Another Step Away From Capitalism
April 6, 2009 4 Comments
From the Washington Post via Tyler Cowen:
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The Obama administration will play a key role in reshaping General Motors’ board of directors over the next six months, potentially giving it even greater control in the management of the storied American manufacturer.
The president’s auto task force plans to consult with the company as it replaces a majority of its board, a White House official said. The board today largely consists of the current and former chiefs of major U.S. corporations such as Coca-Cola, Ernst & Young, Pfizer and Eastman Kodak. It is not known which of the 12 board members will leave.
The president said Monday that “the United States government has no interest in running GM.”
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I realize that there are all kinds of nasty implications to using the word fascist to describe modern events (though that didn’t stop liberals for 8 years under Bush). If we can’t use it though, someone needs to coin a new term for what the Obama administration is doing. Maybe fascism-lite? Truly fascist countries did not nationalize industry but relied on similar tactics to those above to exert control over business while giving the illusion that a free market still existed. We aren’t there yet, but it’s pretty disturbing to see the strings that are coming with these government loans.
As Cowen responds, “That this story has attracted so little notice is another sign of how numb we have become.”
I’ve been noodling this post since yesterday and while I’ll agree with you that the level of power exerted by the Fed on GM is unprecedented so are the circumstances under which the company now operates. GM has been smothering under managerial and labor intransigence for decades and has now reached a crisis point where it MUST either radically restructure the way it operates or cease to exist. There is however legitimate concern that the the board at GM will be tempted to treat the billions in taxpayer funded loans as an IV drip to allow them to continue do things the same old way and hope things improve. This is not why the government is bailing out GM and this attitude can not be tolerated. The pressure exerted by the Fed is to protect its investment of taxpayer money and ensure that the loans are payed back.
The last thing we need is a repeat of last fall,s financial bailout where the fed forked over hundreds of billions of dollars, as opposed to the tens of billions going to GM, with no way of ensuring the the funds be used as intended and sure enough, they weren’t. Instead of cleaning up their balance sheets and removing bad assets the banks used the money to buy competitors and consolidate there own power while leaving the credit system stuck in the mud. I prefer the fed to send a strong message to executive boards that if they want taxpayer money to keep their businesses running they damn well better spend it the way they are supposed to or there will be consequences.
It’s one thing to demand accountability and enforce consequences if the money is mis-spent. It’s another to fire the CEO and restructure the board. That stinks of cronyism. Just a guess but something tells me none of the new board members are Republicans.
Pressure to remove board members for political affiliation rather then performance does reek of corruption, though I will need more then your gut feeling to convince me that is what is going on. I’m also curious to hear what tools you would rather see the Fed employ to ensure that your, mine and everyone else’s tax dollars are used as intended. They certainly can’t had over the money and say, “Good luck boys, tell us how it turns out.”
I don’t think they removed them for their political affiliation…but I suspect the replacements all have a (D) on their voter registration cards.
Actually, I think the fed sort of should say, “Good luck” and stay out of it. It would be no different if you were starting a new business and took out a loan from your local bank. The bank decided if you are are a good investment before they ever lend the money. If they thought you had no business sense and would default on your loan, they would be less inclined to lend to you. It should be no different at the federal level. If the fed thinks these companies can be saved, then don’t micro-manage them. Tell them what the expectations are and then back off. If there is so much risk that they have to replace all of the top management, maybe they shouldn’t lend to them in the first place.