By Rob Nikolewski │ New Mexico Watchdog
The man who headed the 2009 Obama administration‘s bailout of the U.S. auto industry says the federal government should step in with taxpayer money and give Detroit a boost.
But a respected economist and former senior vice president at Detroit-founded Comerica Bank says in the bluntest of terms that it would be a big mistake and even if a bailout came to pass, Rattner is the wrong man to lead it.
“Rattner has no place in Detroit,” Littmann said of the city that earlier this month became the largest municipality in U.S. history to declare bankruptcy.
Arguing that “America is just as much about aiding those less fortunate as it is about personal responsibility,” Rattner said that the federal government should step in.
Littmann couldn’t disagree more.
“This isn’t a private company,” Littmann said in a telephone interview with Watchdog.org. “This is a public municipality. Not only would it be much more prolonged (than the bailout of General Motors and Chrysler) but a bailout doesn’t apply in a bankruptcy proceeding.”
Rattner says Detroit’s bankruptcy should be seen through the lens of a natural disaster.
“No one likes bailouts or the prospect of rewarding Detroit’s historic fiscal mismanagement,” Rattner wrote. “But apart from voting in elections, the 700,000 remaining residents of the Motor City are no more responsible for Detroit’s problems than were the victims of Hurricane Sandy for theirs, and eventually Congress decided to help them.”
Ridiculous, Littmann said.
“He knows next to nothing about the history” of Detroit, Littmann said, pointing to disclosures just two months ago that despite the city’s dire economic condition, members of the Detroit pension board treated themselves to airline tickets and accommodations in Hawaii.
Calling the terms of the Detroit bankruptcy “draconian,” Rattner appeared on MSNBC last week and reiterated his call for federal help.
“I don’t think the Detroit problem can be solved without help from the state and the federal government,” he said. ” Self-help is not going to work in Detroit. There’s just not enough left there in terms of an economic base, in terms of public finances.”
Littmann called that view “myopic”.
“The federal government hasn’t the funds and cannot interpose itself and suddenly say, ‘we bailed it out’ because, what happens the day after Detroit emerges from bankruptcy? You haven’t changed the business climate. You’ve changed nothing,” he said.
Rattner earned a reputation on Wall Street as a shrewd investment banker and a cool and steely negotiator who made himself a multi-millionaire and won favorable reviews from some for guiding the revamping of both GM and Chrysler in just 39 days and 41 days, respectively.
But there was criticism that bondholders got stuck holding the bag.
While 90 percent of the creditors agreed to take 29 cents on the dollar, they complained about being strong-armed by the Rattner and the Obama administration and other lenders held out, contending in La Cosa Nostra terms that Rattner’s bailout violated standard bankruptcy guidelines.
Lawyer Tom Lauria represented the Oppenheimer Funds and Stairway Capital hedge funds and claimed, “One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight.”
Rattner’s defenders scoff at the notion that hedge-fund managers who pride themselves on toughness could be cowed to such a degree and Rattner, insisting there was shared sacrifice all around, can point to the fact that the auto bailout withstood legal challenges.
While Rattner convinced the auto unions to take wage and job cuts and agreed to not strike for six years, critics said the Obama White House not only went easy on the auto unions — whose members reliably vote for Democrats — but actually gave them preferential treatment.
“That takes a lot of nerve,” Littmann said, “but it also is very explainable in the terms of special interest pressures instead of the normal law.”
Rattner has long been active in Democratic politics and his wife is a former finance chair of the Democratic National Committee. But the 61-year-old maintains politics played no role in his leadership of the GM and Chrysler makeovers, saying he accepted the call from then-Treasury Secretary Timothy Geithner as a matter of public service.
“What am I saving myself for? If not now, when?” Rattner was quoted saying to a friend.
As for Detroit’s bankruptcy, creditors include bondholders as well as public pensioners in the city. The chairman of Detroit’s fire and police pension fund vows, “It’s war.”
But that tone may change should a federal bailout materialize.
If that comes to pass, Littmann predicts pensioners would be treated like the auto unions were treated by Rattner.
“He’s a factotum for special interests,” Littmann said. “The same outcome would be the unions run the city more tightly than they already have. But this time, instead of the taxpayers and the creditors being mostly from Michigan, they’re coming from the United States in general.”
For now, the Obama White House insists it has no plans to bail out Detroit. But at the same time, but press secretary Jay Carney cryptically proffered last week that “we will be partners in an effort to assist the city and the state as they move forward.”
In his op-ed piece, Rattner did not nominate himself as point man of a potential bailout of Detroit, but Littmann suspects Rattner is angling for the job. Littmann also said he suspects that if a Detroit bailout ever happens, the administration would not use the words “bankruptcy” or “bailout.”
“They’d change it to some euphemism like ‘equalized assistance.’ ” Littmann said.
Contact Rob Nikolewski at firstname.lastname@example.org and follow him on Twitter @robnikolewski