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White House Deputy Chief of Staff Joel Kaplan makes his case for the auto bailout

Thursday, December 11, 2008
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HH: We have to begin with the major economic story of the day, is Detroit going to get a bailout? To discuss that with us comes the Deputy Chief of Staff to George W. Bush, assistant to the President, Joel Kaplan. Mr. Kaplan, welcome back, it’s always a pleasure to have you on the program.

JK: Hey, Hugh, good to be with you.

HH: Fill us in, before I give you my opinion on this, where are we at this hour?

JK: Well, there is legislative text up on the Hill in the House and in the Senate, are looking at it, and they’re trying to figure out whether and when to bring the bill to the floor. And I don’t exactly know exactly when that’s going to happen.

HH: What’s in it that conservatives should like?

JK: Well look, what’s in it is basically a bargain, which says that these auto companies, which have been badly managed and have made deals with their unions, and have made some other bad business decisions, they’re in trouble. They’re on the brink. And right now, given the economic circumstances we’re in, we think an uncontrolled bankruptcy over the next couple of weeks that could result in the loss of a million or more jobs would not be a good thing. So this legislation will allow them to use money that’s already been authorized by the Congress for the auto companies for bridge financing. But all that does is get them into a process where the back end of that process, which is just a couple of months, says that either you’re a financially viable firm with a hard economic definition for what that is, or you’re going into Chapter 11 reorganization. So at the end of the day, under this legislation, you’ll get what conservatives are looking for, which is the companies and their stakeholders, their unions, their creditors, their dealerships, et cetera, they’ll either make the hard decisions under the guidance of this so-called auto czar, or the legislation will have provisions that will essentially force them into Chapter 11 reorganizations because they weren’t willing to make the hard choices. That’s what’s in this bill. We think it strikes the right balance. It’s a very difficult situation, and we think this is the right way to handle it.

HH: There is a car czar provided for, correct?

JK: That’s correct.

HH: And do you have any idea who that would be?

JK: You know, we have ideas about the prototype of that person of very significant stature who would have credibility, and would be someone to be reckoned with that all the stakeholders would understand they need to deal with seriously. But what’s most important, more important than even the credibility of the person is the sticks, the leverage that he comes to the table with as a result of this legislation. Let me just give you one that’s pretty important.

HH: One more follow up on that.

JK: Yeah.

HH: Has anyone been approached by any senior member of the administration about that job yet?

JK: I’m not going to get into personnel discussions. You know, when this legislation passes, obviously we’ll move very quickly. But I’m not going to get into whether anybody’s had any conversations with the private sector individuals.

HH: Now Joel Kaplan, I’m just a little talk show host and it doesn’t much matter to you guys, but I don’t like this deal. It doesn’t have anything in it to make me sing, and I don’t know the name of who the car czar. It’s going to be some obscure guy who once worked in a bank somewhere that you guys think is important enough to do this. I’ve been completely disappointed with the first bailout, the management of it. I haven’t seen anything out of it. So as opposed to my support for the $700 billion, I’m against this, and I’m a GM guy. I come from a GM town. I want something in this deal, something like a 12 ½ % corporate rate for Michigan and Ohio, something that conservatives can at least say at the end of the day we used the moment and the leverage that we had to get something good for the economy long lasting. And frankly, I just don’t see it. Let them go to Chapter 11.

JK: Well, we’ve got some pretty serious concerns, actually, that in the current environment, Chapter 11 is something they’d pass through almost immediately on the way to Chapter 7 liquidation. And we just don’t think that’s a good thing for the economy. We don’t think that’s something, if it can be avoided, that you should try to do. Look, we are conservatives here, we’re free market people, we don’t want to save…we don’t want to be in the business of providing taxpayer funding to these private companies that haven’t made good business decisions. But we don’t think it makes sense in the current economic climate, and with the financial system as vulnerable as it is, to have the kind of uncontrolled bankruptcy that would result if these guys are allowed to go in the next couple of weeks. So there’s a bargain here. We’ll give them enough money to stay alive for a couple of months, but in exchange they’re going to have to make the tough decisions, and we’re going to empower a car czar who’s going to have the leverage and the stick to make them make the tough decisions, or end up right where you described, which is Chapter 11 in a couple of months. Now we’ve got…

HH: But Joel Kaplan, why not get us something like tax reform in Michigan and Ohio? Why not get us something…you’ve got leverage. The Democrats want this, the UAW’s demanding it, the cars…want it. All you guys have to do is ask for something that makes sense to conservatives.

JK: Yeah, you know, to be perfectly honest with you, Hugh, I don’t think that’s feasible or doable in the Congressional climate that we’ve got here. We’d love to see a lower corporate tax rate. We’ve got…these firms are going to go bankrupt in a couple of weeks, potentially, based on their testimony last week and what the analysts say. We’d love to get that. I’m just being honest with you and your listeners, I don’t think that’s doable. We think we’ve got a deal that is doable…

HH: But I don’t think you guys tried…

JK: …and that will get a good result for the firms and for the economy.

HH: But I don’t think you tried to get anything. I honestly don’t. I think you guys went there and accept their assumptions that this is the parameters in which we’re going to negotiate, and you’re passing by an opportunity to use leverage which is huge.

JK: Well, this may be one where we’re going to have to agree to disagree. We think we’ve got the right outcome that strikes a balance of avoiding very significant economic harm to our economy at a time when we’re going to have pretty tough unemployment numbers for the next few months here, and very tough GDP. We think if we can, like I said before, you can avoid that outcome for a couple of months, and try to get a deal that will be the right outcome for the industry, the right outcome for the economy and the country, and we think we’ve got the responsibility to try that.

HH: But what did you ask for that you didn’t get, Joel Kaplan?

JK: You know, I’m not really going to get into the nuts and bolts of the negotiations. What we wanted to get, we got, and that was an ability to use money that’s already been appropriated for these auto companies, that was appropriated last fall for advanced technology. We said you’ve already put that money out there, Congress, why don’t you use it for the purpose of actually bridging these guys to a real competitive viable structure. We won on that.

HH: Joel Kaplan, but you…

JK: We said you’ve got to have, we’ve got to have this czar have teeth so that bankruptcy is the stick on the back end of this negotiation. We got that. So we negotiated hard…

HH: But we don’t know who the czar is.

JK: What’s that?

HH: We don’t know who the czar is, and it comes down to this. Why should we trust you again, meaning the administration, when Hank Paulson promised us TARP, and it didn’t turn out to be what he promised, he didn’t spend the $700 billion dollars, he didn’t appoint anyone that we knew, and it didn’t work out. Why should we trust that the car czar will be other than another grey suit from Wall Street that no one will care about, and we’ll get stuck holding this bag, Joel Kaplan?

JK: Well, I don’t think that’s what you’d get, Hugh, and respectfully, I also don’t accept your premise. What Secretary Paulson and Chairman Bernanke said was we were on the abyss of a financial collapse, the likes of which we hadn’t seen before. And the injection of capital into our financial system has so far averted that collapse. Although we’re in some really tough times, it could be a heck of a lot worse.

HH: Well, it could, but they said they were going to buy distressed assets and they haven’t, and they didn’t do mortgage relief which they promised they would do. The FDIC plan has not been put forward. And so the credibility gap is not between intentions. Everybody likes the President and the administration. You’ve got leverage. But we’re just going to get stuck holding the bag again, saying yeah, go ahead, pass it through. And this time, to me, it’s just gosh, fool me once, bad on you, fool me twice, bad on me.

JK: Well, you know, Hugh, like I said, it sounds like I’m not convincing you, but we think this is the right outcome. We’ve got forty days left in this administration. We want to put in place a mechanism that outlasts this administration and ensures, puts some constraints on how the next Congress and the next administration deals with these companies. We just don’t think it’s realistic to think that the problems that built up over a couple of decades in these companies are going to be fixed in the next couple of weeks, so we want…

HH: Well, as you go back, and I appreciate you taking the time, if you go back, I think you’re going to find out that conservatives are going to swamp the Senators and tell them not to pass it. And so my advice would be to name the car czar in waiting so that people can find out whether or not they like the idea, and number two, go back and get something that will actually help Michigan, like a lower corporate tax rate, and tell the UAW to pound sand, that they’ve got to give us something to work with. It doesn’t have to be a huge concession, just something that demonstrates conservative principles in the middle of hemorrhaging money, something that shows that we still believe that low taxes matter.

JK: Yeah, I think this process is going to result in really significant concessions by the UAW, and you’re going to see labor contracts that are reduced very significantly to be competitive with the foreign manufacturers who have actually done okay here in this country, better than okay. We think that’s what this process does, and we’re going to empower this car czar. If we get this legislation, I think you’ll see somebody in there who does have the stature. I don’t think it’s going to be a grey flannelled suit banker type that you’ve never heard of. But we’ve got to get the legislation first.

HH: Have you got the votes in the Senate?

JK: Well, we’ll see. You know, listen, you’re not the only one who thinks this is a hard problem and has some skepticism. We’re going to work hard to convince people that we’ve got the right plan and the right approach for handling a difficult situation. That’s why I’m talking to you, because I know you’ve got of influential listeners.

HH: Come back again tomorrow. If you want to, come back tomorrow, Joel, and bring us something better. But that’s for coming, we appreciate it.

End of interview.

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