The logic that the automakers failed therefore the government must step in and protect the interests of workers and the people is flawed on so many levels it's not even worth going over. The best thing would have been to let them collapse but we've been conditioned to believe this would have had catastrophic consequences.
Maybe. But at least the free enterprise system would remain in tact.
The thing that stuns me is, ok fine, you like President Obama, but to actually believes there are "no other alternatives" and that he's doing the right thing is beyond my comprehension.
Yes, this article is from von Mises but they make a helluva lot more sense than the nonsense being pumped and pimped from the established intellectual and political classes. I read Krugman and just don't get it. It's as if humans no longer have the ability to run their own ship without the long, deep, self-serving hand of the government.
We may think this is the right move but at what cost?
"...The US government has effectively grabbed a financial stake in each company while attempting to control the reorganization process without any constitutional authority to commence such actions. You mean a president other than Bush is capable of this? Shock!
The takeovers, which have occurred at breakneck speed, are alarming. A defining characteristic of economic fascism is the control of private property and business through a government-business "partnership." This public-private alliance, while permitting private business ownership, is an arrangement that allows government to control and plan private industry. What we are experiencing from the schemers in Washington, DC is a planned capitalism, or soft fascism, that is being rolled out at an unprecedented pace."
"One of the more disturbing actions on the part of the Washington establishment has been the blatant disregard for property and contract rights. First, consider the case of Chrysler. The government, while coming to the aid of a dying Chrysler, lobbed offers to its lenders, the bondholders. A group of dissident bondholders spurned the government's offer that would have given them a minuscule stake in the company while the UAW received a majority ownership position.""In response, the president denounced the bondholders, publicly proclaiming their obligation to sacrifice and referring to them as "vultures" because they insisted on maintaining their rights as senior creditors. Chrysler's bondholders, by law, are secured creditors, and they hold a senior ranking above unsecured creditors or shareholders in a bankruptcy or reorganization. Yet they were vilified and bullied for refusing to agree to a shoddy deal. Some of the holdout bondholders finally did buckle under; they dropped their legal challenge and agreed to the government's lowball offer, but only because they were strong-armed by Washington's bully tactics. Thomas Lauria, the attorney representing the group, stated that his clients weren't able to "withstand the enormous pressure and machinery of the US government." Thus the senior creditors were plundered while ownership was redistributed to the UAW, whose members are junior creditors. This makes a mockery of US securities law."
Maybe he should be as tough on Iran as he was on bondholders.
Dear Commentator I totally disagree with that last post. Save the bond holgers and damn the workers: unbridled capitalism in all its beauty. If US and Canadian taxpayers are to be called to foot the bill they should have through their respective governments as much say as the sacrosanct bond holders who got rich over the ruins of the company and now want their marbles back. Where were they will the CEO and other fatcats were driving the company straight over the clff?
ReplyDeleteDuring the first oil crisis while the price of gaz and heathing oil was driving some to bankruptcy a lady friend of ours with oil investments laughed all the way to the bank proclaiming that as long as she made money the others could go to hell and she didn't care. Is that the kind of social ethic that you advocate?
Social ethic? Nobody is forcing anyone to do anything. People/creditors are free to lend capital.
ReplyDeleteBOND HOLDERS have NO say in the direction of a company. Neither do preferred shareholders. They lend money because companies need a way to finance themselves. Only common stock holders have voting privileges. Conversely, when companies go under bondholders stand ahead of common stocks in getting paid back first order. That being said, bond markets are sometimes shady and non-transparent and could use a good dose of enforced rules.
With this crucial CONTRACTUAL tidbit out of the way, I've no idea where "social ethic" comes into play. In every walk of life where contracts guard you, a person has a right to their money back. It's no different with bondholders. It's an IOU. It doesn't come with moral epitaphs attached to it. If they did, it would reflect in the coupon, the rating and so on.
And you know what's beautiful about the markets? YOU CAN by investments that are socially aware. They're called ETHICAL FUNDS. But in the case of the autos, people were lending to CARS not to for cars to "save the environment".
What Obama did is set a dangerous precedent. Who the heck is he to step in and bully people like that? Think of it. Alas, we're all blinded with all these notions of "ethics". For the love of God, IT'S BUSINESS.
For the record, the bondholders offered a far more rational deal:
"A committee representing institutions owning General Motors Corp. bonds will present a counter-offer to the company's debt swap that will seek a majority stake in the car maker and ease fears about potential U.S. control of a major manufacturing company." If this proposal is accepted, the government will not get a piece of GM. Instead, the company will pay it back all of the loans it has been given by the Administration.
The creditor proposal for GM makes some sense. It allows taxpayers to get cash instead of equity in a company that will be in trouble no matter how it's restructured. The future of the domestic light vehicle market recovery is still in question.
But, the government may look at the creditor proposal as too rich."
Heh, he refused CASH. Nope, this president has his own agenda. An agenda that will probably fail.
There's no doubt execs should never have gone to ask for HAND OUTS. They were wrong and the government was wrong to give them out. End of story. However, it doesn't mean the government needs to step in either.
What governments do in the name of "benefits to all" is far, far worse and do more damage in the long run. There's MORE proof of this than "runaway" capitalism being "defunct".
You said you don't hate government but the people we vote for and the little choices we have. So why don't you extend this to business? Can it be the "hand out bums" are the exception rather than the norm"? Maybe we're in a bad run with the wrong people in place but it doesn't mean capitalism is evil or needs the government to "help" it.
Trust me, I cringe each time Bombardier gets a hand out. They're not businesspeople in my eyes. But at least in Canada we haven't lost our marbles vis-a-vis bonds - yet.
Always remember, government is just another entity that will do what's right for itself. I stand by my assertion government intervention is a terrible idea. And I find what Obama did to be illegal, immoral and plain absurd.
As an aside, the elderly often live on fixed income securities to pay for rent, medicine whatever. How would you like it if some leader with an agenda came out of nowhere and bilked you out of your savings by breaking basic CONTRACT LAW!
All I'm saying is stop TINKERING with market forces.
Why do we always look at THE BAD SIDE of every equation. Think of where we would be WITHOUT bond holders!
Why don't we consider what happens to them? Or are we this blinded to the point that their side is meaningless since we've convinced ourselves they're nothing more than a bunch of 'greedy" bums?
Oh,
ReplyDeleteRespectfully, of course.
:<)
Of course.
ReplyDeleteI still say all those highfallutin finaciers need to be regulatef under enforcable and enforced regulations to protect us all. The free market is a fiction when every company is linked to every others. True for automobiles, pharmaceuticals, transportation and on and on. We live in a cartel situation and we pretend not to see it. Just look at gaz prices.
Paul, this is sensible. But regulation is different from intervention. I prefer strong regulation by independent organizations than the fricken government sticking it's nose in things.
ReplyDeleteGranted...if strictly enforced by uncorrupted officials. Squaring the circle?
ReplyDeleteWell, we're only human but what can you do? It's better than nothing.
ReplyDeleteSquaring the circle.
Many excellent points presented here folks.
ReplyDeleteThis is the problem with BAILOUTS which is essentially taxpayer money since Gov't produces nothing (except deficits).
I'll leave the parting shot to the great Jim Rogers (co-founder of the Quantum Fund along with George Soros):
"China is more capitalist than America is today."
Ah, dabs!
ReplyDeleteI guess we can include Ireland in the mix too!
Interventions tell me it has no faith in mankind.