Paulson didn't believe GM would fail........

[TonyV]

Last Updated: February 01. 2010 8:47PM
Paulson didn't believe GM would fail, refused to meet with exec
David Shepardson / Detroit News Washington Bureau

Washington -- Former Treasury Secretary Henry Paulson repeatedly refused to meet with General Motors chief executive Rick Wagoner -- and then didn't believe him when he warned the company could collapse by Nov. 7, 2008.

In a new memoir published today by Business Plus books, "On The Brink: Inside the Race to Stop the Collapse of the Global Financial System," Paulson recounts the Bush administration's deep reluctance to save Detroit automakers.

For President George W. Bush, who ultimately saved GM and Chrysler with $17.4 billion in the final days of his term, "an auto bailout was a difficult pill to swallow," Paulson wrote. "He disliked bailouts, and he disdained Detroit for not making cars people wanted to buy."

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Bush had told the Wall Street Journal in 2006 that U.S. automakers needed to make "a product that's relevant."

GM starting seeking cash in the fall, Paulson writes.

On Oct. 13, Paulson and aides met with Wagoner and two GM board members -- but only reluctantly.

"Rick had been calling me, trying to set up a meeting for some time, but I had declined to so," Paulson wrote, insisting that the $700 billion Troubled Asset Relief Program should not be used to bail out automakers.

At the meeting, Wagoner warned that GM faced a "bank-like run from creditors and suppliers who had not been paid on a timely basis."

Wagoner said GM needed $10 billion: a $5 billion loan and a $5 billion line of credit. "We need a bridge loan to avoid disaster and we need it quickly," Wagoner said, according to Paulson. "I don't believe we can make it past Nov. 7 (Election Day)."

But Paulson didn't believe Wagoner.

"He and his team may have sincerely believed this, but I knew better. I worked with companies like GM long enough to know that they did not die quickly," he wrote.

Instead, Paulson told Wagoner to work with Commerce Secretary Carlos Gutierrez about getting help elsewhere.

"I was loath to do anything that might appear to reflect politics," Paulson said.

Wagoner has declined to comment through a spokesman since being fired by the Obama administration in March 2009. GM, which emerged from bankruptcy in July under government ownership, said it was looking forward.

"We haven't much time to read these days. All of our energy is directed forward and delivering the business results to generate what we hope are a series of books about GM's comeback," GM spokesman Greg Martin said.

Chrysler, which also received a bailout, declined comment.

Paulson wrote that House Speaker Nancy Pelosi initially opposed rescuing GM and Chrysler. But she changed her mind.

Pelosi "told me point blank that it was politically impossible to rescue Citi and not help the automakers," Paulson said.

Pelosi wanted Paulson "to fall on my sword by using TARP money for a very politically unpopular act:" saving the automakers.

Pelosi spokesman Drew Hammill clarified that the speaker in late 2008 was opposed to using the $25 billion Energy Department retooling fund to rescue automakers -- not to the idea of rescuing automakers using other government funds.

But by late November, Paulson knew that GM needed money. "We all understood that GM would file for bankruptcy by year-end if it didn't get financial assistance," he wrote.

On Nov. 30, Paulson says he met with incoming Obama officials seeking a deal to save the autos, but to no avail.

GM and Chrysler went to Congress seeking a rescue, winning House passage of funding. But Dec. 11, the effort collapsed when the Senate failed to act.

Earlier that day, over a lunch of carrots, apples and hotdogs, Bush listened to the case for rescuing Detroit, without explicitly saying yes. But he agreed by the next morning to issue a statement saying he would consider using TARP money to rescue GM and Chrysler.

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