3. MR. RATTNER GOES TO WASHINGTON

MY CAR FROM Washington's Reagan National Airport pulled up in front of a nondescript building on 6th Street NW where only the guards and temporary concrete barriers announced the presence of something unusual—the transition headquarters of the President-elect. Inside, Barack Obama, yet to be inaugurated, was preparing to take on America's biggest economic crisis since the Depression.

Although stepping across this threshold marked my physical entrance into political life, the hard knocks had started well before I got off the plane. Behind the scenes I was already under fire from Senator Deborah Stabenow and others from Michigan's congressional delegation—members of my own party!—who had heard of my appointment and didn't feel I had sufficient knowledge of the auto industry to help Detroit stay open for business. Perhaps my new bosses or I should have anticipated it, but we'd been preoccupied with trying to get under way amid the seeming free fall all around us. For me, the friendly fire only added to my terror about going in to lead a team that didn't yet exist on what gave every appearance of being a political and economic suicide mission.

For better or worse, history in this administration was going to be made at an accelerated pace. I could not help but imagine a disturbing scene set six months or so in the future in which President Obama, a man I admired, would have to face cameras and reporters and a lot of angry people and explain what had gone wrong: on his watch, two major automakers—iconic companies long among the largest and most important in the United States—had closed their showrooms, fired their workers, and shuttered their plants. The manufacturing sector was in turmoil. The state of Michigan was insolvent. A million or so people had been added to the unemployment rolls. The economy had received a terrible shock and was spiraling rapidly toward depression. And though I was in the background, I knew that the eyes of the President and his key advisers would be on me, because the job of my team had been to find a way to prevent this, and we had failed.

No realist could have avoided such forebodings. Chrysler and GM, both on the brink of failure, had been propped up by emergency government loans. The week after his election, in Chicago, at Obama's first substantive sit-down with his economic advisers, it was conceded that no situation on the economic front appeared thornier than the one I had been recruited to manage.

Obama had asked, "Is there any way these guys are going to avoid bankruptcy?"

"Unlikely," he was told.

"Why can't they make a Corolla?"

"We wish we knew," replied his advisers.

We would have very little time. The $17 billion in TARP funds provided by the Bush administration was draining away fast. Doubts were widespread that the automakers, required to submit "viability plans" on February 17, would make a sound case for more help.

Quite possibly ahead of us was, despite the best efforts of many, the implosion of an industry once synonymous with American ingenuity—at a moment of great vulnerability for the nation and for a new president who was inheriting a war being waged, not in Iraq or Afghanistan, but in the U.S. economy, where all the casualties were here at home.

As I hurried through the mid-January chill to transition headquarters, Secret Service agents stood guard near x-ray machines and scanners behind bulletproof glass. Upstairs, in a corner of the eighth floor, the President-elect's economic team was crammed into a half-dozen rooms. Tim Geithner and Larry Summers had offices the size of those of vice presidents at my old firm, with their names printed out on 8½-by-11 paper and taped to their doors. Obama himself occupied a space a short hallway—and a few more Secret Service agents—away.

Messy piles of paper and a mountain of leftover coffee cups testified to the transition team's long hours, but the mood was not despairing. Although the situation Obama had inherited was frightening, his victory represented a mandate for change, and change the incoming administration was determined to effect. Fixing the problems that threatened to add the Detroit automakers to the junk heap of old American dreams was very much on its to-do list. In this crisis atmosphere, the normal pomp of government was, at least at this informal moment, a quaint notion: incoming cabinet secretaries labored side by side with interns. Meetings gathered spontaneously in cramped corners. Rahm Emanuel strode the halls like a military commander.

I still faced vetting, but we needed to plan for the days ahead. With many still questioning the young President's readiness for his new assignment, the public had to perceive Obama as being on top of the challenges. Unemployment was soaring. Another new disaster on Wall Street could easily occur. For GM and Chrysler, there was the difficult, controversial question of bankruptcy, the course that most of us considered obvious, but scary to think about. No one had ever taken industrial companies of this size and complexity through bankruptcy before.

With nearly $100 billion in assets, GM alone was larger than all the U.S. airlines that had gone bankrupt in the past fifteen years, combined. And while automakers and airlines both depend on consumers, the automakers need their long-term goodwill more than any airline does. A passenger's contract ends at her destination gate. But when you buy a new car, you want to be able to count on years of warranty coverage, and to feel confident that you can eventually sell or trade in the car for a reasonable price. We could find no precedent for a company selling a product like autos keeping its customers in bankruptcy. If car buyers were to abandon Chrysler and GM, all the money in TARP would not be enough to rescue them.

What was more, with autos, the new administration was starting from scratch. On the case were two extremely diligent generalists who had been scrambling since the election to get up to speed on Detroit. They were Josh Steiner, my partner at Quadrangle, and a public-policy maven named Brian Deese. I'd worked with Josh for years but scarcely knew Brian. In the coming months, I'd end up spending more time with him than with my wife.

Young and enthusiastic, Brian was a Boston-area native and a Middlebury College graduate, with a major in politics, a minor in economics, and a radio show called Bedknobs and Broomsticks. He'd done stints at several think tanks and completed most of three years at Yale Law before dropping out for the Obama campaign. (At Larry's affectionate insistence, he would finish his law degree in August 2009.) After Obama won, he'd loaded his dog into his car and headed for Chicago, where he landed a spot on the transition team. (Brian's closest encounter with automaking had been sleeping in the car in the parking lot of an Ohio Pontiac plant.) A rising star, he would later be dubbed by the New York Times "The 31-Year-Old in Charge of Dismantling GM."

The economic meeting with Obama in Chicago at which the auto situation was reviewed had been scary for Brian. "This is basically just darkness," he sat there thinking.

Steiner and Deese had kept Obama and his top lieutenants informed as the Bush bailout took shape. The "one President at a time" policy limited their ability to make inquiries, but they'd picked the brains of members of the transition team who had restructuring experience, including Paul Volcker, who, twenty-nine years earlier, as chairman of the Fed, had been involved in the first Chrysler bailout. They'd quickly come to the same conclusion as the Bush administration, that a disorderly failure and liquidation of GM and Chrysler would be a terrible economic blow.

Steiner's and Deese's work also involved getting themselves and the President-elect's team briefed on the problems dogging the Big Three: the suffocating liabilities, excessive labor costs, overly large dealer networks, underused assembly plants, and on and on. In December, Deese had worked behind the scenes to try to help the Senate's last-ditch effort to craft an auto rescue, spreading the word that neither the Senate Democrats nor the UAW should expect the Obama administration to be a soft touch on labor matters. And they did succeed in influencing a key aspect of the Bush administration bailout—the replacement of Kaplan's idea of an independent car czar with that of a "President's designee" who would report within the normal executive-branch chain of command. Since the bailout was now part of TARP, the Treasury Department would be the official home of the Auto Task Force.

For help with financial modeling during those hectic weeks, Steiner and Deese had enlisted a thirty-one-year-old investment analyst, Brian Osias, who, despite a job on Wall Street, had volunteered his "spare time." The work pattern that emerged foreshadowed the crazy hours of our task force. At the end of a typical day, Josh and the two Brians would consult around 8 P.M., then the Brians continued with discussions late into the night. Next, Osias would hit the computer as Deese slept until 5 A.M., checking in with Osias upon rising. Then it was Osias's turn to nap—until he had to go to his office. The trio would talk on the phone again at 10 A.M.

Unfortunately for me, the notion of a car czar had taken hold in the popular imagination and in the media. After GM and Chrysler had received their initial loans at the turn of the year, attention shifted to the question of who would run the auto team. Josh Steiner, tired of juggling two jobs, was nudging Tim and Larry to replace him so he could turn his full attention back to Quadrangle. Deese was often the only one available to take calls from stakeholders in the auto world. "It was a little scary," he later admitted to the New York Times.

Amid the media and stakeholder frenzy, I shouldn't have been surprised that word of my acceptance on January 7 leaked almost immediately, though I'd hoped to keep the news confidential until I could inform my partners and our investors. But within a few hours, Senator Chuck Schumer called to congratulate me. How had he heard so quickly? "From Larry!"

Less than twenty-four hours later, Jake Tapper of ABC News posted a report on his website. For me, this was a potential disaster. My eighty-five Quadrangle colleagues had just been blindsided, not to mention more than one hundred investors in our private-equity funds, whom I had hoped to inform of my departure. Dismayed, I called Larry, who—to my amusement—wondered aloud whether the problem had arisen "from your end or our end."

Soon all hell broke loose. The first to take a swing at me was Bill Ford, the Ford Motor scion and ex-CEO whose company was not even on the federal dole. "It would be really helpful to have somebody in there who would take the time to have a deep understanding of our industry," he told reporters at the annual Detroit auto show. Ron Gettelfinger was quoted in the Wall Street Journal saying that the government should appoint someone who "knows something about the auto industry" rather than a Wall Street guy.

Politicians piled on. Michigan's two senators questioned my lack of knowledge of manufacturing and, in particular, autos. Why should they believe that a Wall Street guy who hadn't been to Detroit in three decades could handle an emergency that might wreck their state? As scared as I was, I agreed with Tim's and Larry's instincts in picking me for this assignment. This was not a managerial job; it was a restructuring and private equity assignment. And while I was not a classic restructuring guy, I had been through a number of bankruptcies. I certainly considered myself a qualified private equity investor. Equally important, I had been around the political arena for many decades, the kind of experience that Larry and Tim correctly deemed important. Others were kinder about my appointment, including Hillary Clinton, who sent me a BlackBerry message during her confirmation hearings for secretary of state: "Anything I can do to help?"

I quickly had my first taste of the popular parlor game of impugning the integrity of government officials, often without regard to facts. On January 9, the New York Post claimed that my appointment was being held up because of a suspicious link between Quadrangle and Cerberus, the owner of Chrysler. There was nothing suspicious: Cerberus had loaned money to a struggling portfolio company of ours that owned Maxim magazine. Later, in lieu of payment, Quadrangle had decided simply to give the company to Cerberus, which resolved the matter.

Yet, to my distress, the mainstream media picked up the tabloid report without independent verification. Ultimately, when my government vetters questioned me on the matter, they dismissed it as a nonissue.

What was I getting into?

Without question, I had a great deal to master. Deese shared with me the work that he, Brian Osias, and Josh had produced, and I began to read everything, from auto industry research reports to books about the history of the Detroit Three. But the only material we had from the Bush period were term sheets for the Chrysler and GM loans. Except for one of Hank Paulson's advisers who had stayed on to help Tim, we would, unfortunately, never meet with or speak to any of the Bush team.

***

Brian Deese greeted me on that first visit to transition headquarters. He looked as young as I'd expected from having spoken with him on the phone, and wore a workaday suit and tie and had a scruffy beard. Remarkably poised and exceptionally intelligent, he reminded me of the White House staffers I'd known as a reporter covering the Carter administration—talented politics-and-policy types who had always dreamed of passing through the White House gates each morning to work for the President.

Brian and I settled into a small empty office, a few doors away from Tim and Larry, and began discussing the daunting questions. How should we define success? Was bankruptcy a realistic option for GM? Could Chrysler be a viable company? What did "competitive" labor costs mean? What was the most efficient and productive way to assemble an effective team, including outside consultants?

So much was on the table that not all of it immediately penetrated my consciousness. It would be days before I realized that the problems of the auto finance companies, GMAC and Chrysler Financial, were as great as those of the automakers. No solutions to the automakers' problems could occur without a sustainable restructuring of the finance companies as well.

Around noontime, I sat with Tim Geithner as he munched what looked like a tuna fish wrap. I later learned that in the course of the morning he had received word that the Senate Finance Committee was in an uproar about his neglecting to pay Social Security and Medicare taxes earlier in his career. Yet I detected no sign of distress.

This stoicism helped me see why the President-elect had chosen Geithner in the first place. Obama's options for Treasury secretary had been quite limited. Essentially, only Larry and Tim had the necessary government experience, along with the credibility vital in the financial world. Obama could have recruited a leading business figure, but the record of CEOs at Treasury was mixed at best, as evinced by the forgettable performances of Hank Paulson's predecessors, Paul O'Neill and John Snow. Meanwhile, choosing another Treasury secretary from Wall Street, like Hank Paulson, was politically out of the question after the financial meltdown. As head of the Federal Reserve Bank of New York, Tim had facilitated the bailouts of AIG and the banks and helped to prevent a systemic collapse. That had earned him Wall Street support, even though he was neither an economist nor a financier.

I had long heard great things about Tim and knew he had spent most of his career in public service and that he was almost indifferent to the creature comforts prized by Wall Streeters like myself. His only outside interests seemed to be tennis, basketball, workouts at the gym, and cooking at home on weekends. Like Obama, he had the adaptability of one who had grown up around the world: his dad had worked in international development, and Tim had spent much of his childhood in Zimbabwe, India, and Thailand. In the 1980s, the senior Geithner oversaw the microfinance project of Obama's mother, Ann Dunham, for the Ford Foundation in Indonesia.

Tim had followed Larry up the ladder at the Treasury Department, where he'd gained a reputation for his ready grasp of difficult issues and sound judgment. The big question about Tim during the selection process had been whether he was personally imposing enough. As Ken Duberstein, ex-chief of staff to President Reagan, told the Washington Post, "Tim at 47 looks 32, and you need to have ... grey hair and gravitas. It's not that he's not qualified; it's how he looks." It was said that Obama chose Tim over Larry both to signal a step past Clinton and because of personal chemistry.

From Tim's office, I went next door to visit Summers, who was sipping one of the numerous Diet Cokes that he typically consumed in the course of a day. Far more expressive and voluble than Tim, he exclaimed several times, "This is going to be great." I'd known and liked Larry since the Clinton administration and was in awe of his intellect, vast knowledge, and ardent curiosity about unfamiliar subjects—such as the auto industry. His appetite for work was prodigious, but he was also the archetypal absent-minded professor (habitually late, chronically disorganized). Happily, his determination and drive more than compensated. As fast as his mind worked, his mouth was often in a lower gear. He could start a sentence several times before settling on exactly what to say. Early in our relationship, I had learned to resist trying to help him complete his thought. And I'd seen flashes of the intellectual arrogance that contributed to his fall at Harvard, where he was president from 2001 to 2006. But I had been delighted when Obama asked him to take on the pivotal job as director of the National Economic Council (NEC). I could not imagine the new administration tackling problems of the magnitude it was facing without Larry's help.

In due course, our conversation turned to the controversy swirling around me. "We underissued that one," Larry said, introducing me to a new bit of Washington jargon. I took him to mean that the Obama team should have anticipated the flap and acted to head it off. I offered to step aside on the spot. "You shouldn't feel any obligation to me," I said. But Larry responded that both he and Tim were convinced that my Wall Street experience and part-time political work were the right skills for the job.

I wasn't so sure. I had accepted the job welcoming the fact that I would be reporting to Tim and Larry, and now the press had turned me into a czar (which would have amused my Rattner ancestors who were fur merchants in Moscow). I felt that I had a huge bull's-eye painted on my back.

I made only one other visit to transition headquarters, coincidentally on the day the Senate agreed to the second $350 billion of TARP funding, January 15. Pushing through the second tranche of the unpopular program was a heady success for an administration that hadn't yet taken office. The news occasioned high-fives in the economics corner of the eighth floor and a victory-lap appearance by Rahm. I met Haley Stevens that day, even younger than Deese and a native of Michigan, who had wanted more than anything to assist with autos and had gotten a mutual acquaintance to send me her résumé. Haley had spent most of the three and a half years since graduating from college in one political job or another while also earning a master's degree. After the election, she'd worked on confirmations for cabinet-level appointees. Since she was already on the transition team's payroll, Deese and I quickly decided to make her our chief of staff. We would come to find her tireless, cheerful, and blessed with a social conscience and a talent for improvisation.

A little later, I met a far more senior new colleague, Diana Farrell, who was slated to join Larry's NEC as a deputy director. Like me, Diana came from business. Unlike me, she was versed in management consulting, having been the director of the McKinsey Global Institute. While neither she nor I knew what her exact role on the team would be, Larry had inserted her to provide some senior support for Deese during the muddled early days, and I was delighted. From the start, Diana realized that GM and Chrysler were going to need much more of an overhaul than the President's political advisers and even Larry expected, a point she helpfully tried to drive home to them.

When inauguration day arrived, I deliberately remained in New York and watched Barack Obama be sworn in on TV. I had decided to keep my trips to Washington at a minimum until my appointment went through. I saw culture shock ahead: my career had involved moving to smaller and smaller firms with less and less red tape—from Morgan Stanley to Lazard to Quadrangle. Suddenly I was entering the world's largest bureaucracy, a realm of meetings and memos. The new administration was drowning in questions, often with higher priority than those of our team, and almost no one knew how to make things happen. I would have to be polite, work the system, and keep nudging. But the inefficiency sobered me. It was what Wall Street would call a risk factor.

Like nature, government abhors a vacuum. I was flooded with e-mails and calls even though my appointment was by no means official. Seemingly small matters foretold of major issues to come. For example, in mid-January GM blew its first deadline under the Bush loan agreements, failing to satisfy certain reporting requirements for its second installment of $5.4 billion. The company's accounting systems, it emerged, were simply incapable of producing data on GM's cash position in the form that the Treasury wanted. The GM bureaucracy was equally unsuccessful at revising its corporate expense policy on time. Five days later, it complied and got the money.

Automotive suppliers started to fail, which was how I discovered that the scope of my assignment was much broader than I'd anticipated. GM and Chrysler had dominated the conversations with Tim and Larry. None of us appreciated that, with auto sales down 40 percent, the collateral damage among related businesses would be vast. These companies, which provide factories and repair shops with raw materials and parts, were in deep trouble, and because of their interconnectedness, the trouble could become wildly contagious. Bailing out the giant automakers wouldn't be enough if they could no longer get the parts they needed to build cars. A collapse of just a few key suppliers could cause the Big Three (and possibly some transplants as well) to shut down abruptly, triggering widespread economic disarray. Yet no government money had been allocated to help the auto parts manufacturers. Like the seven-second delay in live television, the suppliers' problems took a little while to surface. This was because the Big Three usually didn't pay for parts until forty-five days after delivery. A slowing of the assembly lines actually made the suppliers temporarily more flush—they could collect on prior deliveries without having to spend money to fill new orders. But when the shock wave from collapsing demand caught up with them, its effect was brutal. And with capital markets frozen, they had nowhere to turn.

Most of the failures were companies that I had never heard of—like Contech, a privately owned, one-thousand-employee metal-casting company outside Kalamazoo, which declared bankruptcy after revenues fell by nearly one-third in 2008. Multibillion-dollar businesses whose names I vaguely knew—like American Axle, Lear, TRW, and Dana—saw their stocks collapse. As I later learned, the rule of thumb is that for every automaking job there are two supplier jobs, suggesting that 650,000 jobs were at risk among suppliers.

Since early January, Brian Deese had been thinking about a definition of success for our team. It was clearly not just a matter of dollars and cents. How should we balance the bailout's huge cost and risk against the need to preserve communities and jobs and limit the economic ripple effects? We quickly settled on two principles to propose to Larry and Tim. First, further government funding should come only in exchange for fundamental restructuring that made automakers truly viable and got them off the federal dole. Second, all stakeholders in GM and Chrysler—investors, creditors, employees, and retirees—ought to share the pain of such an overhaul.

This definition was notable in part for what it did not say. It pointedly did not include protecting all jobs. Or rule out bankruptcy. And it did not include industrial-policy goals, such as the development of electric vehicles. Instead it mirrored the hard-nosed approach that a private owner might have taken—except the new owner was to be the American taxpayer.

We expected objections from other parts of the administration, in the form of an "interagency process" in which Energy, Commerce, Labor, and other departments would weigh in. I braced for compromise. But perhaps because of the magnitude of the crisis, or because everyone in the new administration was equally overwhelmed, no other part of the executive branch got involved. Indeed, as we worked, Obama's "climate czar," Carol Browner, mediated between the administration and Congress on tougher fuel-efficiency rules without ever asking us to twist arms at Chrysler or GM.

The flow of auto industry issues became a torrent as I tried to calm colleagues and hand off leadership at Quadrangle. As I began to address the task force's logistical issues, from staffing and space to computers and phones, I struggled to comply with onerous vetting requirements and spent countless hours helping to search for ways to defuse questions on my qualifications.

Being vetted can be a full-time job. At Josh's suggestion, I had begun talking to my attorneys in mid-December, in part to ascertain whether public office was feasible for me. Every senior appointee has to complete two massive documents: the SF-86, an impossibly tedious security-clearance statement that requires listing—j ust for example—every foreign trip an applicant has taken in the previous seven years, and the SF-278, which involves the disclosure of every financial interest and obligation. Like most recent administrations, this one had added its own questions, derived from past debacles, such as Zoe Baird's failure to become Bill Clinton's attorney general after neglecting to pay the so-called nanny tax. I can't count the hours I spent complying, but I do know that the honor of working for the federal government cost me more than $400,000 in legal fees.

The vetting rules were more than a personal nuisance; they hampered our effort to assemble a first-class team. As part of his pledge to rid government of special interests, Obama layered new conflict-of-interest strictures on top of the statutory rules that applied mostly to financial holdings. He targeted lobbyists with rules that barred any candidate who had worked for an organization that would be a party to the matter that the individual would be handling in government. This seemingly logical concept had the unintended consequence of severely restricting our ability to hire anyone who knew anything about the automobile industry, a limitation that fueled the very criticism we were trying to counter.

I didn't see Larry Summers again until two weeks after the inauguration, in his new West Wing office, a 16-by-17-foot space that appeared to have been last renovated in the Eisenhower era. The view was of a white parapet perhaps two feet away. Larry didn't care; offices in the West Wing are all about proximity to "the Oval." Neither did Deese. In what must originally have been a reception area were jammed a half-dozen desks for support staff. Deese had commandeered one, and for the first few weeks was sure he'd get evicted. But eventually he was told that he could either stay or decamp to a real office, in the Eisenhower building across the driveway. Always wise, Deese also understood the value of proximity and elected to remain in a location that gave a huge boost to our efficiency by guaranteeing ready access to Larry during a period when his every moment was precious.

My visit was motivated by my growing despair. Every day had brought additional evidence of the seemingly intractable problems of GM and Chrysler—loss of market share, overwhelming structural costs, bleeding cash. Having had experience in the mosh pit of restructurings, overhauling entities the size and complexity of the automakers on tight deadlines felt impossibly daunting. Simultaneously, the Greek chorus of criticism intensified. On February 2, I saw Senator Carl Levin of Michigan, whom I knew slightly, at the swearing-in of Hillary Clinton. When I reintroduced myself, he politely but firmly announced, "If you're going to do this job, you'd better have some people around you who understand manufacturing."

My growing impulse—notwithstanding my desire to serve in a time of crisis—was to snuggle back into the comfort of Quadrangle. "I don't mind a challenge but I like to know it's possible," I e-mailed Larry. Larry can be an indefatigable and relentless salesman and batted back my concerns one by one. Among other things, after weeks of patient inquiries, I still had little idea of how many people I would be allowed or how to get them on the payroll. When I mentioned this to Larry, he asked how large a team I needed. "If we were in the private sector, I'd say fifty people," I told him, "but in a governmental context, maybe fifteen."

"But the whole NEC is only nineteen professionals!" Larry exclaimed.

In spite of all this, somehow I left the meeting willing, for the moment at least, to soldier on.

Larry and Tim and I had agreed that, to dispel the furor surrounding my appointment, the task force needed to be bolstered with someone who could balance my Wall Street credentials with credibility in Detroit. We considered veteran industrial executives, like my friends Henry Schacht, former head of Cummins Engine, and George David, chairman of United Technologies. I was eager to hire Steve Girsky, formerly a top auto equity analyst at Morgan Stanley who had also worked for both General Motors and the UAW. Steve had forgotten more about the industry than I would ever know. But a stint as an unpaid adviser to the UAW during bailout negotiations the previous fall disqualified him under Obama's rules.

As a potential deputy, many suggested Ron Bloom, whom I knew slightly as we'd overlapped at Lazard before he'd gone on to a totally different career. The son of leftist parents who sent him to a Zionist labor youth camp, Ron had been inspired to help workers. Yet unlike most aspiring labor activists, he went to Harvard Business School and then Wall Street. At Lazard, he and his partner Gene Keilin engineered large, creative restructurings aimed at giving workers both equity ownership and seats on the employers' boards.

In 1996, Ron became, in effect, the United Steelworkers' chief restructuring officer. Cheap steel from emerging nations was causing American steelmakers to fail, often resulting in ugly bankruptcies that left workers and pensioners in the cold. Rather than try to prop up doomed companies, Ron showed his genius in helping them consolidate, identifying and saving the jobs that would last and arranging the softest landing possible for steelworkers who were displaced. We convened at the Ritz-Carlton, where he ordered a martini—not exactly a steelworker's drink. But with his long, solemn face and warm eyes, he looked every bit the workingman's advocate. Like many negotiators, he had a ribald sense of humor. He liked to compare his style to that of the patient in a dentist's chair who grabs the dentist by the genitals and says, "Now, let's not hurt each other." His sense of humor extended to himself. "I get it," he said one day early in his tenure, as the team was filling with Wall Street veterans, "I'm affirmative action."

Like me, Ron was used to running his own show. Yet I liked him and we had a lot in common. We'd both been through many restructurings. Like me, he was soft-spoken and fact-based. We shared a firm capitalist perspective: companies had to be viable, and saving loss-makers was pointless. And we agreed on another key issue that Ron raised. "Just so you know where I'm coming from," he said, "my agenda here is to save as many jobs as possible."

"So is mine," I replied.

Finding Ron was a step forward, but my doubts deepened days later, when the White House officially refused to grant Girsky a waiver from the vetting rules.

At almost exactly the same moment, five senators—including the Michigan Democrats—sent an open letter to Obama that seemed aimed at me. They asked him to "create a group of advisors to oversee the loans and provide the insight needed to steer our domestic automakers through this unprecedented crisis." The senators said the panel should "understand manufacturing."

I'd had enough. I drafted a long e-mail to Larry listing the reasons for me to withdraw. But I didn't send it. I actually sent a shorter, milder note, offering again to step aside. "I am sorry that we are putting u in this position," Larry responded, not letting me off the hook.

Meanwhile, with February 17 looming, we tried to get organized. As Deese had done with his desk in the West Wing, Haley Stevens simply commandeered a spacious, airy room at Treasury. She had desks placed around the perimeter facing the yellow walls and put a conference table in the center. Telephone and Internet access was delayed, so we used our cell phones and wireless cards, wondering how past incoming administrations had functioned. The windows of the room looked out on the White House, a constant reminder of the pressure on us.

Officially I had no office. Not having completed the appointment process, I was not supposed to be in the Treasury building except for meetings, although many rules were bent in this crisis atmosphere. I was given the use of a cavernous office, decorated with an antique typewriter and a framed collection of 1938 currency, a dozen or so doors down from Tim's suite. History seeped from the walls. In this room, President Andrew Johnson had signed the Amnesty Proclamation on May 29, 1865, restoring the rights of those who had joined the Confederacy. A printed copy hung on the wall with his signature, although it turned out to be a facsimile.

I felt like a kid in a new school, but all the teachers were also new. It was so hard to get through the Secret Service checkpoint that on my second day, I e-mailed Haley, "Is there a cafeteria in this building? I'm afraid to go out—I may never get back in!" Everything was complicated, including communicating with Tim, who I assumed would have e-mail and a BlackBerry. But within ten days of his taking office, e-mails to his address were routed to the "Executive Secretariat," a group whose job was to manage the message flow to Tim, with rules and forms for everything. Every communication needed to adhere to a specific format and clearance process.

Meanwhile, January auto sales were abysmal—GM was down 49 percent, Ford 40 percent, and Chrysler 55 percent. The companies were burning through their money at an alarming rate. GM's cash position was skirting close to the $11 billion minimum the company said it needed to operate; Chrysler forecast that it would drop below its minimum operating requirement of $2.5 billion before March ended.

Given these figures and the Bush loan agreements, which set very specific benchmarks for the automakers to achieve by February 17, we could not delay opening a dialogue with both companies. The first call—between Ray Young, of GM, and Brian Deese, Diana Farrell, and Mike Tae, a new arrival at Treasury—revealed that GM was still dreaming. Each company was required to include a pessimistic or "downside" assumption about future auto sales, but GM's idea of a downside was 20 percent market growth. Diana tried to push Ray to think of more appropriate downside cases but couldn't make him understand. "Okay, let me try this one more time," she finally said. "Ray, I'm not sure you're hearing what I'm saying. What I'm saying is that your worst case is our view of the absolute best case, and you need to start thinking about radically different outcomes."

So concerned were Brian and Diana (I was still operating behind the curtain) that they recommended to Larry that he alert the GM board. He agreed and called Erskine Bowles, his friend who had been one of the directors who had visited Paulson back in October 2008. We also worried that GM had too little contingency planning under way. Thanks to Wagoner's refusal to consider bankruptcy, the company had not even hired restructuring lawyers until mid-December. With Chrysler, the task force did a similar reality check, emphasizing the need for conservative assumptions about demand. Chrysler was already pessimistic in its downside assumptions, though with its sales down 55 percent, the company's planners could hardly have been otherwise.

Bankruptcy, of course, had always been the elephant in the room. It was scary even to think about. Yet if managed successfully, it could enable GM and Chrysler, under the protection of a court, to stay in business while restructuring debts, renegotiating contracts with unions and suppliers, selling or scrapping obsolete and underused plants, and otherwise positioning themselves for a fresh start.

From the first moments in December when Josh Steiner had started sharing tidbits about what he and Deese were learning, I had thought bankruptcy was inevitable. Especially at GM, there were too many actors on the stage and too many liabilities that needed to be expunged or dramatically reduced for me to believe that a purely voluntary restructuring could work. Conceivably, the company could renegotiate its labor contracts without court protection. But what about the thousands of individuals and institutions who held GM bonds? How could GM ever corral all these creditors and persuade a large majority to accept pennies on the dollar, something a voluntary restructuring would require? And what about GM's vast, overgrown dealer network—more than six thousand independent businesses across the country, each protected by contracts and state franchise laws?

Senator Corker had tried to prepare the way for a restructuring without bankruptcy by designing the three conditions that then became embedded in the Bush loans. But they proved nowhere near tough enough to ensure financial viability and impossible to implement outside bankruptcy. GM and Chrysler wasted many hours trying to comply with them, while in the end their principal benefit was to provide a baseline that all the stakeholders would understand and thereby ease the pressure on us to produce conditions of our own.

At the same time, the risks of bankruptcy were immense. I was far from being an expert, but I'd seen enough in my investment banking career to know that bankruptcy disrupts a business from top to bottom. As the automakers were always quick to remind us, customers dislike dealing with bankrupt companies; suppliers demand cash on delivery. And imagine trying to hire talented people if they know your business is bankrupt. Instead of being able to concentrate on competing in the marketplace, executives must spend much of their time huddling with lawyers and advisers and placating bondholders and banks. The longer the exercise goes on, the more distracting and expensive it becomes. I remembered the head of our restructuring practice at Lazard, a crusty veteran of scores of deals, telling me again and again that "bankruptcy should never be thought of as the solution of first choice for a troubled company." Todd Snyder, a Rothschild bankruptcy specialist who had advised on the Bush bailout plan, became our indispensable guide. He knew all the tools and techniques for effecting corporate overhauls. I was particularly gratified when he agreed with my amateur's assessment that our salvation might lie in a form of asset sale known as a Section 363, after the part of the bankruptcy code that governs it.

Section 363 allows a bankrupt company to act quickly to transfer intact, valuable business units to a new owner. (The conventional bankruptcy process restructures the corporation as a whole.) Once exotic and obscure, 363 had provided the only bright spot in the cataclysmic implosion of Lehman Brothers. It was used to salvage Lehman's money-management and Asian businesses. Though 363 had never been applied to industrial companies on the scale of Chrysler and GM, I had suggested to Josh back in December that the new team explore the option. It might offer a way to save GM's and Chrysler's best factories and brands while the courts sifted through the other wreckage.

I hated presenting problems without solutions, but we had none ready for prime time when we went to see Tim and Larry on February 11, six days before the Chrysler and GM submissions would confirm the debacle in the offing. Since we had no staff, we had to rely on Todd Snyder's people at Rothschild to prepare the presentation. Even then, the best we would be able to do was to lay out a series of options that gave a clear indication of our thinking.

I wanted to be well prepared. At 10 P.M. the night before, after the Rothschild team arrived, we convened on a conference call to go over the possible restructuring options. Nearly all involved putting GM and Chrysler into bankruptcy. The only nonbankruptcy solution required reaching out-of-court agreements promptly with the labor unions, creditors, and suppliers, distributors, and dealers. We gave that approach the lowest probability of success. Every one of the options entailed using huge amounts of taxpayer money to sustain the companies through the restructuring period.

Most of the conference call was spent discussing the Section 363 approach, our final and best option. But the time Rothschild said would be needed was long, from six to fifteen months. I thought that would be a disaster.

We ended up having to brief Tim and Larry separately. During our time with Larry, our tough talk about bankruptcy was interrupted by an emotional interjection from Gene Sperling, a counselor to Tim. A devoted public servant and gifted policy wonk, Gene had served during all eight years of the Clinton administration, the last four in Larry's job, heading the NEC. He spoke up here as a Michigan native.

"I don't know what to tell you guys to do," he said, "but if you are not from the Midwest, you cannot appreciate the devastating psychological effect that bankruptcies would have there." Gene would repeat this admonition many times during our deliberations, a helpful reminder of the human consequences of our actions.

That seemed to strike a chord with Larry, whom I could see getting nervous. Although in December he had been one of the voices telling the President-elect that bankruptcy was probably unavoidable, the prospect clearly disturbed him more as it came closer to reality. He was particularly leery about the risk of permanent government involvement. "I hear you, Larry," I said at one point. "But make no mistake about it, you own these companies," by which I meant that the massive amount of federal aid would put the government in the auto business, regardless of who ultimately owned the stock. He ended by asking us to develop the best approach in the event bankruptcy was not available.

We briefed Tim at the Treasury; unlike Larry, he did not push back. He took it as given that we'd identified the right options and that bankruptcy was probably inevitable. To him, the question was how to cushion the shock so that consumers would keep buying cars. "We need to put foam on the runway," he said, an allusion that, as a pilot, I readily understood: airport crews use foam on the runway to mitigate crash landings. It can be effective, but doesn't always prevent fatalities.

Shortly before the viability reports were due, GM previewed for us its updated analysis. The company now forecasted needing an additional $2 billion just to survive until March 31. The Chrysler news was equally bad. The company's draft submission showed dwindling cash balances, a blunt refusal by creditors to reduce secured debt, and a dark analysis of the consequences of failure. In Chrysler's estimate, liquidating the business in an orderly way would yield around $1 billion, assuming that it had run through all the cash on its balance sheet.

Neither company was making much progress on the other requirements of the Bush loans, either. Descendants of Corker's original conditions, these provisions had been designed as key steps toward restructuring—reducing liabilities like debt and legacy health care obligations and lowering operating costs, including labor. By February 17 GM and Chrysler were required to submit signed term sheets from their stakeholders proving that these cuts had been achieved.

Admirable, but surreal. While the companies had begun negotiating earnestly with unions, debt holders, suppliers, and dealers, there was absolutely no chance of success. The unions made it clear that they would not give ground again without shared sacrifice, particularly from lenders. The Chrysler banks, meanwhile, were steadfast in their unwillingness to reduce the $6.9 billion of outstanding debt. GM was going through the motions of trying to win the support of a sufficient number of its public bondholders to reduce its debt on that front. But there was a greater chance of finding oil under the White House.

Bad chemistry with GM added to everybody's stress. Less than a week before the deadline, Ray Young called Deese to ask for a postponement on meeting the restructuring benchmarks—GM wanted two more weeks. Making that call did not show great judgment, but Young's attitude was even worse. He suggested to Deese that if GM missed its benchmarks, the government would look bad. To Larry these were fighting words. Had GM somehow forgotten that taxpayers were footing its bills? He called two of GM's Washington advisers the next day and received assurances that Young would not attempt any direct communication with the White House again.

Still, we recognized GM's difficulties; Chrysler had them too. On the eve of the deadline, we said uncle and waived all of the cost-reduction strictures. Had we not, both automakers would have been in default on their federal loans, and therefore bankrupt.

We faced mountains of red tape. Seemingly obvious matters, such as whether to make the reports public, needed to be considered. A procedure had to be created for receiving the plans. Our most important behind-the-scenes preparation was a memo to President Obama on what to expect. POTUS memos, as they are called (POTUS is government-speak for President of the United States), have their own special protocol. They come from cabinet-level officials (Tim and Larry, in our case) but are, of course, drafted much further down the food chain (in our case, by Deese). A good POTUS memo is short, with lots of bullet items and bold type to emphasize decision points.

Having watched GM and Chrysler unveil a succession of overly optimistic forecasts, we were determined from the start to be hardheaded in our assessments. By this time, we believed that the bailout would require at least $50 billion of additional capital, and we had serious doubts as to whether the government would receive a substantial portion of the money back. We also wanted to be sure that the White House understood that without bankruptcy as a tool, we were quite pessimistic about the possibility of effecting fundamental restructurings.

Finally, judging from the worrisome conversations with Rothschild, it seemed possible that bankruptcy, with all the attendant risks, could last at least six months. Throughout our work, we consistently strove to be as realistic as possible when communicating with our superiors and to use probabilities rather than absolutes. We tried to follow two simple rules: no surprises, and no problems without proposed solutions.

February 17 neared, but the automotive team still had not been announced—a growing public-relations headache. As early as February 2, Tim's spokeswoman, Stephanie Cutter, had sent around an e-mail warning that came to me at Quadrangle: "We're about to lose control of this story." The notion of an official task force had been floating in the ether; Deese grabbed hold of it and convinced Larry that a group of senior staffers like Diana Farrell and Gene Sperling would be both productive and politically salable. But when Larry looked at a draft of the plan, he said, "We can't announce a task force with a bunch of people like staff. We can't announce staff meetings as task force meetings."

Much of the administration's disarray was understandable. Larry and many of the domestic-policy staff had been consumed with getting the President's stimulus package through Congress—a $787 billion affair. The solution the White House eventually settled on for autos was something called the Presidential Task Force on the Auto Industry, a cabinet-level committee to be chaired jointly by Larry and Tim and comprised of officials from across the administration. While it sounded impressive, its purpose was to bury once and for all the idea of a car czar, reassure the Midwest that autos were a top priority, establish Larry and Tim as coequals on the matter, and free the actual task force—namely, staffers like Brian and me—to work in peace.

This presidential task force was announced as haphazardly as it had been planned. On February 16 aboard Air Force One, Press Secretary Robert Gibbs told reporters that its formal unveiling "could be" later that day and mentioned that someone named "Richard Bloom" would be joining the staff. As it turned out, the actual unveiling wasn't until four days later. But at least the announcement saved face—and cleared the slate for the automakers' submissions.

When the documents finally arrived on the seventeenth (true to form, GM missed the customary 5 P.M. cutoff by forty-five minutes), the White House was ready with a concise statement supporting the bailout. It emphasized the need for shared sacrifice: "Going forward, more will be required from everyone involved—creditors, suppliers, dealers, labor and auto executives themselves—to ensure the viability of these companies."

As we worked through the night to prepare a memo for Tim and Larry, the substance of what we had received was clear: GM and Chrysler showed little progress toward meeting the conditions of the loan agreements, and their requests for additional funding—$14 billion—were based on unrealistic assumptions. Neither plan offered any hint that bankruptcy would be necessary or desirable to achieve long-term viability. The gaps we found reflected the two companies' weaknesses and personalities. Lacking a robust selection of new designs and unable to meet tightening fuel economy standards without appealing small cars, Chrysler pinned its hopes on a prospective alliance with the Italian automaker Fiat. GM still relied heavily on an imaginary rebound in demand.

Wall Street also found the GM plan lacking. (Chrysler's received no comment, as the company was privately owned.) Rod Lache of Deutsche Bank, one of the most respected auto industry stock analysts, decried the massive debt that GM proposed to continue to owe. He reiterated his sell recommendation, giving the stock a price target of zero. Within three days, the stock sank 19 percent, to $1.77 a share, cutting GM's market value to a meager $1 billion.

All that remained was for me to officially say yes to the job I had already started. I was still terrified. While Detroit melted, I dithered. This finally prompted Larry to shift into bad-cop mode, calling me to suggest that I was on the verge of "doing a Judd Gregg," a reference to the Republican senator whom Obama had chosen as secretary of commerce. Gregg had made a 180-degree turn, withdrawing his acceptance after it dawned on him that he disagreed with much of the Obama agenda.

If I withdrew at this late date, I realized, I would almost certainly never get another chance to serve in an Obama administration. I e-mailed Larry to apologize for my hesitancy. The e-mail he sent back bucked me up: "Life will work out for you either way though America will be better off if you do this." I was also grateful for an e-mail from Deese: "My opinion is of little consequence to the situation, but for what it is worth I think you are incredibly needed right now, that you will succeed notwithstanding the terrible task in front of us, and I am willing to do whatever I can internally to help make this situation one that you're comfortable taking on."

Finally, on Thursday, February 19, sitting on the couch in Tim's office watching his precious minutes tick by, I understood that the time for indecision was past. Impulsively, I closed my eyes and jumped.

The following Monday, I once again found myself standing in the cold outside a fortresslike office building, this time the Treasury Department. Shivering outside the guard shack on Pennsylvania Avenue as I waited to get in, my clearance adrift in a bureaucratic haze, I could not help but think about all the bailout's delays—and the costs for me, for the industry, and for the country.

Obama's "one President at a time" stance may have been good politics, but if his team had linked arms with the outgoing administration, as President Bush's advisers had proposed, billions of dollars could well have been saved. The incoming administration should have made its personnel decisions much faster, as many commentators had urged. The deliberate pace at which key posts were filled did not comport with the urgency of the circumstances. Tim's and Larry's appointments weren't announced until almost three weeks after the election. Much quicker action, perhaps as soon as the day after the election, would have seemed more appropriate.

Of course, if there had been no presidential election or change of administration, there would have been no costly holdups. So maybe the delays and the billions of dollars in added expense just have to be accepted as costs of democracy.