US SecTreas Timothy Geithner quickly got out of DC for the Monday curtain call of the artist now known as Government Motors. Geithner went as far as Beijing to distance himself from the performance. Keeping a distance didn’t mean keeping his mouth shut. From Chrysler and GM, “we want a quick, clean exit as soon as conditions permit,” Geithner told students at Peking University in Beijing. Reuters took notes. “We’re very optimistic these firms will emerge from restructuring without further government assistance.” Strangely, everybody shares his optimism . . .
Back home, Geithner’s subalterns at the Presidential Task Force on Automobiles (PTFOA) are digging in for the long haul. To paraphrase Richard Nixon, we’ll have the twenty-five member team (plus assistants) to kick around some more.
It’s not like they need the money; Bloomberg reports that PTFOA bureaucrat-in-chief Steve Rattner is worth some $188m. He’s in it to win it—now that he’s divested shares in Cerberus (Chrysler’s soon-to-ex-owners) and “sold guarantees of as much as $15 million on a credit-default swaps index tied to the secured debt of 100 companies, including General Motors Corp.’s senior secured loans, the filing shows.”
Reuters reports Steve-O will continue to earn his bankruptcy proof government pension “even if General Motors Corp and Chrysler LLC emerge swiftly from bankruptcy this summer.” That’s because “the Obama administration’s autos task force will stay in business—shifting to an investment manager role.” According to the principles laid out in Washington, the US government “will seek to dispose of its ownership stakes as soon as practicable.”
Someone should. Not that the Obama administration isn’t trying. The Washington Post reports that following that infusion, the US Treasury “does not believe or anticipate that any additional assistance to GM will be required,” a senior administration official said Sunday night, calling the restructuring a ‘permanent’ solution.” Final answer?
According to Reuters, one of Geithners officials “declined to project when this would be or how much of the $50 billion in aid extended to GM will be recouped. The restructuring plan was aimed at ‘maximizing taxpayer proceeds’ by ensuring that GM could be profitable even if conditions in the industry remain difficult for years to come.”
Not realizing how deep the foot was in his mouth, Geithner went on to reassure the students and the Chinese government that China’s huge holdings of dollar assets are safe and that he has deep faith in a strong US currency.
“Chinese assets are very safe,” declared Geithner at the Beijing University, where he studied Chinese in 1982.
This time, loud laughter erupted from the student audience. They clearly didn’t buy this one. On the first day of Geithner’s visit to China, China Daily reported that seventeen out of 23 economists in China said they deemed the country’s vast holdings of US bonds “risky.” China Daily is a well-written, and occasionally entertaining government publication. Ever so politely, Geithner is being told that the Chinese government doesn’t share his convictions.
The market didn’t buy Geithner’s faith-based valuations either. The same day he praised the strong dollar in Beijing, the greenback plummeted against world currencies. At the time of this typing, one Euro buys $1.42. The dollar hasn’t been so cheap since last December.
As China sees its dollars getting ravaged by consumption with a different meaning (pulmonary phthisis), Geithner treaded carefully when it came to the Chinese currency. All he said was that it would be nice if China would “continue progress toward a more flexible exchange rate regime.” That remark was ignored as politely as it was made.
Meanwhile, Geithner tries not to be reminded of his major achievement when he had studied in Beijing. He helped organize an international badminton league among his fellow Beijing students, which included participants from Sierra Leone, Iran and North Korea, as the website of his alma mater can’t help to note.
Whether or not Chrysler and GM’s future (or lack thereof) forms a lasting part of Tim Geithner’s legacy is not in doubt. The question: what sort of reputation will be “enjoy?” Will his intervention make things better or worse? The early signals aren’t good. But they never are. And May’s American sales results are headed our way on the same day as GM’s filing. As the old joke goes, it’s always darkest before total black.
Then again, as Market Watch reminds us, “even if all 120,000 GM workers lost their jobs tomorrow, it’d be less than the daily average of 156,000 jobs that have been lost over the past three months.”
Further, “The lost production at Chrysler and GM will reduce gross domestic product by about 0.7 percentage points in the second quarter, not a ‘dramatic’ effect, said Abiel Reinhart, an economist for JPMorgan Chase Bank. Falling auto production cut 1.4 percentage points in the first quarter.’”
So, no matter what happens at Chrysler or GM, Geithner can always claim that a sinking tide lowers all boats. How great is that?