I've been amused by all the outrage over the government's recent actions related to the AIG bonuses and now its apparent role in the resignation of Rick Wagoner at GM. Tonight on the news networks there are various people being interviewed, expressing indignity over the possibility that the White House had made Wagoner's resignation a criteria for another bailout.
GM has a current market cap of slightly north of $2 billion. Taxpayers recently put $13 billion into GM and are on the verge of providing another $12 billion in loans to the troubled automaker.
Last week there was similar feigned outrage by many that the government would try to restructure or otherwise limit the bonuses that had been awarded by AIG. "If the government fails to meet contractual obligations, it will lose the confidence of everyone" was the party line for many big-business conservatives and many on Wall Street. This after putting more than $150 billion into a company which could today be bought outright for less than $3 billion.
If it weren't so difficult politically, the right thing for the government to do might have been to purchase GM and AIG outright; combined it would cost about $5 billion (less, if it had been done a while ago). But true nationalization is not politically tenable, at least for now.
But let's pretend for a moment that, rather than the White House, it was a private equity firm doing the acquisitions. Let's call them WH Partners LLC. Would there be any cries from either side about the aggressive actions WH Partners was taking?
Hmmm. Let's start with GM. Once WH Partners wrote the check and closed the deal, would anyone suggest they had no right to install their own CEO? Did anyone make that argument when Cerberus put Nardelli in charge of Chrysler? While some questioned whether he was the right guy, I don't recall anyone saying Cerberus had no right to make the change.
Now, let's take a look at AIG and whether the government might have had the right to change the terms of the retention bonuses. Well, in the private sector, that happens all the time. Many of the firms who complained that this would be unfair are the same firms which have done advisory work that allows, for example, Company A to do an asset acquisition of Company B which would avoid it having to pay out retiree benefits (the Halliburton acquisition of Dresser Industries is one such case that I recall). Now, I'm not suggesting that WH Partners should, in this case, strike the bonus deals outright, but I might encourage them to restructure the deal to reflect the current situation. Perhaps instead of a lump-sum bonus, the bonus might be paid over a multi-year period and be tied to specific performance goals.
Look, no one wants the federal government to be making hiring decisions nor to set compensation plans for the private sector. But when failed companies seem unwilling to make changes themselves and turn to the government for bailouts, they should expect a bit of oversight to come with the check. And I for one am happy to see this administration place at least some controls on the companies we're bailing out.
What do you think?
