Thursday, March 24, 2011

Ken Langone v. Steve Rattner, George Miller On CNBC This Morning

Home Depot chain co-founder Ken Langone spent two hours as a guest host on CNBC's morning program today. As usual, it was an immensely intriguing episode marked my Langone's candor bursting the fictions being spun by other guests on the program.

The first act was Langone debunking several of the self-serving, misleading statements made by Steve Rattner. I've written about Rattner in a recent post, so I'm not pretending to be neutral about him. But the wonderful thing about this morning's discussion was that Rattner, when finally forced to spin his truth-challenged story to a smart, objective, capable opponent, clearly came off badly.

The reason for Rattner's appearance was apparently some article he wrote in a European publication claiming that his government-run bankruptcy action of GM could provide a template for European nations to follow. Langone began the debate by taking issue with the utility of comparing GM before and after the bankruptcy. Rattner had crowed about various comparative measures, and Langone called attention to the peculiar nature of the bankruptcy. In essence, Langone correctly stated that the process removed senior creditors' rights, removed health care obligations in an unusual fashion, and, generally, was run to the benefit of unions while trampling the rights of legitimate creditors.

Rattner then told his fairy tale of hypotheticals, mixed with lies. For example, he repeated the usual line that 'millions of jobs would have been lost' had the government allowed GM to be liquidated. That was the predominant line used at the time, but, of course, nobody can ever prove it to be true.

Then Rattner told a baldface lie when he claimed that, to paraphrase,

'the only choices were government-assisted restructuring of GM or liquidation.'

That's simply not true. In fact, a conventional bankruptcy would have protected GM while it considered options, such as closing some units, selling others, and, generally, reviewing alternatives prior to total liquidation. Rattner simply denies this, because it's inconvenient for him to admit there was a third, available, conventional, legal option.

Rattner also disingenuously claimed that bondholders had the right to take the company, but refused. That, too, isn't true. What really happened, as news stories of the day will inform, and about which I wrote in some of my GM-labeled posts of the time, was that the government coerced bondholders to take a lower recovery than the unions received. Rattner pretends that bondholders received a fair bankruptcy court hearing, but that's not true. The entire procedure was taken out of the usual bankruptcy channels, and federal power was used to quietly bludgeon bondholders, as they were told the government would arrange a resolution leaving them nothing, or they could take what was on offer. Period.

Because of various fiduciary laws, the various funds holding GM paper had no choice, because the third option, legitimate bankruptcy process according to established law, in an independent court, was not available.

Langone and Rattner then began to elaborate on their points, with Langone repeatedly criticizing the GM bankruptcy as abnormal and wrong, while Rattner continued to claim it saved the US economy and was nothing unusual.

From there, after a few rounds of those statements, the combatants agreed they would not change each others' opinions. Then Rattner, ever the self-interested party, chimed in that he wanted viewers to believe him. No surprise there.

Since Langone is objective, and Rattner is not, it's pretty easy to see who was telling the truth.

Next, George Miller (D-CA) appeared to beat his chest over how great a Congressman he was when his party was in the majority. Specifically, he claimed total responsibility and authorship of the dreaded 'paygo' House rule, lauded every costly piece of liberal legislation passed by the recently-ended Congressional session, and, regarding health care, said he just wanted 'change.'

His exchange with Langone, and others, was less a direct debate than a clear example of big government (Miller) vs. small government (Langone). Miller made it very clear that he had no use for market-based evolution of the health care system. Missing from his self-glorifying patter were some facts. For example, that his vaunted paygo approach was just an excuse to force every new Democratic program to trigger more taxes to pay for it. On health care, rather than mention that his party stiff-armed every Republican amendment and suggestion, he instead claimed that they 'listened to academics' and various other theoreticians, mostly of a liberal stripe. True enough, the bill that passed has already proven to be engendering dozens of unintended, unworkable and undesirable consequences. Exemptions to major coverage requirements already number over a thousand.

Toward the end of the second hour, the networks resident economic moron, Steve Liesman, showed up to spew some more bad thinking and ill-informed verbiage.He drew justifiably heavy fire from Langone, Kernen and Rick Santelli for ignoring the front-line burdens of the recent health care legislation, then moved on to exhibit his complete misunderstanding of a recent Wall Street Journal editorial which ingeniously put the lie to Treasury Secretary Geithner's claim that TARP had 'made money' for taxpayers. The Journal piece provided the broader context of various Fed asset purchases, GSE takeovers, etc., which allowed bank-held structured finance assets to be valued at higher levels than they would have otherwise been, thus allowing them to repay TARP funds. In short, the editorial correctly noted that TARP was simply the named tip of a very large federal iceberg of self-dealing and non-market-based asset valuations calculated to let banks appear solvent and, thus, capable of repaying government funds. Liesman apparently failed to understand the article, gasping and sputtering that the authors, and anyone who believed them, were just ungrateful for the federal government's profitable rescue of the banking system.

It's refreshing to see a principled, reasoned, intelligent host like Langone take on some of the dissembling guests who so routinely appear on CNBC's Squawkbox. Too bad they can't fire Carlos whathisname and replace him with Langone. But I'm sure Langone would decline the offer.

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