Academic

Taxpayer Primacy

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

In forcing Rick Wagoner's resignation as CEO of General Motors, the Obama Administration is doing exactly the the sort of thing that LBO firms and hedge funds have been doing for years: conditioning their (further) investment of money on strategic and personnel changes. WaPo quotes a "senior administration official ... who spoke on condition of anonymity because of the sensitivity of the matter": "This doesn't make any of us happy, but we are the custodians of taxpayer dollars."

While this latest intervention may not seem much different from the government-negotiated sale of Bear Sterns last spring or the restructuring of AIG over the past six months, in those instances we at least had the sense that the Bush and Obama Administrations were doing something extraordinary. By contrast the "taxpayer primacy" principle articulated by the senior administration official above would justify an (almost) unlimited menu of actions by the federal government with respect to private industry. Coupled with last week's call for a systemic risk regulator, the detailed demands to be made on the automobile industry suggest an aggressive evolution in the Obama Administration's approach to reform. While most of the early actions of the Obama Administration could be justified, even if insincerely, on grounds that they were market enhancing, these more recent actions are more ominous.

Yesterday, President Obama called for an auto industry plan that is "realistically designed to weather this storm and to emerge, at the other end, much more lean, mean, and competitive than it currently is." What became clear in the wake of President Obama's remarks is that the auto industry itself would not be creating that plan. Instead, that job would be entrusted to the President's Auto Task Force.

So what is the business plan for GM? A commenter over at Asymmetrical Information channels South Park:

Step 1: Wagoner resigns, and a government functionary replaces him as CEO.

Step 2: ???

Step 3: Profit.

Full post as published by Conglomerate on March 30, 2009 (boomark / email).