Axing CEOS Is Entertaining, But It Doesn't Solve Our Economic Crisis

By Frank Rich, The New York Times. Posted April 6, 2009.

As the banks peddled their risky financial products in countries like Iceland when the American market was saturated, so Wagoner looked to South America and Russia to gobble up the deficient vehicles Americans increasingly rejected. G.M. further emulated Wall Street by creatively finessing its balance sheets, moving its health care liabilities for retirees off its books (into a trust) to cosmetically enhance its appearance of fiscal health. It’s no surprise that members of G.M.’s often-compliant board — also now slated for overhaul by the White House — served as well on boards at Morgan Stanley, Goldman Sachs and SunTrust Banks (another recipient of a multibillion-dollar government bailout).

Perhaps the most illuminating Detroit/Wall Street parallel of all is GMAC, the G.M. financial affiliate whose phantom profits were used to help hedge the parent company’s losses when its share of the car market plummeted. GMAC was yet another outfit that placed risky bets on the housing bubble until it burst, taking G.M.’s bottom line down with it.

As if to confirm that much of our so-called legitimate financial world has been six degrees of separation from Bernie Madoff, GMAC’s chairman was none other than J. Ezra Merkin. In addition to presiding over losses of nearly $8 billion at GMAC, Merkin had a separate investment management business that threw away another $2 billion by feeding other people’s money (including the endowments at N.Y.U. and Yeshiva University) into Madoff’s Ponzi scheme.

Nice as it might be to believe that Wagoner was done in only by his unreconstructed retro faith in antiquated cars and his lethargic management of the various G.M. restructurings, he was part of this larger financial culture. And like bailed-out Wall Street executives, he walked away with a sizable reward for his failure: $23 million. It may not match the takes accrued by non-Detroit tycoons who pocketed profits from the illusory bubble before shareholders and employees were wiped out — Charles Prince and Robert Rubin of Citi, Joseph Cassano of A.I.G., Angelo Mozilo of Countrywide, Stanley O’Neal of Merrill Lynch — but only by that measure is he less culpable than they are.

Those on Wall Street who took the money and ran are beyond the reach of the guillotine. Most of their successors are too new to their jobs to merit beheading; executives like Edward Liddy of A.I.G. and Vikram Pandit of Citi, whatever their previous performance, have been in their current positions only since disaster struck. (This does not apply to Lewis of Bank of America, whose eight-year tenure nearly matches Wagoner’s nine years at the top of G.M.)

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