Big Think Interview With Steven Rattner
Steven Rattner led the Obama Administration's efforts to restructure the auto industry in 2009 as Counselor to the Secretary of the Treasury, having taken a break from his private investment firm Quadrangle Group, LLC. He has also served as Deputy Chief Executive Officer at Lazard, after having worked at Morgan Stanley and Lehman Brothers. Rattner was also employed by the New York Times for nearly nine years, principally as an economic correspondent prior to working in finance. He is author of "Overhaul: An Insider's Account of the Obama Administration's Emergency Rescue of the Auto Industry."
Question: Why were you offered the position of auto czar?
Steven Rattner: The administration thought this was a restructuring job, not a auto management job, and so they were looking for somebody who had financial skills and restructuring skills, and they also wanted somebody who had a sense of Washington even if they hadn’t worked there in the government, but could deal with the politics and the fact that it’s a public sector job. Many people from business have a hard time when they try to transition to the public sector.
Question: What was the biggest challenge?
Steven Rattner: I think I had thought about most of the challenges, but it was all pretty overwhelming. We were faced with these two companies that were running out of money, that were losing a couple billion dollars a month of cash just to stay alive with no real plan for how to restructure them or how to get them into shape. Perhaps one thing I didn’t fully think through before I got at least close to taking the job was the fact that there were no people to work with. There was no team, there was no auto office, there was no "Department of Autos," there was no nothing. I would have to come in and really build, simultaneously build a team from scratch and also come up with a plan and implement the plan.
And one of the things I probably didn’t fully anticipate was the extent to which politicians from Michigan and other places like that would question my qualifications and kind of be... I’d be getting kind of “friendly fire” if you will, from other parts of the Democratic Party.
Question: How were you vetted?
Steven Rattner: I spent a lot of time talking to my two future bosses, Tim Geithner and Larry Summers. I spent a lot of time talking to friends who had worked in Washington and friends who knew something about autos to try to get a feel for whether this job was doable. But quite frankly, I really didn’t have time to do an awful lot of that because the clock was ticking and the administration was under enormous pressure to do something about these companies. And so I couldn’t, as one might when taking a new job, I couldn’t say, "Well I’m going to go take the next six weeks and really go and think about this." This was a quick decision.
Question: What was public perception of the auto task force?
Steven Rattner: I hope, ultimately, the public perception was of a group of smart, talented professionals who came together, did this job and got out of town. One of my colleagues likened it to "Oceans 11," a group of professionals who come together, pull off a caper, as one of my colleagues like to call it, and then move on. I hope that’s how people feel about us. I think some people, probably people in Michigan, think of us a – still think of us as a bunch of Wall Street guys who came in and tore apart their iconic companies. But frankly, we felt their iconic companies needed tearing apart.
Question: Why save the auto companies?
Steven Rattner: Not to over-dramatize, but also not to mince words, it would have been the economic equivalent of an atomic bomb for the Midwest. You would have seen a million jobs disappear almost immediately; you would have had ripple effects all through service providers and other kinds of businesses that depend on the auto sector for their income. You would have had massive unemployment; you would have had insolvency in states. It’s almost impossible to imagine how big the devastation would have been.
Question: Were auto unions the problem?
Steven Rattner: The union, the UAW, was part of the problem, but it was not all of the problem. Remember that labor is only 7% of the cost of making a car, so even if you reduce 7% to 6%, you’re not dramatically changing the profit equation. Of course, there are the famous healthcare benefits for the retirees and other costs that come with the UAW, but the UAW was not the only problem.
Having said that, the UAW was part of the problem. And we had very direct conversations in which we pointed out that having a system where you got overtime if you worked more than eight hours in a day, even if you work six hours a day for the rest of the week, was not where the world was at today. Having a holiday system where at General Motors, you not only got the 4th of July off, you got the whole week of the 4th of July off, was not where the world was. Having 300 separate job classifications at these companies so that someone who was in charge of turning one screw couldn’t turn another screw, was not where the world was. And to its credit, the UAW understood that. They came in not rolling over for us, not willing to do anything we said, but they understood that their contract was outmoded and needed to be revisited.
Question: Where will the auto industry be in five years?
Steven Rattner: One of the things about automobiles that I did figure out early on, and it gave me some courage about this whole thing, was the fact that nobody’s invented a substitute for the automobile—unlike perhaps newspapers or some other things that we do every day. Automobiles are still going to be bought and you still need to sell something like 15 million cars a year just to keep the fleet from aging. Right now we’re selling between 11 1/2 and 12 million cars a year. At its peak, it was 17, at it’s depth it was 9 1/2. My point is that, car sales are certain to go back to a normalized level of 15, 16, 17 million cars a year. So there’s going to be a vibrant car business in the United States. The question is: "Who’s providing those cars?" Is it the “Detroit Three” as they’re known, is it the Japanese transplants or are the cars going to be imported? And I think we’ve put GM and Chrysler in a position where they can be competitive for that market, and I think Ford is competitive for that market. So five years from now my prediction would be that the Detroit companies still have a very significant share of the market and are doing quite well.
Question: Should the government support the auto industry now?
Steven Rattner: I think by and large, the market should rule. I think government should only intervene in the private sector under extraordinary circumstances. And the reason Rahm Emanuel and the President and Tim Giethner and Larry Summers supported our intervention a year-and-a-half ago we because the private market had failed. There was no capital available to support these companies, even in a bankruptcy. There was just no private financing. And so that’s an appropriate time for government to intervene. But it was made very clear to us by Larry Summers and others that once the restructuring was over, the government needed to get out of the way. And I think that’s the right principle. This country really should remain true to its market principles and I think this was an extraordinary exception to that rule.
Question: Will America get back the $82 billion from automakers?
Steven Rattner: Yes. I believe that the American people will get back the vast preponderance of the $82 billion whether they’ll get back every penny or not, nobody can know. But without getting into the sort of the weeds on this, if you... there are various metrics that you can use to value each piece of the government’s investment in these different companies. And when you add it all up, it gets you very close to $82 billion at the moment. The companies are doing quite well, there are related businesses that we put money into like, GMAC, which is now called Ally, are doing quite well and I believe the government will get, if not every penny of it, very close to all of it back.
Question: What’s the advantage of being an outsider in government?
Steven Rattner: They weren’t necessarily previously dealt with by career politicians, they were previously dealt with most likely by appointed people like myself would have come into a more traditional job and stayed for a longer period of time. The reason why this was done separately was because this was going to be a full-time job for a significant group of people for some period of time. And remember, there were multiple crises going on, there was nobody in one of the traditional jobs in the treasury or in the White House who had the bandwidth to do this. And so there were a number of people like myself who were brought in as kind of special advisors or special helpers to deal with a specific part of the crisis.
Question: Is this a sea change in how government works?
Steven Rattner: No, I think it was an appropriate reaction to an extraordinary set of circumstances. I think by and large, and you see that people like myself now are leaving the government and the more traditional command structure remaining in place. I think it was just a function of... a reflection of the extraordinary circumstances, much the way FDR brought in many special advisors during the Great Depression and in the aftermath. So I think as the economy recovers, we have an infrastructure in the government that’s well-equipped to deal with a more normal set of economic circumstances.
Question: What role has Larry Summers served in the White House?
Steven Rattner: I am the self-appointed President of the Larry Summers fan club. I think Larry Summers is fantastic. I’ve known him for 15-ish years, I’ve worked for him in Washington now and I think there’s nobody I’ve ever encountered with a more interesting mind, a more interesting approach to problems, a willingness to work harder, and more committed to public service. And so I think his stepping down is unfortunate. De Gaulle once said that the graveyards are filled with the bodies of indispensable men—and so nobody is irreplaceable in this world—but he has very, very big shoes to fill. I think its an unfortunate symbol that he stepped down of some people perceive as some kind of shift away from what I would call centrist economics, which I think is the right path for the country, and I think we’ll all be watching closely to see who the President puts in his place and what kind of a message that sends about where the Administration is going. But if they could clone Larry Summers and put him back in that chair, I think it would be a wonderful thing.
Question: Should Tim Geithner stay at his post as Treasury secretary?
Steven Rattner: Tim Geithner is also a terrific public servant and a very smart guy and a clear thinker. There were some rocky early days, not just for him, but for the entire economic team, in large part because the problems were so great that people really were skeptical, I guess, to a degree, about what could be done. But I think Tim has clearly settled into the job, I think he’s found his pace, I think he’s found his voice, and I think he’s emerged as the unquestioned leader of the economic team and he should definitely stay.
Question: Describe President Obama’s leadership style?
Steven Rattner: I found it very much on a par with some of the best CEOs who I have ever worked with. He was decisive when his advisors had differences, he was supportive, when they didn’t have differences, he was willing to spend the time and dig into problems, many of which were not in his normal walk of life, and spend the time that was needed, but he didn’t dawdle over them. He was a decider in the end. And I thought he made all the right decisions and really was determined to get it right. So I’m a big fan of the President.
Question: What surprised you about working in government?
Steven Rattner: I’d spent enough time around Washington and had certainly read and heard enough about Washington that I went in with pretty low expectations about government. I went in assuming this completely impenetrable bureaucracy filled with career people who went home every day at 4:00 and really didn’t care that much. And I was pleasantly surprised.
The power... it is difficult to get the government to move forward. It is a collaborative, consultative type of process and there is a lot of red tape, as there has to be with an organization of that size. But when the government decides to do something, the power it has and the ability to affect a change for the good is extraordinary. We were able to deploy $82 billion into these companies and restructure them fundamentally in a way that we never could have done in the private sector.
And secondly, I would say that contrary to my impression, perhaps, there are many, many talented career people in the government. There are some who go home at 4:00 and who just view it as a way to get a paycheck, but I was really quite amazed at how many career people there were who didn’t get paid overtime, who were never going to be Secretary of the Treasury or President of the United States, who were there until all hours, on weekends, and really committed to doing the best job they could. So I came away with very good feelings about government in general, I came away with less-good feelings about Congress, which I found to be quasi-dysfunctional and as much a part of the problem as part of the solution. And I think that was very disappointing as I got to see that.
Question: Can financial regulation help grow the economy?
Steven Rattner: I don’t think we have any choice but to have financial regulation, better financial regulation, more financial regulation. If we learned anything from the recent crisis, it’s that the financial system is the central nervous system of the economy and of the country. And we cannot allow it to simply run amuck. So, will that mean that the financial sector won’t grow quite as quickly or won’t be quite a profitable? Perhaps. But I think we’ve learned the consequences of, of not having that regulation are way greater than whatever we might sacrifice by having it.
Question: What’s the state of the U.S. economy today?
Steven Rattner: We’ve had not just a recession, but a financial crisis followed by a recession, or accompanied by a recession. And economic historians will tell you that that’s a much more severe form of illness than a sort of run-of-the-mill sort of recession. And therefore the recovery period is longer, it’s harder, and that’s what we’re experiencing now. We are in a recovery, I don’t believe we’re going to have a double-dip recession, but the growth trajectory is definitely on the slow side. And most worrisome, of course, the unemployment rate is just not coming down very fast. And the number of new jobs is just not going up very fast.
I don’t have a magic wand to wave over this problem. I don’t have a silver bullet to fire at it. I think the President’s policies are as good as it gets. I don’t have a better set of policies, particularly when you have to compromise and you have to deal with Congress to move the ball forward. So I think the Federal Reserve has been extremely accommodating and supportive of recovery, and I think we need to give it a little bit of time. I think we need to try to restore confidence in this country so that people will go back to spending money and back to work and companies will start to hire again.
Question: Why leave journalism for investment banking?
Steven Rattner: I had been a journalist for about eight-and-a-half years. I was kind of an accidental journalist; I never really intended to be a journalist. I was fortunate enough to fall into a job at the New York Times when I got out of college, and it was a great experience when you’re in your 20s to see the world and meet interesting people and be involved with interesting issues. But as time went on, I said to myself, you know, "I never really thought about what I wanted to do with my life. I’d like to see what it’s like, in fact, on the other side of the curtain, to see what it’s like actually to be the one doing the deals, not just writing about the deals." And so I decided as kind of an experiment to go try it, thinking I would do it for a couple of years and if it didn’t work out, if I wasn’t any good at it, if I didn’t like it, I could come back to journalism. And I ended up staying 25 years.
Question: What is the state of journalism today?
Steven Rattner: I think journalism today is in a very interesting place. I wrote in my book about some of my grievances being on the other side of the line from the journalists in terms of how I think journalism has changed in the 30 years, roughly, since I was in Washington as a journalist, where I think it has become much more a game of spinning and being spun, much more a game of “gotcha” and I think all of that is part of why the tonality in our society is pretty rough at the moment. I think... I don’t blame journalists for all of it, I don’t blame the government for all of it, but I think there is a shared responsibility that right now isn’t being discharged. And I think there’s been a bit of dumbing down of journalism, I think the whole sound-byte journalism, the blogosphere, the cable, the hyperventilated cable TV journalism, I’m not sure how great any of that is.
But I was just a few minutes ago having a conversation with someone about the other side of the coin, which is, you had this enormous proliferation of journalistic outlets, like Big Think, that didn’t exist, couldn’t exist a few years ago. And so in the course of trying to sell my book, I’ve been interviewed by all kinds of media outlets that didn’t exist and, as I said, couldn’t have existed a few years ago. And in a way, that’s a kind of golden age of journalism, that’s there’s so many more ways not to communicate and learn things. So I certainly wouldn’t hesitate to tell a friend or a child to go into journalism, but I think you really have to pick your spots and know what you’re in for.
Question: Why leave a firm to start your own company?
Steven Rattner: Well my whole career in finance was going from bigger firms to smaller firms, and at each step of the way all I wanted was to be part of a small group of very talented people and every firm I joined got bigger. And so finally I decided starting our own firm would be the next great thing to do. It was a point in time; this was in the year 2000 when it was relatively easy to start of firm. There was a lot of capital; there were a lot of investors around. And there’s no sense of accomplishment like starting a firm or a business, as I’m sure you’re finding, from scratch and watching it succeed and grow and thrive.
Question: What is your advice for entrepreneurs?
Steven Rattner: I think if you want to be an entrepreneur, which is a wonderful thing to aspire to, you have to... there are several things you have to have. First, you have to be completely committed and devoted to that enterprise or project of whatever you take on. It’s not something you do in your spare time; it’s not something to do when you have a couple of other careers. It’s not something to do while you write your first novel. It’s something you've just got to do.
The second thing is, you’ve got to have a very strong constitution. There will be bumps in the road, there will be ups and down. There may well be complete failure. Many entrepreneurial ventures fail. You have to accept that that is part of the game and failure is not the end of life, it’s not the end of the world. And you just have to be willing to roll with the punches and take risks. You have to basically be a risk-taker. Many people spend their entire careers happily in established organizations because they don’t have the tolerance for risk. I frankly never thought I would have the tolerance for risk. I’ve always been part, until we started our firm, of an established, large organization, but having been part of now one startup, I think there’s nothing else quite like it if it works, I could easily imagine myself doing another.
Question: How do you recruit and retain great talent?
Steven Rattner: As you said, finding and recruiting and retaining top talent is the single biggest, most important part of any business. I remember somebody saying on a panel once many years ago, and I’ve never forgotten it, that his principle of his career had always been to work for the best people he could work for and find the best people he could to work for him. And I’ve always tried to do this same thing as well.
And another business leader once said to me, “”A” people hire “A” people and “B” people hire “B” people.” And so I’ve always tried to surround myself with “A” people on the theory that they would hire “A” people. And I’ve always tried to work for “A” people. And in terms of hiring people, it’s really giving people a sense of empowerment, a sense of motivation, a sense of involvement, and of ownership of what they do.
And of course, compensation is not exactly irrelevant either, but I think more than compensation, people really want to feel that they are a part of what they are doing, and that work should be fun. I believe that work should be fun. I would not do a job that I did not think was fun.
Question: Is leadership different in business and government?
Steven Rattner: There are significant differences, and this is where many business people who try to go to Washington, or vice versa, find it frustrating. Business is certainly motivated by one principle objective which is to be, have the enterprise be financially successful and so there is a very clear standard of accomplishment, there’s a very clear metric, there’s a very clear scorecard that everybody follows. And there is kind of a command-and-control organizational structure, which is not to say businesses aren't collegial, but at the end of the day, there is a CEO who can make decisions and move something forward.
Even the President doesn’t have that much authority within his organization. He has to deal with Congress. He has to deal with outside constituencies and with independent agencies. So government by its nature is a much more collaborative, consultative, compromising kind of management style than the private sector. And that’s something that people don’t always appreciate.
When you go into government, you really have to keep in mind the famous saying of "not let the perfect be the enemy of the good." If you can get something done that is positive you can’t torture yourself over the fact that it is not perfect because there are so many cooks in the kitchen when you are in government.
Question: Why are some many people attracted to finance?
Steven Rattner: There’s nothing wrong with finance. It is an honorable profession. I would be happy if my children or friends went into it. It’s an important part of society. Finance is the lubrication that makes the economy work, and there’s nothing at all wrong with it. I do hope and believe that even people who go into finance will keep some balance in their lives, get involved with non-profit, give something back, public service, however they choose to do it. I think there’s more to life than finance and there’s more to life than making money. But there’s nothing wrong with finance and there’s nothing wrong with making money.
I think that the attractiveness of professions waxes and wanes a bit, and finance has been very hot for a while, I don’t think that necessarily will always be so, and I think there are many talented people who are going into other businesses, such as a business like Big Think. I have many talented – I know many talented young people who are trying to make their career as entrepreneurs and startups and interesting companies that could be hugely transformational to the country. So, I don’t despair about it.
Question: What would you do if you were starting your career now?
Steven Rattner: If I were starting my career again, I would go to China. There was a famous newspaper man who, I think Horace Greeley, who once said, “Go West young man,” meaning go to the frontier because that where, in America, the great opportunity was. And that’s how I feel about China. I’ve only been there twice, I think, but I’ve certainly spent time trying to learn about it, meeting with people and it’s a very controversial subject because there are many people who think China is a big Ponzi Scheme or is on an unsustainable course, or this or that. I think China is the real thing. And I think it – I think it is the great future growth story of the world, for the foreseeable future of the countries anyway. And if I was just starting out I my career, whether I be a journalist or a banker or a businessman, or even a government, I would be focused on China.
Recorded September 23, 2010
Interviewed by Victoria Brown
A conversation with the Former Counselor to the Secretary of the Treasury and Lead Auto Advisor.
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