Panic in Detroit

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Forget the brouhaha the media have blown up around the head of “car czar” Steven Rattner. It doesn’t bother me and shouldn’t bother you.  He happens to be one of those people it’s too easy to dislike on principle: (a) because he’s so obviously on the make it makes one’s teeth hurt, and (b) he seems to have delivered performance sufficient to substantiate his flagrant ambition. The latter will be much more irritating to many people than the former (a good portrait of Rattner, especially his rivalry at Lazard with Felix Rohatyn—they were sort of  the Nadal and Federer, respectively, of the firm—can be found in William Cohan’s The Last Tycoons). But he won’t be the difference, any more than the U.A.W. will.

A couple of weeks ago, The Washington Post carried a story, based on information fed to the paper by government insiders, that the reconstituted GM is expected to be so successful that the government will recoup its $50 billion investment, along with uncountable dividends, in five years. Perhaps. But has it occurred to no one that this is exactly the thinking, precisely the same investment rationale,  that underpinned Cerberus’s disastrous buyout of Chrysler? It would be interesting to compare Uncle Sam’s plan for GM with Cerberus’s plan for Chrysler, which postulated an identical return to profitability. Can alchemical schemes to remake two large automobile companies really vary that much? Aren’t the problems the same company-to-company? And are there really any steps that can be taken virtually overnight that can reverse 20 years of engineering, manufacturing and marketing stupidity?

Sure, GM will have certain advantages that are outright discriminatory (take this, June 4, from The Wall Street Journal: “On Wednesday, GM got even more help. GMAC, which funds dealers and car buyers, began issuing $3.5 billion in three-year debt backed by the federal government. This should cost GMAC about 2.2% annually. Ford Motor Credit just priced a five-year bond. It’s paying 8%.” Perhaps if GM could revert to its last business model, which was essentially to manufacture loans with cars inside them, the future would brighten, but I don’t think that’s going to happen. There keeps lighting up in my mind this extraordinary statistic: At the height of credit bubble, 20 percent of new automobiles purchased in California and Florida were financed with home equity loans. If the latter no longer exist, can the former?

As far as I’m concerned, it’s time to put aside the pipe dreams and “Hamilton Project”–style blah blah blah and concentrate on the kind of economy we can have—and then to work back from there to see how that scheme of things might be attained. Let’s start with where I think any reasonable person will come out as regards the dominant chords in our economy.

Our wage and cost-of-living levels will continue to make this a consumption-based economy. Nothing wrong with that, provided we consume within our means at every meaningful level of the political economy. And I define “within our means” to include a realistic likelihood of discharging our debts, public and private, individual and institutional.

We simply cannot make stuff itself in a free global economy at prices competitive with China or Brazil or Costa Rica. The U.S.”goods” economy must inevitably consist in the main of the assembly, delivery, retailing and financing of stuff mainly made overseas and sold here, including complex commercial and military systems and equipment fashioned from componentry and technology developed both here and overseas, and it will function alongside a much larger economy consisting of agriculture, and personal and institutional services ranging from TV repair to health care to transportation.

O.K. That’s the hand it looks like we’ve been dealt. What’s the smartest way to play it? Isn’t it basically a matter of working back from the likelihood to the fact? From there to here? A consumption-based economy requires a vigorous base of consumers. The base is a shambles today; it needs to be rebuilt psychologically and fiscally. And how is that to be done? Well, perhaps for openers, it would be nice to see public and private wholesalers-retailers of consumer-homeowner credit—the creditor class—treating ordinary people—the debtor class—with something approaching the same respect and generosity with which our government has treated them.

I accept that it’s become a given that if there’s any free money to be handed out by Uncle Sam, Goldman Sachs has a kind of droit de cochon that entitles it to automatic first dibs, but maybe we can find a way to squeeze a bit for the rest of us at a rate that doesn’t make Dante’s flame-stricken usurers grow icy with envy.

Here’s one suggestion. Most average debtors’ problems have to do with fixed monthly payments that comprise an interest and a principal component. Why not defer 50 percent to 75 percent of the interest component of those payments? Let the credit-card issuers and auto-loan mulchers run the deferred interest through their profit statements onto their balance sheets; we’re well into the age of federally sanctioned phony accounting in which capital is what someone says it is, so that can’t be a big deal. This deferral can then be amortized over time. A long time. Since monthly payments would now go mainly against principal, consumer debt levels should come down steadily, preferably accompanied by a simultaneous, judicious lowering of individual credit limits—and a million wolves will retreat over time from a million doors.

I don’t think any of this can happen until we starting taking people who’ve met a payroll—and by that I mean a real, honest, business payroll—into government. Those are the sort of men incoming administrations used to seek out.

And here’s the sort of people to whom we shouldn’t entrust a scintilla of our destiny. In the current New Republic , there’s a passel of blather under the byline Amitai Etzioni (a name achingly familiar to all connoisseurs of crypto-academic bien-pensant bullbleep) that sets forth a plan by which America will transform itself into a nation of savers. At the heart of this plan will be a series of “megalogues” by which we will talk our problems out of existence.

In laying out the process, the author puts forth what is perhaps the single most witless and stupid proposition I can recall. “Public intellectuals, pundits, and politicians,” he writes, “are those best-positioned to focus a megalogue on this subject and, above all, to set the proper scope for the discussion.”

Ah yes: turn our future over to a chatterati of public intellectuals who are self-serving nostrum peddlers, of pundits who are usually wrong, and of politicians who are corrupt.

As Ronald Reagan liked to say: “Where did we find such men?’


Panic in Detroit