At Wednesday’s GOP presidential debate in Arizona, Mitt Romney got lucky, and Rick Santorum burrowed himself down a rabbit hole. Santorum’s hare-hunting—he anesthetized the audience with an explanation of earmarks—overshadowed a big Romney weakness: the former Massachusetts governor’s incoherence on bailouts. With an eye toward securing his party’s nomination, Romney should strengthen himself on this topic before the general election.

If there’s one issue “that has unified Democrats and Republicans, and everybody in between,” as President Obama put it in the 2010 State of the Union Address, “it’s that we all hated the bank bailout.” Obama was politically astute to differentiate between the financial bailouts and the auto bailouts, because the public certainly does. Last June, a Wall Street Journal / NBC News poll found potential voters almost perfectly split on whether the Bush and Obama administrations’ “financial assistance and loans” to General Motors and Chrysler were “a good decision” (31 percent) or a “bad decision” (32 percent), or whether it was “too early to tell” (34 percent).

On banks, though, no ambivalence exists. In November 2010, 54 percent of poll respondents said that support for “providing help to banks” was a “major reason to oppose a candidate.” Yet Romney persists in creating the impression that his position is the opposite of everyone else’s. He definitely dislikes auto bailouts. But his stance on financial bailouts is that they should be safe, legal, and rare.

In Wednesday’s debate, Romney explained his opposition to aiding General Motors and Chrysler. He reminded the audience that in 2008, “the three chief executive officers of the three major auto companies got in their private planes and flew to Washington and said, please write us a check. . . . I said, absolutely not.” In contrast, Romney justified his support for bailing out financial firms. “Look, I don’t want to save any Wall Street banks,” he said. “I just don’t want to . . . lose all of our banks.” Romney then switched back to his comfort zone, autos. He said—rightly—that it’s healthy that “we have . . . industries that get in trouble, go through bankruptcy.” He further noted that it would have been “the right course for the auto industry to go through a managed bankruptcy process and then to get help getting out,” after they had “shed the excessive cost . . . put on them by the [unions] and by their own mismanagement.”

The political problem here is obvious. Like Romney, potential voters were outraged when auto executives jetted in to beg Congress for bucks. Unlike Romney, they were also angry when failed financial-industry honchos did much the same thing. By castigating auto-industry executives personally but staying mum on their financial-industry counterparts, Romney appears to favor the Wall Streeters.

Santorum highlighted this discrepancy. Romney, he charged, “supported the folks on Wall Street and bailed out Wall Street, was all for it. And then when it came to the auto workers, the folks in Detroit, he said, no. That . . . is not a consistent, principled position.” Santorum reminded voters of his own opposition to TARP, saying, “I believe in markets, not just when they’re convenient for me.” Such a remark, were it to stick, could devastate Romney. In the fall of 2008, Americans watching financial-industry kingpins screaming for help felt the way Santorum did: that Wall Street thinks only the little people should face the judgment of free markets.

If that’s not bad enough, Romney’s position on the auto industry is marbled with inconsistencies. In the fall of 2008, Romney wrote that “the federal government should provide guarantees for post-bankruptcy financing.” He said the same thing Wednesday, noting that if the auto industries needed help, “the government [could have] provided guarantees and get them back on their feet.” Yet “managed bankruptcy” of the kind Romney describes is pretty much what happened when Obama took office. GM and Chrysler did go bankrupt, using government money to restructure. When it comes down to it, then, Romney’s position—Obama took my suggestion but somehow messed it up—is nearly inscrutable. When you’re advocating “managed bankruptcy,” as Romney did, it’s up to the current “manager” (Obama) how to implement it. In a general election, Obama could suggest that Romney—kind of like John Kerry on Iraq—was against auto bailouts at the same time he was in favor of them.

Yet, Romney can overcome his political mistakes on finance with a sound policy suggestion. He should say to the American people that what’s good for GM should be good for the banks, too. That is, just as the auto companies needed to go into bankruptcy, failed financial firms should, too.

Bankruptcy would have been the only legal way, for example, for government-backed mortgage giants Fannie and Freddie to get out of paying $50 million in lawyers’ fees for failed executives, and it would have been the only legal way for the government to avoid handing out huge bonuses to employees of the failed insurer AIG. Instead, financial firms got exactly what Romney railed against for the auto firms: cash with no strings attached. Romney could pledge to use his knowledge of finance to make sure that never happens again.

Romney could square this promise with his support of TARP. After all, he didn’t cause the mess that made TARP inevitable. It would be a stretch, but Romney could use a better explanation of the financial crisis to excuse his own conflicted thinking on the auto bailouts. He could rightly argue that the only reason the government had to bail out the auto industry was the complete meltdown of the financial system. No private financing was thus available—as it generally is in normal times—to support the companies as they restructured.

Without free markets in finance, Romney could go on to argue, you don’t get free markets in much of anything else, including the car industry. The point is not to bicker about auto bailouts in the past, but to protect the economy when financial firms fail in the future.

Nearly four years ago, as a presidential candidate, Obama also backed TARP. But in July 2010, in signing the Dodd-Frank financial-regulation bill into law, Obama said that the aim was to “put a stop to taxpayer bailouts once and for all.” Americans aren’t so sure that it worked. Last November, 74 percent of people polled said that Obama had “fallen short” in “improving oversight of Wall Street and the banks”—a 20-point jump since the president applied his signature.

If Romney sharpens his thinking, and his message, on free markets and the financial system, he might yet exploit bailouts as a weakness—for Obama.


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