Don't Let a Crisis Go to Waste

Rahm Emanuel is quoted as saying “You don’t ever want a crisis to go to waste; it’s an opportunity to do important things that you would otherwise avoid.” I subscribe to that philosophy and believe that the economic crisis that we are facing offer some crucial opportunities.  As I have written on the USV blog, we are facing some unprecedented structural changes.  We can either choose to fight those changes and waste a lot of resources in the process, or we can use this crisis to accelerate the changes and use those same resources to buffer the effects of the change.

Let’s start with the US automotive industry.  The idea that had been floated for a while of combining Chrysler with GM and giving government money to the combined entity would be a monumental waste of resources trying to sustain a system that is broken.  Instead, we should use the crisis to force a restructuring of the automotive industry.  What might this look like?  For starters we should cut up GM into a couple smaller and more nimble car companies and move all the pension funding and obligations to a special purpose entity.  As has been pointed out, this could be done using a Chapter 11 filing.  Instead of government money going into the existing morass it could post restructuring go into the two new and lean operating companies to help them become global leaders in fuel efficient and environmentally sound cars.  Now I am not suggesting that this would be easy or make everyone come out ok.  But I believe it will give the US automotive industry a fighting chance, whereas more of the same will not.

Much the same is true for AIG.  The current scheme of pouring more money into AIG as is seems like a great way of incinerating tax payer money.  There is not transparency and we have no real idea where the money is winding up.  In the meantime, AIG’s many sound operating units such as the personal lines insurance business are losing value as customers leave.  Here too a Chapter 11 restructuring seems like the right way to go.  The company is huge and has within it at least a couple of healthy operating companies.  These should be spun off in a restructuring and the loss making CDS unit worked out.

What is annoying is that we have three months of a lame duck administration that does not appear willing to take the truly drastic steps needed.  I very much hope that this crisis does not go to waste as a result.  Incidentally, I believe that successful startups tend to be the ones that don’t waste the inevitable crises.