Ira Sohn: Rattner’s Sympathy For the Government

After a fusillade of attacks on Washington this afternoon at the Ira Sohn Investment Research Conference, President Obama’s former Car Czar Steve Rattner stepped up to defend many things about government’s response to the financial crisis.

Overall, the administration’s response to the crisis was necessary and appropriate, contends Rattner. TARP, started under Bush, prevented a banking collapse, helped by the stress tests, which restored confidence.

There’s a tremendous amount of pressure in Washington, notes Rattner, and, “I believe the administration should be commended for withstanding that pressure.”

“We had people like Jim Rogers saying the banks should be allowed to go bankrupt, and Joe Stiglitz, who said the banks should be nationalized.”

He throws up a slide on Rick Wagoner, GM’s former CEO, who said a pre-packaged bankruptcy was a “fantasy” and that no one would ever buy a car from a company that went bankrupt.

Moving into discussing the Detroit restructuring, and the perceived favoritism toward labor, Rattner says that labor is a “critical creditor,” and couldn’t be ignored.

“It wasn’t simply a labor-against-capital-bailout,” he argues. In the case of the Chrysler bailout, senior lenders got repaid 30 cents on the dollar, far more than they ever would have gotten in a normal bankruptcy proceeding. Dealers and suppliers to Chrysler recovered 100% of what they were owed.

As for GM, the government has recovered about 80% of it’s $50 billion investment, which is not bad, says Rattner. (One could turn that around, for sure, as a loss of 20%!)

Turning to growth and jobs, Rattner discusses projections by Morgan Stanley last year that were at the time projecting GDP growth of only 2% in Q4. In the end, GDP annualized GDP growth turned out being over 5%, notes Rattner, which he takes as evidence things have been�turning out better than expected.

Rattner turns toward the attitude toward Wall Street. He notes the public approval rating for President Obama is 49%, whereas for Goldman Sachs (GS), it’s just 4%. This has real economic roots, says Rattner, and he proceeds to rattle off statistics on income disparity. “We’ve got to do something about income disparity,” says Rattner.

A loud “Boooo!” burst out in the auditorium on that last remark. To which Rattner replied, “I hope that was a joke.”

Rattner was not uncritical of Washington. There is no appetite in Washington to address the deficit, he contends. We are going to see higher taxes, notes Rattner, with taxes on “carried interest.”

Unlike the industrial sector, where government is largely taking a “hands off” approach and bowing out, Washington, he expects, will stay involved with the financial sector. The whole question of Too Big To Fail has not been resolved, and questions will linger on Wall Street for some time to come.