Latest Presidential Polls: Majority in Ohio Trusts Obama to Handle Economy, And Here is Why

Presidential polls for the 2012 election have shown that likely voters in Ohio trust President Obama more than Mitt Romney on how he would handle the economy in a second term. While the results over the past few weeks have been close, with 48% trusting Obama more on the economy vs. 46% trusting Romney, there are very clear reasons why Obama deserves more trust. The auto industry and its impact on the larger economy are at the core.

Imagine the impact on the price of cars if the U.S. auto industry had collapsed. The parts suppliers would have been taken down along with the auto industry. Foreign automakers rely on the same parts makers, and this would have brought them down too.  The entire collapse of the ability to mass produce cars would have led car prices to skyrocket. This is one reason we needed to get this right. President Obama had one shot and brought us through this successfully. Mitt Romney's approach would have failed.    

Mitt Romney’s financing plan for restructuring the auto industry would have failed and taken the economy down with it. The core problem with Romney’s plan was not the nuts and bolts, but the financing source. Romney wanted the automakers to go into bankruptcy and seek private financing to fund the bankruptcy. This approach ignores economic reality, as well as a bigger picture that must be taken into account as the leader of the free world.

Romney wanted to cut costs at the automakers and develop a plan for growth. This is fine.  Someone in an introductory business course would propose that route. His details were OK, but during that restructuring, a business requires the money to keep its factories open and employees in place. This is where outside financing comes in during a bankruptcy.

GM actually has its own major financial company GMAC as well. GMAC competes directly with the major banks who would have been required to finance the 80 billion or so dollars needed to make it through the bankruptcy. Not only was the entire economy in collapse, but the major banks with the capacity to produce that sort of money were collapsing. This was a financial crisis and a credit crunch.

During a credit crunch, Romney proposed getting 80 billion dollars from banks who themselves were taking loans to stay alive. GM is one of the largest companies in the world. The smallest companies in the world could not get financing at that time; that’s why it was called the credit crunch.

Here’s the road map of how money would have gotten to GM through private financing at that time: Citibank, Bank of America, JP Morgan, and perhaps a combination of all the big banks would have had to come together to provide this degree of financing. All were in complete collapse due to their entire mortgage portfolio’s imploding. Lehman Brothers went out of business after more than a century because it could not get overnight loans to meet its obligations. This triggered a more rapid economic panic and things spiralled downwards more quickly.

During this time, the Bush administration bailed out the big banks with $700 billion dollars just to keep them afloat (TARP). The government was providing low interest rapid lending needed to keep the financial system from collapse. AIG, the company that insures loses from banks, was going bankrupt. The U.S. government bailed out AIG so that AIG could send money to banks that relied on the insurance to cover losses.

Private financing on this scale would have meant that money reached GM and Chrysler that came from the U.S. government bailing out the banks and AIG. So, the private money would have been U.S. government money. We would have loaned money to Citibank, who would have loaned money to GM, while money we loaned to AIG was being sent to Citibank. This would have been repeated through all the large banks as the pathway of the “private funding.” Not only would this have been entirely government dollars reaching GM and Chrysler, but it would have been a convoluted and circuitous route.

This approach would have also taken so much time to process that both automakers would have liquidated during that time. That is why it was called the “credit crunch.” Money wasn’t moving at all, let alone quickly enough for 80 billion to reach automakers in a week.

Next, 40 billion of that money did reach the automakers and they burnt it already while Bush was president. So, there was a leadership problem. Banks would have been sending more money to the same leadership. When the President processed the money from the federal government, he was able to make the necessary changes in leadership and slash union workers benefits and costs, which is what was required to turn the companies forwards. The leaders at the automakers at the time had already failed.

Add to that, Mitt Romney proposed private financing with government backing. So, we would have been lending money to the banks, which in reality would not lend money to the auto industry because it was in collapse and paying this back would be highly questionable.  The banks were in collapse, so we were backing the banks. We’d loan the money to the banks to get to the automakers. Then, if the automakers failed, the banks would take the loss and pass it on to the U.S. government, we would send money to the banks even though the money the banks lost was already ours. Not to mention we’d be processing this transaction through six banks and a bankrupt insurance company. Do you see how ridiculously convoluted this process would have become?

The bottom line here: If Mitt Romney’s plan worked, the banks would have kept the profits that were generated using government money. If the plan failed, then the losses would have been sent back to the U.S. government, who would have been expected to guarantee the loan. This very literally is the Bain Capital way. Romney’s millions were earned by privatizing gains and socializing the losses as businesses under his direction failed.   
     
Let me rephrase this one time:Through Romney’s plan, government would have taken all of the risk when “private money,” was used, which in reality was already coming from the federal government. Then, all the benefit to that risk would be kept by the banks. Any losses would be sent back to the taxpayers.

Not only is trying to privately finance the bankruptcy of one of the largest corporations in the world during a credit crunch lunacy, but his plan would have stuck the U.S. government with all the losses anyway.  

Meanwhile, here is the distinction between being commander-in-chief and running a business. The leader of the free world is not concerned solely with the outcome of one business. He is concerned with the economy. If GM had collapsed, it would have taken down millions of jobs with it, it would have nailed the entire parts supplier network, this would have taken down Ford, Honda, Toyota, all the companies that rely on the same suppliers. This would have destroyed all confidence that remained in the U.S. economy and added millions more unemployed while we were already losing 839,000 jobs per month.

In the even larger picture, America and our manufacturing base have always been greatly admired by the world. If President Obama had simply let companies that made up the largest portion of our manufacturing base fail, the worldview of America as standing on a pedestal would have collapsed as well. That enhanced view the world holds of America is what attracts business investment here from around the world. We would have blown that up and America’s leadership in the world would have dramatically diminished.

President Obama successfully led the auto industry turnaround through the only means possible. President Obama’s approach left us with a rapidly expanding auto industry that is now hiring again. In many quarters as GDP (economic output) grew 1.8%, which people considered sluggish, half of that growth came from an expanding auto industry.

Slash the growth rate in half. Add two million more unemployed people. Throw in the ripple effect one of our largest corporations going out of business and the terror it generates.  Then, throw in the loss of America’s standing in the world, and you have the results of Mitt Romney’s plan.

Romney has succeeded sometimes in business, but would have failed as Commander in Chief. This is one more reason I will be voting to give President Barack Obama a second term.