Cars, Kabul and Banks

Thomas L. Friedman has a very good op-ed column in todays New York times where he argue that Obama should focus on the core truth about the problems with the Detroit car makers, The situation in Afghanistan and the banks.

On Detroit his views are:

The auto consultant John Casesa once noted that Detroit's management has gone from visionaries to operators to caretakers. I would say that they have now gone from caretakers to undertakers. If they are ready to bring in some visionaries and totally restructure - inside or outside of bankruptcy - so they can make money selling cars that people will want to buy, then I say help them. I'd hate to see the Detroit auto industry go under. But if all we are doing is prolonging auto undertakers, then we have to let nature take its course.

On Afghanistan

After Detroit, Mr. Obama will be asked to bail out Afghanistan. Watch out. The tide has turned against us there because too many Afghans don't want to buy our politics, or, more precisely, the politics of our ally, the corrupt government of President Hamid Karzai. That is "the thing itself."

The main reason our Iraq bailout - a k a "the surge" - has had a positive effect is because Iraqis voted with their own guns and their own lives, taking on both Al Qaeda and pro-Iranian Shiite militants. Iraq has avoided bankruptcy for the moment - a total meltdown - because enough Iraqis wanted what we were selling: freedom from extremists. That is the thing itself, and right now I'm not seeing enough of that thing in Afghanistan. Beware of a Kabul bailout.

And finally on the banks here argue that only the good banks should be bailed out, as I agree should also be the situation outside of the US.

What to do? The smartest people I know in banking are praying that Obama's Treasury Department will tackle "the thing itself." That is, do a real analysis of what the major banks are worth in a worst-case scenario. Then determine, if, on that basis, they have viable, survivable equity-to-asset ratios.

The problem is not many banks would be solvent in a worst-case scenario. His conclusion is that Obama can choose to the the right thing that will be more painful in the short run, but much better in the long run.

So whether its cars, Kabul or banks, we have to stop wishing for the worlds we want and start dealing with the things themselves. If Obama does, his first year will be excruciatingly painful, but he could have three years after that to be creative. If he doesn't, I fear that cars, Kabul and banks will dog his whole presidency.

Unfortunately the first indication on cars and banks does not really point in the right direction, but hopefully he learns before he takes over in little more than a month.

Full article is here.