It looks like Tim Geithner and Larry Summers are executing a land grab. From the New York Times:
President Obama has dropped the idea of appointing a single, powerful “car czar” to oversee the revamping of General Motors and Chrysler and will instead keep the politically delicate task in the hands of his most senior economic advisers, a top administration official said Sunday night.Mr. Obama is designating the Treasury secretary, Timothy F. Geithner, and the chairman of the National Economic Council, Lawrence H. Summers, to oversee a presidential panel on the auto industry. Mr. Geithner will also supervise the $17.4 billion in loan agreements already in place with G.M. and Chrysler, said the official, who insisted on anonymity.
The official also said that Ron Bloom, a restructuring expert who has advised the labor unions in the troubled steel and airline industries, would be named a senior adviser to Treasury on the auto crisis.
For the record, we have never been happy about the prominent roles Geithner and Summers are playing. Both played significant roles in creating and maintaining the system that lead to our financial mess. They are simply unable to see beyond their ideological blinkers. And as proteges of Robert Rubin, they are epitomes of what Willem Buiter calls “cognitive regulatory capture”.
So consider the fact set. Geithner is clearly over his head and overloaded. He announced a multiifacted plan to rescue the banks, and it will take a full-bore effort over the upcoming weeks and months to sort that out. And Reuters indicates that Geithner is Obama’s “designee” on the auto program.
The last thing you want to do is overload someone who is already in danger of muffing a crucial project. But here we go, Geithner and Summers now have more to do, and the auto industry bailout is coming to a head shortly. This was already set to be handled by a “car czar”. The car czar has instead been supplanted by a car committee, which does not strike me as wise (it adds interpersonal dynamics into a process that would benefit from clear leadership). And having the overloaded Geithner and bull in the china shop Summers as leaders means that other participants, most importantly those who know something about the industry, are likely to be marginalized.
Consider the track record: this duo sidelined Paul Volcker, who brings enormous experience, a first class reputation, and a willingness to question orthodoxy. That says loud and clear that they place self interest above doing the right thing. Volcker is an enormously valuable resource, but apparently his connections, his skepticism of bankers, and his towering height made him too much of a threat.
And we see this again in the auto bailout, where the dastardly duo has persuaded Obama to set up a structure that assures them control over the answer, even though they have no knowledge of the industry.
Now there could be less nefarious explanations. Perhaps the “car czar” idea died stillborn due to an inability to find someone with industry expertise who could be trusted to be evenhanded and had no tax problems. But even if a committee structure was deemed necessary, why have Summers and Geithner head it? I could see have them, or key deputies of theirs, as members, but having two leaders lacking in industry expertise, and time to bone up, looks terribly short-sighted.
But other reports suggest that we may be in sentence first, verdict afterward mode, so expertise is irrelevant. From Bloomberg:
Five Senate Democrats, including Debbie Stabenow of Michigan, wrote a letter on Feb. 5 urging Obama to name an expert in manufacturing as part of a panel to help oversee the auto loans.“This advisory group provides a tremendous opportunity to bring together our country’s greatest manufacturing leaders to help our domestic automakers create the vehicles and technology of the future,” the senators said in the letter.
[Ron] Bloom {former investment banker and United Steelworkers adviser], who will be a senior adviser at the Treasury, has experience with an issue at the heart of the restructuring — health-care costs. Bloom helped negotiate the Goodyear Tire & Rubber Co. health-care fund, union spokesman Wayne Ranick has said. In 2005, Bloom met with UAW officials who were then evaluating GM’s request for health-care concessions.
Update: Reader Swedish Lex surmises, “No point in appointing a czar if the companies are going into a pre-arranged chapter 11.” That sounds right, except bankruptcy experts have said a pre-pack is not an option for the automakers. They set forth the timetable and it runs to more than a year and a half. Back to the original post:
And the risk of lack of knowledge is real. Summers is close-minded. That trait was part of his undoing as Harvard president. From the Financial Times, “Out of His League“:
“He himself is not widely educated,” said Judith Ryan, a professor of German literature. I met Ryan, a 63-year-old Australian who speaks with a mid-Atlantic drawl, in her office near Harvard Square. On her walls were pictures of Rilke and Kafka, watching as Ryan ate a late, rushed lunch of yoghurt and Starbucks coffee. She attended the faculty meeting in University Hall on February 7 and was one of the academics who stepped up to the microphone to criticise Summers.“He is a brilliant economist but not really very curious about how other disciplines function and what is at stake today in those disciplines,” she said. Ryan regularly sat in on tenure meetings with Summers. “He really tends to translate things into economic models and he would start to talk about his impressions of the field. Our visitors were astonished. He would ask the meaning of words that I thought were part of most people’s vocabulary.” “Syntax” was one example, she said….
Ryan also expressed misgivings shared by some of the other professors I spoke to about the pro-science direction Summers was taking the university. “He had a very present-day notion of the aims of education,” she said with a shrug. “He didn’t see the point of studying ancient Greece.”
I have long believed that one of the most valuable traits for people in general, and leaders in particular, is to understand the limits of their knowledge, and to seek out sources and individuals who can help fill those gaps. Summers (and perhaps Geithner, if the Summers imprinting has taken) is of the reverse inclination: he thinks that what he knows has universal relevance. Scary.
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Training in Economics can do that to someone. It did it to me, to be honest. After doing my doctoral work in financial economics, actually at some point during that process, I came to see most things in life as applications of game theory.
What can I say, the theory works. It is a superior tool. (It doesn’t make one understand old German, but it has pretty broad application.)
That doesn’t mean I agree with their approach to the bailout. It would be hard to agree with their approach anyway, since as yet they have not announced one. But so far they have not made blunders, something Krugman pointed out.
I respect Summers anyway. Geithner presumably was appointed because he is weak.