Obama's Auto Odd Couple Tries to Save Detroit

A few weeks after Treasury Secretary Timothy Geithner tapped Wall Street financier Steven Rattner to try and save the U.S. auto industry, Rattner sat down for coffee at a nondescript café in Washington with the man he wanted to be his deputy, Ron Bloom. Both men had spent much of their careers in the universe of high finance, but they came from different planets. Thanks to the success of his dealmaking firm, Quadrangle, Rattner, 56, lives atop New York society in an apartment overlooking Central Park and the Metropolitan Museum of Art. Bloom, who turns 54 today, lived until recently in Pittsburgh and trained as an investment banker so he could help unions negotiate complicated deals, which he has done for the past 15 years as an assistant to the president of the United Steelworkers union.

So there was some understandable tension when the two men sized each other up in January over coffee at their first face-to-face meeting. When Rattner outlined the draconian marching orders Geithner had given him to try to save General Motors and Chrysler, Bloom paused and laid down a marker. He saw the job as a potential capstone in a career spent championing labor interests during years of industrial restructuring. He understood that the situation called for tough medicine for autoworkers. But I also want you to know, Bloom said, that I've dedicated my life to preserving as many American jobs as possible. Rattner, the titan of investment banking, said he wanted the same thing. (See 25 people to blame for the financial crisis.)

America has always debated the primary source of its wealth: capital or labor. And in a way that happens more frequently in literature than in life, Rattner and Bloom are neatly drawn avatars for the opposing sides of that argument. As such, they make a complementary team to resuscitate the moribund automakers. Out of money and out of options, GM and Chrysler can be saved from complete dissolution only by a government effort to reconcile management, workers and creditors to a much-diminished future. If Rattner and Bloom can find common ground, perhaps those dueling interests can too.

Bloom's objectives in undertaking this assignment are fairly easy to see. "He's a true believer, philosophically, with workers," says Gary Hubbard, spokesman for United Steelworkers. "That's a very fundamental part of his own makeup." When Bloom started working for unions after college during the financial downturn of the early 1980s, he concluded that they were not equipped to do the deals they needed to save their jobs. So after Harvard Business School, he set up a shop at the investment bank Lazard Frères that focused on counseling unions in leveraging their collective bargaining power to maximum effect. He pioneered the deals that took retirement and health benefits off company books and protected those benefits for workers.

Rattner's aims are less clear. He started as a reporter at the New York Times in the 1970s and left to begin a successful career as a media-business dealmaker on Wall Street. His lifestyle is the envy of many who have watched his career, which also got its start at Lazard Frères — he has the fancy cars, the Fifth Avenue apartment and homes in Westchester and on Martha's Vineyard. A major Democratic donor, Rattner's brains and ambition have propelled him to the top, but he has made enemies along the way. In a now famous New York magazine profile, his onetime Lazard Frères mentor, Felix Rohatyn (Bill Clinton's ambassador to France), accused Rattner of being a social climber averse to public service and cultural pursuits. Rattner now sits on the board of a variety of charities as well as the Metropolitan Museum of Art.

Whatever their goals, the two men are well positioned to restructure the auto industry. Rattner can tell management and bondholders what they have to live with. Over the course of the past three months, he has come to believe that the bondholders, who have thus far balked at taking GM stock for much of their debt, made a bad investment and should lose all their money, says one person familiar with the President's auto task force. Rattner also took the point in ousting GM chief Rick Wagoner over the weekend. Bloom, for his part, has taken day-to-day leadership in talks between Chrysler and Italian automaker Fiat. His union bona fides have made him the point man with the United Auto Workers union and its chief, Ron Gettelfinger. (See the 50 worst cars of all time.)

Although analysts credit the odd couple for playing tough with all sides, Rattner and Bloom's initial efforts are meeting with only moderate success. The stock market reacted negatively to the government's plan on Monday, with the S&P 500 dropping nearly 3.5% on fears that bankruptcy was inevitable for GM and Chrysler — a fear that the Administration did little to calm. President Obama, in his speech announcing the deal on Monday, tried to put a good face on things, laying out measures to save the companies, soften the blow to autoworkers and encourage auto sales with guaranteed warranties and car-buying tax incentives. But, he said, "these efforts, as essential as they are, are not going to make everything better overnight. There are jobs that won't be saved. There are plants that may not reopen."

The real test of Rattner and Bloom's collaboration is upcoming. Obama, in putting new conditions on any more billions being handed to Detroit, gave Chrysler 30 days to strike a partnership with Fiat and GM 60 days to avoid bankruptcy court. Rattner will have to browbeat intransigent bondholders. Bloom will have to force major benefit cuts on the unions. And both will have to sell management on a radical reordering of their companies, one in which both capital and labor take a serious hit in order to keep the machine running.

http://www.time.com/time/politics/article

Obama in Europe: Facing Four Big Challenges

A European vacation it is not. Over the next week, President Barack Obama will board his plane anew nearly every day so that he can attend individual meetings with at least 17 political leaders from 11 nations and appear at summits and forums in five countries to discuss international economic recovery, national security, cyberthreats and global warming. He will have tea with a Queen (England) and a private chat with a King (Saudi Arabia) and will convene a roundtable with students (Turkey).

At each stage of the trip, whether in a castle or palace, diplomatic opportunity and danger lurk. The White House has prepared for months to ensure that the dozens of events come off without a gaffe, hitch or flub. But even years of planning could not make such events fail-safe. The world is in far too much turmoil, with widespread concern about the economic collapse, unruly voting publics and continued regional instabilities, which are sure to burst into public view. At the same time, Obama's central policy proposals, which include a significant expansion of the military effort in Afghanistan and major new deficit spending by wealthy countries, have encountered resistance from his counterparts around the world. Here is a look at four of the biggest challenges facing Obama as he heads overseas on his first major foreign trip, and how he plans to handle them. (Read "The G-20 Summit: Can This Group Save the World Economy?")

Stimulus Spending
As an economic theory, the concept is widely accepted: When consumer and corporate spending collapses, government should increase its spending to prevent a downward economic spiral. The real controversy comes with the next questions: Which government, and by how much? Economists at the International Monetary Fund have recommended globally coordinated stimulus spending of about 2% of GDP to counteract the recession. But so far, that challenge has only been accepted to varying degrees. As a group, European countries, including members of the G-20 like France and Germany, have proposed lower rates of stimulus spending, both this year and next, raising concerns at the White House.

In recent weeks, Obama and his advisers have made clear that much of the rest of the world will have to step up to the plate, especially in 2010, if the economic downturn continues. "We don't want a situation in which some countries are making extraordinary efforts and other countries aren't, with the hope that somehow the countries that are making those important steps lift everybody up," Obama said last week, in a prime-time press conference. But so far, European leaders have resisted the call for more stimulus. German Chancellor Angela Merkel has said she does not want to be bogged down by "artificial discussions" of fiscal stimulus, and like many of her peers would prefer to focus on fashioning a new regulatory structure to make sure the excesses and abuses that precipitated the crisis don't threaten the global financial system again. Other European leaders have also voiced skepticism over new discretionary-spending plans, arguing in part that the social safety net in Europe will automatically increase spending to handle much of the downturn.

Rather than confront this conflict head-on, both the Obama Administration and European leaders have agreed to effectively dodge the issue for now by adopting language, in a draft communiqué, that pledges all nations to take "whatever action is necessary until growth is restored." At the same time, White House aides have been arguing in recent weeks that the glass is half full, and that the real test will come only if a second round of stimulus efforts is needed. "There's been an unprecedented coming together around stimulating the global economy," says Michael Froman, one of Obama's top international economic advisers. In other words, the battle over the size of economic stimulus will be mostly fought later, when economists have a better handle on the state of the economy and how much additional stimulus is needed.

Help for the Afghanistan Surge
Obama's new plan for winning the war in Afghanistan and Pakistan is sweeping and resource-intensive, and it cannot be accomplished by the U.S. alone. "As America does more, we will ask others to join us in doing their part," Obama announced last week. "From our partners and NATO allies, we will seek not simply troops but rather clearly defined capabilities: supporting the Afghan elections, training Afghan security forces, a greater civilian commitment to the Afghan people."

The details of the commitments sought by Obama have not yet been announced publicly, though Obama's team has been working closely with many allies, both in Europe and beyond, to request specific aid. "We are making very specific asks," said Michelle Flournoy, an Under Secretary of Defense for Policy, who has been working on the Afghanistan plan. Obama plans to make a public pitch for international aid both at the NATO summit in Strasbourg on Friday and at the European Union summit in Prague on Saturday.

Perhaps to head off any potential confrontations, the White House has not said that it expects any firm commitments in the coming week. On Saturday, Denis McDonough, one of Obama's national-security advisers, acknowledged the issue directly. "The challenge that we face is working closely with our friends and allies to underscore where we think we have shared challenges and where we address shared threats," he said. "And so that's obviously going to be an issue we discuss with our NATO allies."

Getting the Small Things Right
Sometimes in diplomacy, the small things matter the most. In early March, Secretary of State Hillary Clinton handed her Russian counterpart a "reset" button intended to symbolize the U.S. desire to "reset our relationship." Russian Foreign Minister Sergei Lavrov looked at the gift and smiled. "You got it wrong," he said in perfect English. On the button was "peregruzka," which means overcharge or overload. Oops. Just days earlier, British Prime Minister Gordon Brown had visited the White House bearing rarefied gifts: a first-edition biography of Winston Churchill and a penholder carved from the timbers of the H.M.S. Gannet. Obama responded by giving Brown a set of Hollywood-movie DVDs, sparking outrage in the British press, which took the mass-produced gift as evidence that Obama "dislikes Britain." (Only later did Brown discover that the DVDs did not even work on British formatted DVD players, yielding another round of public recriminations in England.)

Two times is a coincidence, but three times makes a trend, so Obama will have to be careful about his gift-giving in Europe. On Saturday, White House spokesman Robert Gibbs declined a British reporter's request to disclose the gift the President will give to Queen Elizabeth II. "We don't want to give away all of our good news," said Gibbs, raising the stakes even higher. Indeed gifts are not the only petty detail that can soil an international relationship. The British press has also harped on the fact that Obama once referred to the "special partnership" between Britain and the U.S., instead of the traditional evocation of the "special relationship." Such granular details manage to exhaust some on Obama's staff. "I continue to be mystified about the difference between the two words," says Gibbs.

The Star Factor
At the moment, the world is roiled, leaders are nervous, and everyone wants a piece of the media magnet that is Barack Obama. That means the White House is expecting all kinds of posturing in and around the meetings with Obama for domestic consumption in various nations. Will Russian leader Dmitri Medvedev use the meeting to highlight the U.S. role in the financial collapse? Will Chinese President Hu Jintao bring up the proposal for a new international currency to supplant the U.S. dollar? Will Mirek Topolanek, the recently displaced Prime Minister of the Czech Republic, renew his rhetoric about the "road to hell" that Obama's economic policies present when they meet in Prague?

Several European leaders who will host Obama are likely to use their meetings with the U.S. President to smooth the political waters at home. In Britain, amid rising unemployment, Brown faces daunting approval ratings and new elections in just over a year. In Germany, Angela Merkel's governing coalition is coming under increasing strain, with elections just six months away. And then there are the street protesters who will be vying for the spotlight. Large protests — against everything from capitalism to the structure of bank bailouts — are planned for both London and Strasbourg.

Although Obama can't control all the people who will be riding his public profile, his team has planned a series of events at which the President can deliver his message directly to the world public. In Strasbourg on Friday, he will host a town hall, "taking some questions from students from throughout Europe and discussing the transatlantic alliance," according to an aide. In Turkey, Obama will host a "new media" roundtable discussion with young people from Europe and Southeast Asia. The hope of the Administration is that despite the various distractions, Obama will be able to maintain message control, something he showed a talent for during last year's presidential campaign.

http://www.time.com/time/politics/article