Rattner: 'This is how Congress keeps their foot on the neck of the executive branch'
America's auto industry seems healthy today. Sales are up, and so are profits. GM is readying an IPO. "An apology is due to Barack Obama," wrote the Economist, which opposed the government's intervention into the automobile market. "His takeover of GM could have gone horribly wrong, but it has not."
Some of the credit for that goes to Steve Rattner, the private-equity specialist whom President Obama tapped as "auto czar." Ratner's new book, "Overhaul," reconstructs those frenzied months and provides the first insider perspective on the administration's policymaking process. This transcript -- which focuses on how government was working amid the chaos of the financial crisis -- is Part 1 of a two-part interview. Part 2, which will come out tomorrow, focuses more specifically on the auto bailout and related policy decisions. The transcript has been lightly edited.
Ezra Klein: You say it cost $400,000 in legal fees to get through the vetting, and that was before things really got nasty between the administration and Congress. Would you do it now? If they came to you and said it will take six months to a year to get through Congress, and you may not get through at all, what would your answer be?
Steve Rattner: Remember, I didn't have to be confirmed by Congress. If I'd had to be confirmed, I probably would have never gotten through. Some of the things I've seen them knock people out for, both the ones you know about and the ones you know about, would've disqualified me. I have a reasonably complicated financial life, and there's no doubt that under Senator Chuck Grassley's view of the world, some of it would've disqualified me. So I think you have to really pause before you go through with this stuff now. It's brutal.
EK: You said in the book that, in the private sector, you'd have pulled 50 people for a task of this size. In government, you had a handful. How does that work? Can you do a thorough, decent job with so few employees?
SR: First, there's the 80:20 rule. About 80 percent of the work gets done in about 20 percent of the time, by 20 percent of the people, using 20 percent of the resources, whatever. If I had more people, there's a lot of stuff we could've gone into much more detail on, perhaps saved the companies or taxpayers some money. Would it have changed the fundamental outcome? Probably not. Second, because of the limits, you outsource lot. We had the Boston Consulting Group and Rothschild doing a lot of work. If I had a freer hand, I probably would have used more internal resources. Outside people are more expensive than inside people. The taxpayers lose on using them. There's a lot of twisting and turning you do in the government to get stuff done within the rules that's somewhat suboptimal.
EK: How common is that sort of outsourcing in the government? Were you the only folks with these consultants?
SR: It's very common. These consulting firms have huge numbers of people whose only job is to solicit government business. If you looked around the government, you'd see a lot of McKinsey, a lot of BCG. Partly that's because they have value to add, and partly it's for the reason I said. It's very hard to bring people in internally. And we were lucky, because I could hire under TARP, which had looser constraints. The Treasury itself, if we were hiring, would've been incredibly tough. This is how Congress keeps their foot on the neck of the executive branch.
EK: Before moving onto the specific auto questions, tell me about the economic team. It's dissolved over the past couple of months. Give me your take on that team. It was a pretty historic two years. How did they perform? And what do you think people misunderstood about it?
SR: I think it was a terrific team. You can critique individual people all you want, but I think, as a whole, it was a terrific team. Second, having watched some of it as a spectator, it was exhausting and trying beyond anything an outsider could imagine. What might not happen in the course of a four-year administration happened in the course of six months. So it's not entirely surprising that people are leaving. I don't know how they did it or how Tim Geithner continues to do it.
Second, I don't believe the president has any obligation in any policy area to create a team of rivals spanning the policy spectrum. He was elected based on a set of views he articulated quite clearly, and he's entitled to have people who reflect his views. You might say they're all centrists, but that's what he's comfortable with. He had no obligation to create the Oxford Union in the West Wing. All these people who say his economic team was terrible, what did they want him to do? We had a stimulus bill. Some say it was too small, some say it was too large. Tim Geithner saved the financial system. Larry Summers did a great job in making sure the administration didn't cave in to the flavor of the moment, nationalizing banks and shooting CEOs. I'd love somebody sensible to tell me, given the constraints of Congress and the environments, what we should have done differently.
EK: The normal criticism isn't that they were centrists. The impression of a lot of folks is that they were radical. And your team was example one. You took over the auto industry. You interfered in the private sector.
SR: I think that's complete bull. The auto bailout was begun by the previous administration, which sold itself as being more committed to free-market principles than anyone since Adam Smith. And they recognized that when a market stops functioning, that's what government is for.
And on the auto rescue, we did nothing outside the framework of the law. It was litigated all the way to the Supreme Court. And we won every step of the way. We implemented restructuring the same way we would've in the private sector. And the last thing I'd say is we made really clear, and this was Larry Summers's emphasis, that we were reluctant draftees and we wanted to get in and out as soon as possible. One of the reasons this GM IPO is happening quite quickly is that Larry insisted we get out. We didn't put any government people on the board. Look at Europe: There are still French government appointed on the board of Renault. No banks were nationalized. This was not an anti-market group., I worry about the next group, as there's so much pressure on Obama to shift. But as long as Larry and Tim and [Peter] Orszag and Christina [Romer] were there, I felt very comfortable.
EK: Tell me about dealing with the Congress.
SR: When you actually deal with them to try and get something done? It's impossible. It is so divisive, so parochial and so petty. If you look at the auto rescue, the only time Congress really got involved was over the dealers. Here we are, laying off thousands of workers and restructuring these companies, and the only thing that animated Congress was the dealers. In terms of the body as a whole, they were just obstructionists.
I think that if we didn't have TARP, the whole economy could have imploded before Congress figured out what to do. They hated TARP because it gave the Treasury a $700 billion check, but it wouldn't have worked any other way. I think every president gets tagged negatively by the American public for things that really, they should be tagging Congress for. Everyone talks on the morning talk shows about the president's approval rating, it's 45 or 44 or 46, and Congress is 22. People should be focused on Congress. It's really important. It's not on top of the Hill by coincidence. It's not Article I of the Constitution by coincidence.
EK: This is one of my great frustrations. It's so easy to narrativize American politics through the person of the president, but it's just a wildly misleading way to understand why things do or don't happen.
SR: Let me give you a simple example. The financial-regulatory bill is better than nothing, but so far from being optimal. They got rid of one tiny little agency, the Office of Thrift Supervision. That was it. You've got all these different agencies regulating the financial system and there was no willingness on the part of Congress to get rid of any of them because they fall into different jurisdictions. The SEC and the Commodities Futures Trading Commission should be merged. It's a no-brainer,. But one is overseen by the Banking Committee and one is overseen by the Agriculture Committee, and neither committee is going to give up their control over that part of the financial system. It's insane.
Stay tuned for Part 2 tomorrow. Photo credit: Jay Mallin/Bloomberg News
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