In Print : The inside story by "Car Czar" Steven Rattner
Martha's Vineyard Times File Photo
"Overhaul: An Insider's Account of the Obama Administration's Emergency Rescue of the Auto Industry" by Steven Rattner, Houghton Mifflin Harcourt Trade, 320 pp., $27.
MBA students could well treat "Overhaul" by Steve Rattner as a "case study" of massive government intervention in the private economy. If such activity presages our future, "Overhaul" should also be a popular set of crib notes when next the taxpayer is asked to support private business failures.
The bailout/takeover of two of the largest automakers in this country, GM and Chrysler, is a huge story, worthy of being chronicled in detail, and somehow Mr. Rattner does just that, quoting phone conversations, recording who stood where at press briefings, even telling us what other players thought riding home from meetings. As a former New York Times business reporter, Mr. Rattner has a keen eye for the details that give the story enough spice and snap to draw the average reader through often unfamiliar swamps of deal-making and political trivia.
A self-described "Wall Street denizen," Mr. Rattner's odyssey from New York Times reporter to investment banker to equity fund founder and principal into the auto world as "Car Czar" got a boost on a Martha's Vineyard golf course, when Mr. Rattner ran into Barack Obama and expressed his interest in joining a new administration. After the election, Mr. Rattner threw his resume in the pot and finally met with Tim Geithner (named to head Treasury) to discuss how he could help. "Autos," was the answer, even though Mr. Rattner, a pilot, knew more about planes than cars.
Nevertheless he was charged to assemble an auto task force to deal with the potential financial failure of Chrysler and GM. Suddenly the U.S. government was to be knee-deep in an important U.S. industry. Mr. Rattner dove in — hiring bright young Wall Streeters, "deal guys" who knew how to put together and take apart corporations, balance sheets, boards of directors, bondholders, stockholders, unions, and general creditors. If you thought government only regulates business to promote safety and fairness and eschews playing favorites or changing the economic playing field, this book will disabuse you of that naïve position.
The plot line (hugely abbreviated):
• Mr. Rattner spends an astonishing $400,000 in legal fees to get vetted for the job.
• Operative goes to Washington to create "Team Auto" (TA), work in a musty old building and manage brilliant young financial gunslingers to save the auto industry.
• TA studies auto industry (a new subject for most) on crash basis.
• TA spends very few days in Detroit, finds appalling lack of financial controls, bloated expenses, and coagulated management structures.
• Mr. Rattner and TA decide management changes in GM and Chrysler are needed — bosses must go, new directors are needed. He begins lining up new bosses and new directors, using Wall Street contacts, and oversees management firings and replacements.
• TA drafts Plan A (with amendments), Plan B (with amendments) — all designed to remake each company to be economically viable without a normal bankruptcy.
• TA decides U.S. must guarantee car warranties to protect buyers of GM and Chrysler autos.
• TA negotiates with all players (called stakeholders —creditors, bondholders, unions, and their pension funds, stockholders, suppliers, and dealers) to rearrange rights in accordance with plans A and B. There is much understandable drama here and more than a little acrimony.
• Mr. Rattner confers with Treasury Secretary and professor Larry Summers (lately returned to Harvard from his White House advisor's job) and submits his plan to the president. (It is unclear whether anyone seriously consulted the U.S. Constitution to see whether plans A or B complied with it.)
• The president signs off and tells the nation that GM and Chrysler will work through specialized bankruptcy proceedings in accordance with TA plans. And there, the new U.S. auto industry rises. Taxpayers now own Big Auto, and Mr. Rattner goes home to New York to deal with SEC charges against him.
This is, of course, a highly simplified rendition of the story, an outline showing only the main headings and omitting the vast detail chronicled in "Overhaul." The book is a fascinating piece of reporting, at least to those who have some knowledge of big business and corporate structures. The reader will be struck not only by the enormous authority exercised by a few TA members but also by their relative youth as well —including some in their 20s and 30s — who determined the futures of millions of carmaker and supplier workers in two world-wide businesses and their related companies, and the officers, stockholders, bondholders, dealers, and creditors, with supervision only by Mr. Rattner, Mr. Summers, and Treasury Secretary Timothy Geithner. Almost $60 billion of bailout money was made available according to the TA plan on behalf of taxpayers to the two companies. Rights were "given" and "taken" by the TA from stakeholders with little ceremony and sometimes little sympathy, but never without "tough" negotiations.
We are never told why negotiations where one side holds all the cards (or dollars) are so tough. These negotiations matched bondholders, stockholders, dealers, and creditors with an all-powerful government that had the means to make the auto companies and their financing arms' lives miserable or terminal. "Overhaul" does not address such issues squarely. The firings and hirings, no matter how needed or successful — and the jury is still out on that — were done as the price for the billions in taxpayer support. No mid-level government employee or school teacher could be dispatched with so little process. The book does not answer the question whether might — that is, dollars —makes right. But, we are reminded by Mr. Rattner, "he who has the gold makes the rules."
The intrusion of government into private business carries with it images of totalitarian rule which is anathema to a freedom-loving people. Mr. Rattner, an equity operator by trade, trained to buy up, fix, and resell troubled businesses, apparently saw the autos assignment as one more such deal, but when government is operating on a private business, constitutional issues and whether the ends justify the means become involved. These issues received precious little attention in "Overhaul" and apparently little attention from Mr. Rattner and his TA, in their desperate effort to save Chrysler and GM. Rahm Emmanuel's maxim, "Never waste a crisis," seems to have been authority enough for the project.
One of the most striking aspects of the book is the extent to which the author denigrates some of the players in the drama. The reader witnesses corporate officers and others (including members of his own team) taken apart personally or professionally by name. One especially undeserving target was Sheila Bair, head of the independent Federal Deposit Insurance Corporation (FDIC), who insisted that GMAC (GM's financing company) be properly capitalized. Ms. Bair was taken to task for "not cooperating" with the program. By sharing his view of the shortcomings of players other than himself, the author becomes Clark Kent by implication. Failure to allow the fallen to "go in peace" is the least attractive quality of the book.
"Warts and All" may be a good subtitle for an insider's tell-all book, but it is troubling to have a high-level government appointee rush into print with a self-congratulatory tome as he walks out the door.
There are many ironies in the book — perhaps the most telling was the fervor with which Mr. Rattner and the TA attacked waste and poor management in the two private companies, with the outspoken support of the president. All this was done in the name of saving taxpayer dollars being used to bail out the auto giants. That same fervor could be used on the management of government itself.
The ink was barely dry on "Overhaul" when the New York Times reported that Mr. Rattner had reached a settlement with the SEC regarding his involvement in a "pay-to-play" kickback scheme with a N.Y. pension fund. He was reportedly to be fined $5 million by the SEC and barred from the securities industry for some period, while the private equity firm that he co-founded, Quadrangle Partners — from which he has separated — was fined another $5 million and required to pay $7 million to a N.Y. pension fund harmed by the scheme. A similar investigation by the N.Y. Attorney General is not yet settled.
It is also ironic that in the prologue to "Overhaul," Mr. Rattner describes a moment while waiting in the anteroom to the Oval Office to see the president. The TV was tuned to a Tiger Woods golf tournament. Mr. Rattner explains: "Tiger Woods (then still heroic) was making a long-awaited return..."
"Then Still Heroic" might well have been the title for the next New York Times article describing a party celebrating Mr. Rattner and "Overhaul's" publication, in the very week in which news broke about Mr. Rattner's SEC settlement.
J. B. Riggs Parker, a lawyer, lives in Chilmark, where he has served on the town planning board and as a selectman. Mr. Parker also served as the Vineyard member of the Steamship Authority. Mr. Parker's law practice in Philadelphia specialized in SEC work, including IPOs, mutual funds and other related financial instruments and transactions.
Steven Rattner graduated from Brown University, where he was editor of the Brown Daily Herald. After graduation, he became the Washington intern for James "Scotty" Reston, OpEd page columnist at the New York Times, Edgartown summer visitor, and co-owner with his wife of the Vineyard Gazette. Mr. Rattner, in the mid-1970s, was instrumental in replacing the Gazette's printing press – which was then an ancient, cast iron, flat-bed monster – with offset press units and more modern pre-press equipment.
After the internship, Mr. Rattner worked as a reporter for the business section of The Times, then left the paper for Morgan Stanley, then moved on to Lazard Freres, the private investment bank, where became general partner. He left Lazard to co-found Quadrangle Partners, an investment company that specializes in media deals.
Mr. Rattner owns a house in West Tisbury on the North Shore and a horse barn on Tisbury Great Pond.