This morning on ABC’s This Week, White House Chief of Staff Rahm Emanuel told Jake Tapper:
In the case of General Motors, the prior administration wrote a check without asking for any conditions of change. We said: Without a check from the American people, get yourself right. You’ve got to make fundamental change. They’ve made changes and now, as you know, General Motors is going to have an IPO. And most importantly, they’re going to keep open factories that they were planning on closing. So we’re righting an industry that was not doing itself, or the American people or its workers, the right thing. So it was a way of getting them to do the changes that they had postponed.
Mr. Emanuel’s claim that the Bush Administration “wrote a check without asking for any conditions of change” is provably incorrect. The Bush-era loans were conditioned on restructuring to become financially viable, with a precise definition of viability, specific restructuring goals, and quantitative targets.
Almost exactly a year ago I responded to a similar claim made by Council of Economic Advisers Member Austan Goolsbee. Here is an excerpt from that post:
In the last few days of December, Treasury loaned $24.9 B from TARP to GM, Chrysler, and their financing companies.
According to the terms of the loan (see pages 5-6 of the GM term sheet), by February 17th GM and Chrysler would have to submit restructuring plans to the President’s designee (and they did).
Each plan had to “achieve and sustain the long-term viability, international competitiveness and energy efficiency of the Company and its subsidiaries.” Each plan also had to “include specific actions intended” to achieve five goals. These goals came from the legislation we [the Bush team] negotiated with Frank, Pelosi, and Dodd:
- repay the loan and any other government financing;
- comply with fuel efficiency and emissions requirements and commence domestic manufacturing of advanced technology vehicles;
- become viable: achieve a positive net present value, using reasonable assumptions and taking into account all existing and projected future costs, including repayment of the Loan Amount and any other financing extended by the Government;
- rationalize costs, capitalization, and capacity with respect to the manufacturing workforce, suppliers and dealerships; and
- have a product mix and cost structure that is competitive in the U.S.
The Bush-era loans also set non-binding targets for the companies. There was no penalty if the companies developing plans missed these targets, but if they did, they had to explain why they thought they could still be viable. We took the targets from Senator Corker’s floor amendment earlier in the month [of December]:
- reduce your outstanding unsecured public debt by at least 2/3 through conversion into equity;
- reduce total compensation paid to U.S. workers so that by 12/31/09 the average per hour per person amount is competitive with workers in the transplant factories;
- eliminate the jobs bank;
- develop work rules that are competitive with the transplants by 12/31/09; and
- convert at least half of GM’s obliged payments to the VEBA to equity.
If, by March 31, the firm did not have a viability plan approved by the President’s designee, then the loan would be automatically called. Presumably the firm would then run out of cash within a few weeks and would enter a Chapter 11 process. We gave the President’s designee the authority to extend this process for 30 days.
I don’t see how the Chief of Staff can make the claim that he made to Mr. Tapper. The specific loan conditions are listed on pages 5 and 6 of this document.
In addition, the Obama Transition Team rejected (quiet) overtures made by the Bush Team to work with them to ensure a smooth handoff of the auto issue. For the full story of the auto loans, please see my post from June, 2009. Here are the summary points from that post:
- The Obama team declined to respond to the Bush team’s offer to work together to create a joint process that would have resulted in a resolution by March 1st or April 1st, rather than by June 1st for Chrysler and maybe September 1st for GM.
- We then worked with the Democratic majority to enact legislation that would have limited funds to be available only to firms that would become viable.
- After Congress left town for the holidays without having addressed the issue, President Bush was faced with a choice between providing loans and allowing these firms to liquidate in early January, which would have further exacerbated the economic situation for the incoming President. President Bush chose to provide the loans.
- We provided GM and Chrysler with sufficient funds to get to March 31st, not January 20th, and in those loans we gave the incoming Administration the ability to extend them for 30 more days.
- The loans were conditioned on restructuring to become viable, with a precise definition of viability, specific restructuring goals, and quantitative targets.
- The Obama Administration followed the restructuring process laid out in the Bush-era loans. They are now measuring that deal against the targets established in the Bush-era loans. The only changes the Obama team made were that they extended GM for 60 days rather than 30, and the Obama Administration directly inserted themselves into the negotiations as the pre-packager.
I hope someone from the White House press corps follows up on this. I have a feeling we will be hearing this claim frequently over the next few months.
(photo credit: cropped from an ABC News image)