Months before the 2008 election, I had decided to make it a priority to conduct a thorough, organized transition. The first change of power since 9/11 would be a period of vulnerability, and I felt a responsibility to give my successor the courtesy of a smooth entry into the White House. The transition was overseen by Josh Bolten and one of his deputies, my talented former personal aide Blake Gottesman. They made sure the president-elect and his team received briefings, access to senior members of the administration, and office space in their new departments.
Part of the transition involved economic policy. The financial crisis brought one final decision point: What to do about the reeling American auto industry? The Big Three firms of Ford, Chrysler, and General Motors had been experiencing problems for years. Decades of poor management decisions had saddled automakers with enormous health-care and pension costs. They had been slow to recognize changes in the market. As a result, they had been outcompeted by foreign manufacturers in product and price.
When the economy took a hit, auto sales dropped. Then the freeze in the credit markets stopped almost all car loans. Auto company stocks were battered in the stock market collapse of September and October. Their cash balances dwindled to dangerously low levels. They had little hope of raising new funds in the private markets.
In the fall of 2008, GM CEO Rick Wagoner started pressing for federal help. He warned that GM would fail, and then the other automakers would follow. I didn’t think it was a coincidence that the warnings about bankruptcy came right before the upcoming elections. I refused to make a decision on the auto industry until after the vote.
Six days after the election, I met with President-elect Obama in the Oval Office. Barack was gracious and confident. It seemed he felt the same sense of wonderment I had eight years earlier when Bill Clinton welcomed me to the Oval Office as president-elect. I could also see the sense of responsibility start to envelop him. He asked questions about how I structured my day and organized my staff. We talked about foreign policy, including America’s relationships with China, Saudi Arabia, and other major powers. We also discussed the economy, including the auto companies’ trouble.
With Barack Obama. White House/Eric Draper
Later that week, I sat down for a meeting with my economic team. “I told Barack Obama that I wouldn’t let the automakers fail,” I said. “I won’t dump this mess on him.”
I had opposed Jimmy Carter’s bailout of Chrysler in 1979 and believed strongly that government should stay out of the auto business. Yet the economy was extremely fragile, and my economic advisers had warned that the immediate bankruptcy of the Big Three could cost more than a million jobs, decrease tax revenues by $150 billion, and set back America’s GDP by hundreds of billions of dollars.
Congress had passed a bill offering $25 billion in loans to the auto companies in exchange for making their fleets more fuel-efficient. I hoped we could convince Congress to release those loans immediately, so the companies could survive long enough to give the new president and his team time to address the situation.
My point man on the auto issue was Secretary of Commerce Carlos Gutierrez. Born in Cuba, Carlos had immigrated to Florida as a boy. His parents moved to Mexico, where Carlos took a job driving a delivery truck for Kellogg’s. Twenty-four years later, Carlos became the youngest CEO in that company’s history and the only Latino CEO of a Fortune 500 company. He joined my administration in 2005 and did an outstanding job promoting trade, defending tax relief, and advocating for freedom in Cuba.
Carlos and the team pushed Congress hard to release the auto loans. We made progress in the House, but the Senate wouldn’t budge. The only option left was to loan money from TARP. I told the team I wanted to use the loans as an opportunity to insist that the automakers develop viable business plans. Under the loans’ stringent terms, the companies would have until April 2009 to become fiscally viable and self-sustaining by restructuring their operations, renegotiating labor contracts, and reaching new agreements with bondholders. If they could not meet all those conditions, the loans would be immediately called, forcing bankruptcy.
The deal drew criticism from both sides of the aisle. The head of the autoworkers’ union complained that the conditions were too harsh. Grover Norquist, an influential advocate for fiscal conservatism, wrote me a public letter. It read, “Dear President Bush: No.”
Nobody was more frustrated than I was. While the restrictive short-term loans were better than an outright bailout, it was frustrating to have the automakers’ rescue be my last major economic decision. But with the market not yet functioning, I had to safeguard American workers and families from a widespread collapse. I also had my successor in mind. I decided to treat him the way I would like to have been treated if I were in his position.
One of the best books I read during my presidency was Theodore Rex, Edmund Morris’s biography of Teddy Roosevelt. At one point near the end of his eventful tenure, Roosevelt exclaimed, “I knew there would be a blizzard when I went out.”
I know what he meant. The period between September and December 2008 was the most intense, turbulent, decision-packed stretch since those same months in 2001. Because the crisis arose so late in my administration, I wouldn’t be in the White House to see the impact of most of the decisions I made. Fortunately, by the time I left in January 2009, the measures we had taken had stabilized the financial system. The threat of a systemic collapse had passed. Once-frozen credit markets had begun flowing again. While the world still faced serious economic insecurity, the panic mentality was gone.
The following year brought a mixed picture. The stock market fell during the first two months of 2009 but ended the year up more than 19 percent. As banks rebuilt their balance sheets, they began to redeem government-owned shares. By the fall of 2010, the vast majority of the capital the Treasury injected into banks had been repaid. As the economy regains strength, more of that money will be repaid, plus dividends. A program derided for its costs could potentially end up making money for American taxpayers.
I’ve often reflected on whether we could have seen the financial crisis coming. In some respects, we did. We recognized the danger posed by Fannie and Freddie, and we repeatedly called on Congress to authorize stronger oversight and limit the size of their portfolios. We also understood the need for a new approach to regulation. In early 2008, Hank proposed a blueprint for a modernized regulatory structure that strengthened oversight of the financial sector and gave the government greater authority to wind down failing firms. Yet my administration and the regulators underestimated the extent of the risks taken by Wall Street. The ratings agencies created a false sense of security by blessing shaky assets. Financial firms built up too much leverage and hid some exposure with off–balance sheet accounting. Many new products were so complex that even their creators didn’t fully understand them. For all these reasons, we were blindsided by a financial crisis that had been more than a decade in the making.
One of the questions I’m asked most often is how to avoid another financial crisis. My first answer is that I’m not sure we’re out of the woods on this one yet. Financial institutions around the world are still unwinding their leverage, and governments are saddled with too much debt. To fully recover, the federal government must improve its long-term fiscal position by reducing spending, addressing the unfunded liabilities in Social Security and Medicare, and creating the conditions for the private sector—especially small businesses—to generate new jobs.