Steven Ratter spills his guts on the auto bailouts

Heard about this from NPR's piece. Steven Rattner, head of the auto task force assigned to restructure GM and Chrysler, gives a marvelous account of what went down.

The picture isn't pretty - but like a horrific car wreck, it uncomfortably fascinating.

Here's a great bit:

...under the previous administration's loan agreements, Treasury was to approve every GM transaction of more than $100 million that was outside of the normal course. From my first day at Treasury, PowerPoint decks would arrive from GM (we quickly concluded that no decision seemed to be made at GM without one) requesting approvals. We were appalled by the absence of sound analysis provided to justify these expenditures.

In other words - GM management was asking to blow $100 million on something and they hadn't bothered to justify it with research.

Every time somebody tells me that private organizations are so much more efficient than public one - I think of stuff like this. Or some of the insane waste I see at CorpWorld on a regular basis. Private institutions big accountability is that they can go under. They make bad decisions long enough, they go under. But that sidesteps the issue of exactly how much money can vanish into thin air while the company does just well enough not to go under.

And it ignores transparency issues.

Remember WorldCom loaning over $300 million dollars to Bernie Ebbers? Had the telecom boom continued, that loan would never have seen the light of day. WorldCom's bookkeeping would have kept shareholders in the dark - and shielded its board from the consequences of such an idiotic decision.

Which is not to suggest that gov't institutions don't have waste (good God, we know they do) but this fundamentalist view that private = efficient deserves a thourough and regular public beatdown.

Here's a nice segment on dealing with Chrysler's creditors:

The President's announcement that he was prepared for bankruptcy dramatically changed the nature of the discussions we were having with the stakeholders, none so much as those with Chrysler's 45 senior lenders.

Led by Jimmy Lee, J.P. Morgan's top banker and a long-standing business friend of mine, the banks had been insisting that, as secured lenders, they were entitled to repayment of their entire $6.9 billion. "And not a penny less," Jimmy said to me on more than one occasion.

From the outset that had struck us as ridiculous. The debt was trading at about 15¢ on the dollar, and according to Chrysler's analysis, the liquidation value of the company was around $1 billion. Clearly the banks didn't believe that the government would push back and let the lenders take over the company, if necessary. Until they heard the President speak on Monday morning. Almost immediately afterward, Jimmy called with a new message: "We need to talk."

Read the whole article. Great stuff.