways: it was a Chapter 11 ultimately run by and in some sense also for the President of the United States.

Still it is surprising, once you get down to the mud and the blood and the gore, how much the case was animated by the kind of constraints you'd see in Chapter 11 every day.  Is this dog's breakfast worth saving at all?  In trying to save it, are we throwing good money after bad?  Can we change the tires while the vehicle is charging forward?  Above all, can we get the stakeholders on board--and in particular, how much money will it take to get them on board, and can we scrape it together?

It's that last that gives the narrative its dramatic tension and that will be most recognizable to anyone who ever spent time hanging around the bankruptcy court.   Ratner had to cope, first of all, with the unions: couldn't live with 'em, couldn't live without 'em.  They've had fat pay packets and gold-plated fringe benefits (GM pensions: the largest single buyer of Viagra).  Much as you love 'em, you have to cut them back to somewhere near competitive with the overseas Japanese.

This first job may have been easier than the reader might have guessed.  One, on close scrutiny it turns out that Detroit pay was not that-all out of line with overseas Japanese pay--a little ripe, but not jaw-dropping. And two: the unions seem to have seen this one coming.  They'd been taking casualties from all quarters for years and they seem to have come round to the view that the best thing they could do was to try to negotiate a soft landing.

The senior institutional creditors were another story.  Chrysler's senior debt, aggressively represented by the seniorest sort of lender, held IOUs totting up to $6.9 billion.  They made noises about wanting every cent. but Rattner believes that in straight liquidation, they would have collected no more than a single billion.  The plan gave them two; some creditors squawked and very nearly brought down the curtain on the whole show.

In the end, both Chrysler and GM survive (at least for the moment) and the reader is a bit surprised that they do--perhaps because Rattner himself is a bit surprised.  To hear him tell it, everything had to come together perfectly, and in the end (nearly) everything does.

Rattner caps it off with an apparently well-justified rant about the potential obstructiveness of Congress--not that he suffered much from it, but that he so narrowly and fortuitously escaped.  It was really more good luck than good planning that the whole operation went forward under the TARP umbrella, impervious to the death by a thousand cuts that Congressional nit-picking could have inflicted on them.

Rattmer left his government post after the confirmation of the two plans, more or less half a year after he had begun.  By his account, he left under his own steam--"my job on this planet is done," as it were.  But by the spring of 2009, Rattner himself was caught up in a pay-to-play scandal about the New York State pension funds.  I've read a bit of the news coverage; I'm still on the fence as to whether Rattner was out of line here or not, though my guess is that had he been willing to roll the dice with a jury, he might have walked.  So even if he did leave Washington under his own power, still it is likely that the Obama administration was not sorry to see him go.  And aside from the current job: for the moment, it appears that the pay-to-play case on any higher ambitions Rattner may have harbored like, for example, to be Secretary of  Treasury

Rattmer talks a bit in the book about the charges against him and it's pretty clear that he is feeling put upon.  If he is innocent as he seems to believe he is, one can hardly blame him.  Even if his hands are as dirty as his adversaries want us to believe, he might still be at least confused.  For even a guy with dirty hands might know how to reorganize a couple of car companies.

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