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Does Obama’s bullying of investors portend real problems for the US?

I have not written about the subject of the Chrysler bailout so far since, not being close to the action in the US, I did not feel I had much to say that was not already voiced by the US blogs. But it does occur to me that there is a general problem right now in the way that the US administration – and arguably the UK one as well – has been acting in respect of bailouts of certain industries, such as carmakers as well as banks. What do I mean? Well, this report (H/T: Instapundit) suggests there is real fear about the “Nixonian” tactics employed by Mr Obama’s administration against bond-holders who have been angered by the expropriation of their capital via the Chrysler bailout.

For those who have not been following this story, bond-holders have been pushed to the back of the queue, as far as potential recovery of capital is concerned, with the auto union membership getting preferential treatment. Maybe Mr Obama figures that investors can be rained on right now because it is more important to get the votes and support of traditionally Democrat-leaning car workers. With mid-term Congressional elections a couple of years away, he will have his sly, Chicago machine-politics mind working out how to garner important support in the event that the US economy is still sluggish by that time. But pissing off investors – such as, let it be noted, pension funds – is not smart. The US requires large amounts of capital for any economic recovery that may take place. Ask yourself one of the most basic questions any investor should ask: can I get my money back if I need to? If the answer is no or only maybe, and if there is the threat of governments robbing investors, then less investment occurs. The problems of such behaviour explain why, for example, Africa has been such a bad investment bet for so many years.

It is an ugly business. Part of the trouble with the automakers is that even if they had been put into a Chapter 11 bankruptcy process, with the banks and bondholders put on a more even footing for any recovery of assets, there is still the issue of what to do about the enormous unfunded pension obligations that these heavy industrial companies have. It is the same with airlines and steel. I have heard it said of British Airways – to take a UK example – that is is a pension scheme that happens to have a lot of aircraft. The pension tail can wag the corporate dog. And that is a hideous issue to deal with against the background of an ageing population. So in fairness to US policymakers, running down Chrysler involves dealing with a lot of tricky contractual issues.

Even so, it strikes me that the Obama administration is showing a level of political ruthlessness and “bugger-the-investor” attitude that is hardly going to endear people towards investing in that economy. My fear is that Mr Obama is making the cynical calculation that memories will fade; after all, how many investors in the UK remember how the Blair government, in the form of the charmless Stephen Byers, the-then industry minister, shafted investors in Railtrack?

Like I said, an ugly business.

51 comments to Does Obama’s bullying of investors portend real problems for the US?

  • Interesting, isn’t it, that the Chicago school of economics is highly regarded by capitalists worldwide, while the Chicago school of political science is the poster child for political corruption?

  • Brett L

    I wonder why the union pension fund is somehow magically more important than my 401(k). While the UAW workers were led to believe they were at significantly less risk, so were Enron employees who saw their company matched investments destroyed with Enron’s share price. Will they prosecute and destroy the accounting firms that advised the UAW in promoting their pension plans like they did A-A? Nope.

    I sympathize with the guy who worked on the line for 20 years who could get screwed, but not to the point of destroying American bankruptcy and corporate finance law… Not to mention that this is not going to rush capital back into the system. Who wants to buy bonds if you can’t assess the risk because the rules may change over the term of the bond?

  • Jack Olson

    In her fine book “The Forgotten Man”, Amity Schlaes explored the reasons the Great Depression was worse in 1938 after six years of the New Deal than it had been four years before. One important reason, according to her, was regime uncertainty. Businessmen couldn’t make plans with any certainty that new laws and regulations wouldn’t upend them a few years later. They had seen companies virtually forced to join cartels later prosecuted for doing so under anti-trust laws. The U.S. Treasury had breached the gold-redemption clause in federal bonds and the Supreme Court had upheld it. Now that President Obama has broken the bankruptcy law by which bondholders get paid before other creditors, the natural result will be fall in the prices of other bonds since the reliability of their indentures depends on a political decision. Either he doesn’t know or doesn’t care how high the cost of this regime uncertainty will be.

  • Laird

    We saw the first signs of this at the crumbling end of the Bush administration, when investors were enticed into buying Fannie Mae bonds to “recapitalize” that institution by the express promise of Ben Bernanke that they would be protected. They thought they were doing good for the country, along with hoping to do well on the investment; two months later the government screwed them royally. I have nothing good to say about Obama or the Chicago political machine, but they’re not the only ones to play this game. (They may the best at it, however.)

  • Either he doesn’t know or doesn’t care how high the cost of this regime uncertainty will be.

    I’m for doesn’t know. As recently as a few years ago the Left seemed to be learning some economic lessons. But the last election has shown us that they were really just afraid of looking stupid in public. Now that they’re in the majority again, they figure they control the discourse (because it’s always really about The Discourse with them), and so they no longer have to pretend to understand economics.

  • Frederick Davies

    It was Robert Higgs who (as far as I know) first talked about “regime uncertainty” as a cause for the length of the Great Depression; see

    The Independent Review article [PDF]

    EconTalk podcast

    A lot of people thought he was wrong or exaggerated the issue (as far as Liberals is concerned, FDR is a saint, so talking of his presidency as a “regime” is not welcome), but now the Democrats are repeating the same mistakes all over again, we will be able to test empirically if “regime uncertainty” can really screw up an economic recovery. Pity the test subject, though.

  • andyinsdca

    Please be a bit more accurate, to wit: “the auto union membership getting preferential treatment” should read “the auto union getting preferential treatment.” The individual members are not really benefiting from this, but the bureaucrats and rent-seekers that run the union ARE.

  • Johnathan Pearce

    andysinsdca, not quite sure the difference is one that I recognise.

  • Kim du Toit

    “One important reason, according to her, was regime uncertainty.”

    Indeed. Regime uncertainty is one of the facts which has underpinned the economic stability of Western Europe and U.S. for many years, and undermined other, not-so-stable countries.

    When you put aside money for your retirement in Britain or the U.S., for example, you had every expectation that your money would still be in existence, and in your possession, when the time came to withdraw it and live on the proceeds.

    But if a government can decide, arbitrarily, to confiscate private pensions, the confidence, and security, of investors is severely undermined.

    When our family was in Chile a few years ago, we absolutely loved the place: scenery, people, low cost of living, and so on. We loved it to the point of seriously considering moving there, permanently.

    But we didn’t; and the reason we decided not to do so was that we had no confidence that the (then-)capitalist government would stay in power, and might be replaced by an inimical socialist one which would eliminate the capitalist system altogether. Not an unreasonable fear, considering the “Allende Syndrome” and the events which have since come to pass.

    It was all very well, in the past, to believe that there was little difference between Republicans and Democrats in terms of their belief in economic system. (Ditto, incidentally, between the Tories and NuLabour.)

    But what has come to power, both in the U.K. and the U.S., is a political party for whom the entire capitalist philosophy is anathema, and who are both hell-bent on overturning the basic principles of capitalism (most especially, that of private property and ownership of capital).

    Brown’s Labour Party and Obama’s Democrat Party are not traditional Western-style governing parties. Both are confirmed statists, both regard capital as the (eventual) property of the State, and both are determined to turn the investor class into enemies of the State. (Note how investors and bondholders are being labeled as “speculators” by Obama, even though not all investment is speculation.)

    By the way, the Tories and Republicans are not exactly covering themselves in glory at this point, either, by cowering before this spectacle instead of fighting it tooth and nail at every opportunity.

    People are leery of all this — there’s no point in saving if your savings end up being eroded by non-existent interest rates, taxation or outright confiscation — and the prognosis, I’m afraid, is not good.

  • andyinsdca

    Most unions (now, anyway) exist simply for the benefit of their own leadership and don’t really provide much for the individual members. The leadership wants more members which translates to more dues in the coffers, more money to control in pension plans and more power at the state & Federal levels (ie: lobbying power). They’re just statists and second-handers that receive their wealth by stealing it from the individual members instead of taxpayers.

    If the leadership of the UAW was really out for the interests of their individual members (the workers), then they would have aggressively sought help in the private sector so that Chrysler could be a going, profitable concern. Instead, they used their power to get a benefit from the Obama administration (who is VERY beholden to the unions for His election).

  • Johnathan Pearce

    So Andyinsdca, forgive me, in my initial reaction to your first comment, I thought you were nitpicking. But if the unions are as pointless as you say, I don’t quite see how tens of thousands of workers would remain in them apart from rank stupidity, inertia, or because of a legal closed shop. Now, I understand that The Community Organiser is very pro-union, but am I right in saying that the unions there have an arm-lock on the car industry? Can a car firm tell the unions to go and fuck off?

  • Short answer ‘yes’.

    Even worse, how come a debt-for-equity-swap is good enough for the humble motor companies (all three of ‘em) but banks get bailouts, rather than being forced into debt-for-equity swaps?

  • Bod

    Johnathan,

    Arm-lock on the car industry? Certainly, within the big three. In UK-parlance, they are monolithic closed-shops. Foreign firms with US-based manufacturing, like Toyota, are not, however, one can note that they aren’t the firms in line for handouts because they are unprofitable. Furthermore, these non-unionized plants tend to be in locations where car manufacturing is just a part of the industrial landscape, so the social impact of a plant closure is somewhat less concentrated when it happens

    The analogy worth BA is very apt. The big three are really just mecahnisms for generating union revenue with the declared objective of supporting their members – who have no work prospects outside of heavy manufacturing which will disappear if these firms aren’t propped up with taxpayer dollars.

    Needless to say, every employee, and every one of their dependents, and everyone in the service industries that sell goods to them has a strong vested interest in pulling the lever for whoever will keep that ATM stacked with banknotes.

  • Bod

    Johnathan,

    Arm-lock on the car industry? Certainly, within the big three. In UK-parlance, they are monolithic closed-shops. Foreign firms with US-based manufacturing, like Toyota, are not, however, one can note that they aren’t the firms in line for handouts because they are unprofitable. Furthermore, these non-unionized plants tend to be in locations where car manufacturing is just a part of the industrial landscape, so the social impact of a plant closure is somewhat less concentrated when it happens

    The analogy worth BA is very apt. The big three are really just mecahnisms for generating union revenue with the declared objective of supporting their members – who have no work prospects outside of heavy manufacturing which will disappear if these firms aren’t propped up with taxpayer dollars.

    Needless to say, every employee, and every one of their dependents, and everyone in the service industries that sell goods to them has a strong vested interest in pulling the lever for whoever will keep that ATM stacked with banknotes.

  • Jim

    Clearly political risk in the US is increasing and has been for some time. I haven’t invested there for several years for that reason, the Chinese are probably coming to the same conclusion.

    To go back to Fred Goodwin and his pension. Many here said there was nothing that could be done, because of contract law. Isn’t this Chrysler situation a case of contract law being rewritten at whim? If that is so, then the law no longer means anything.

  • virgil xenophon

    If one had one’s entire memory banks erased and had no knowledge whatsoever about anything, and awoke wondering what the US auto/banking “bailout” machinations were all about and were told one could pick only two commentaries to read to ascertain the core and flavor of the problem, one could do worse than to read the comments of Kim du Toit and Joshua here on 8 May, 2009 at Samizdata.

  • Subotai Bahadur

    The regime uncertainty factor is actually on two tracks right now. The first has been noted here, as far as the unilateral re-writing of statute by the Executive and Legislative branches on an ex post facto basis is concerned. There are other problems, that should make any investor nervous.

    As the bondholders who did not want to waive their rights to reimbursement were about to go to court, Obama called them, “obstructionists and anti-American”. Anyone who has dealt with Socialist authoritarian regimes should have had alarm bells going off at that phraseology. What capped it, was that in a matter of hours, the bondholders started receiving death threats. The identity of the holdout bondholders was only known to the administration who had been “negotiating” with them [There were threats to have the White House Press Corps "ruin" those who stood for their legal rights. In the aftermath, there was a Hound of the Baskervilles moment, because such a blatant public assumption that the press was a weapon of the White House got absolutely no denial or comment from the Press.]. In fact, the filing with the court included a motion to conceal the identities of the bondholders. There is a large, but not absolute, probability that the threats were at the behest of the administration, and the most likely ones to have made the direct threats on their behalf are either ACORN or Organizing for America, also known colloquially as the Obama-Jugend.

    links below:

    http://www.businessinsider.com/who-is-lying-about-the-perella-weinberg-threat-story-2009-5
    http://www.businessinsider.com/chrysler-hedge-funds-getting-death-threats-2009-5

    Combine this with the history of the AIG retention bonus fiasco. The ones with the bonuses were not the ones who had ruined the firm. They were being paid the bonuses, mostly in lieu of other pay for the year, because unlike the other staff they had not left for other jobs in their career field. Their new job was to untangle the financial mess left by the derivative trading division so as to salvage what could be saved. This was to end up saving the government money.

    The payments were approved by the Treasury as part of the bailout, inserted into statute by the Democrat Chairman of the Senate Banking Committee, passed, and signed into law by Obama. At the administration’s behest, ACORN organized mobs to demonstrate outside of the houses of the AIG employees; and Obama himself declared that he was the only one who stood between the employees and “the mobs with pitchforks”.

    Like it or not, we are seeing an undertone of thuggery that Mr. du Toit would recognize handily above, both from Chile and from his former country.

    Abandoning the rule of law in the commercial field creates enough regime uncertainty to make investments not worth making. When you combine that with the abandonment of the criminal law, and the possibility/probability of the regime abusing its monopoly on legal use of force and neither investor nor citizen is safe.

    Subotai Bahadur

  • andyinsdca

    Can a car firm tell the unions to go and fuck off?

    Absolutely not. The power of the unions is enshrined in the law in all 50 states and at the Federal level with plenty of Supreme Court rulings as well. Some states, like South Carolina, where BMW has a plant have less power because of “right to work” laws, but that doesn’t help Chrysler. The unions wield MASSIVE power (the public sector unions, like teachers & police even moreso, but that’s a different discussion).

    Note that a true, legal, bankruptcy of Chrysler would have effectively negated the union contracts (standard bankruptcy practice in the US), but Obama came to the rescue of the UAW with his special packaged bankruptcy which preserved the horrible contracts that are in place now.

  • OK. That’s it!
    That the POTUS rides roughshod over the rights of lenders and shareholders to this extent betokens a very dangerous state of affairs.
    For some time we (in the UK and elsewhere) have been bemoaning the state of the British body politic, but at this point I aver that the American one is in a worse state. Naturally, I take into account the velocity of the systems as well as their positions when I make this statement.
    .

  • Eric

    By the way, the Tories and Republicans are not exactly covering themselves in glory at this point, either, by cowering before this spectacle instead of fighting it tooth and nail at every opportunity.

    That’s what made me so angry about the Republican spending spree early in Bush’s term. Their ability to fight “tooth and nail” is severely compromised by their own willingness to spend like drunken sailors when they were in charge. Worse, they did it all while calling themselves “capitalist” and “conservative”.

  • lucklucky

    The crap is getting worse and didn’t start with Obama or Bush. The “complexification” and growth in red tape of Business: ambiental,work, gender rules etc means that we will soon have big established firms and then a big hole towards 1-3 person firms. A sort like in Europe where the big firms of today are the big firms of 100 years ago. A crystalization. What Obama is making is adding more crap to that pile of things that a person wheights against starting a business.

    Meanwhile:

    “…While the Chinese and Indian markets are showing signs of recovery, the outlook for most of the world remains uncertain…”

    http://www.breitbart.com/article.php?id=CNG.1280b69533cf355febc60b5e54c46576.4b1&show_article=1

  • Vercingetorix

    Can a car firm tell the unions to go and fuck off?

    andyinsca is right about his bit. For my biographical experience, I grew up in Flint, Michigan and my father in the eighties worked for every one of the Big Three as they laid off and rehired in alternation. I’ve seen that particular town during it’s sharp descent into the abyss, and Detroit, too.

    Unions are solid blocks of overhead, enforced by labor laws and contracts, and are as in-jettisonable as a barnacled hull. All this weight draws the firm closer to the watermark, until the seas grow rough and the caravel slides under at last.

    The current situation offers a consistent proof of something: Bailouts are a profoundly socialist intervention in the economy. If the government invests government funds, then it too becomes a last-minute creditor in the company; why not favor labor and other divisions of the common good if the company’s life is going to be extended by its greatest investor, the State? Having the State as lawgiver, consumer and provider is dizzyingly socialistic, irrational, foolish, but it is consistent with our denunciations of Obama and the Democrats as socialists.

    No more bailouts, no more unions, no more dictation of rules apart from the simple laws of blind justice.

  • Michael Staab

    It gives me no comfort to see in a very perverse and ironic manner Comrade Obama and his ilk accomplish what this man wanted.

    http://en.wikipedia.org/wiki/John_Galt

  • RayD

    Kim du Toit wrote:

    “But what has come to power, both in the U.K. and the U.S., is a political party for whom the entire capitalist philosophy is anathema, and who are both hell-bent on overturning the basic principles of capitalism (most especially, that of private property and ownership of capital).”

    I agree in principle but would question that in detail. It seems to me that it’s OK for the nomenklatura to be capitalists, e.g. Fred Goodwin, but not the “masses” with their pension plans.

  • K

    This Chrysler overhaul is a plan so bad it must be intended to be bad.

    Obama and the Democrats think they can prop up the US car makers through the next elections. Elections which are only 18 months away.

    And if the Dems can stay in power into 2011 there will be no need to count the votes in 2012 to know who wins.

    GM will go into bankruptcy proceedings as soon as the Chrysler deal is rubber stamped by the judge. Since the objecting creditors have now withdrawn their objections the judge will have to accept the plan.

    The two new companies will continue sucking funds from the Treasury and paying them to the UAW.

    They may sell a few cars but this is really a money laundering scheme. Treasury to UAW.

    Predicted consequences. Ford will be driven into bankruptcy. The UAW have no reason to make any concessions to Ford. The union leaders now know that putting Ford into bankruptcy won’t cost them anything.

    Foreign investment in the US will end. Why invest where property rights are meaningless?

    US companies will flee overseas and concentrate on foreign markets. (Sales of cars in China just hit another record high)

    The three automakers are only minor problems. US mortgage problems are at least 10 times bigger and the state, counties, and cities are mostly broke with current operations in danger.

    Not to mention the huge public pension funds which are underfunded by about a trillion dollars. The funds have been an orgy of mismanagement and corruption for years.

    Week after week unemployment rises. Week after week governments at all levels hire more employees. And week after week the deficit rises.

    But at least they are firmly against steroid use in major league baseball.

    Yet the spasm of big spending and control has only started. More for schools, more for medicine, repair every road and bridge, fund any and all public transit, tax and tax more, defeat global warming, and walk on water.

    The Treasury mailed me an unsolicited $3800 today. I have no idea why. A nice brochure which I won’t read explains it.

    I don’t want to cash the $3800. Yet I don’t want to try and return it either. That would put me on the lists of those who won’t be missed.

    What have I been doing? Well most of my money is now invested overseas. And by Monday night more will be. And then more. That offers only a little hope. But a little is more than none.

  • lucklucky

    “But what has come to power, both in the U.K. and the U.S., is a political party for whom the entire capitalist philosophy is anathema, and who are both hell-bent on overturning the basic principles of capitalism (most especially, that of private property and ownership of capital).”

    I don’t think so. The New Leftism needs the Capitalism to suck. What they will make is to keep the lash short.
    A Communist wanted to rule firms, the New Leftism is well aware that is too much trouble and brings to much risks. It is much better to be the “regulator” taking from A to B and B to A and get the power of that. And of course playing one against the other.

  • Ian B

    I don’t think so. The New Leftism needs the Capitalism to suck. What they will make is to keep the lash short. A Communist wanted to rule firms, the New Leftism is well aware that is too much trouble and brings to much risks.

    Arguably the difference between a communist and a progressive leftist is that the communist at least starts with good intentions and, attempting to build his worker’s utopia, falls inevitably into dictatorship[1]. Progressives of the modern type don’t even start with good intentions. They believe the world is irretrievably corrupt and are merely interested in being the dominant class. I’ve been struck by this in arguments with “ordinary [American] liberals” on the web. They are entirely unidealistic. They believe there will always be a super-elite, and they just want to make sure they are it, or its benefactors.

    They don’t mind corporations, so long as those corporations are under their control. If one imagines such people approaching slavery the same way, they wouldn’t have abolished it; they would have worked to control the slave trade, then trumpeted how they’d improved the slaves’ conditions with regulations such as minimum housing standards or outlawing whipping. But if somebody said to them, “we should abolish slavery because it is incpompatible with natural rights” they’d be laughed at as a hopeless idealist.

    [1] I mean here a “believing”, rank and file communist here. Obviously the likes of Stalin are corrupt from the get-go.

  • Ian B

    PS above comment isn’t meant to imply that communists are somehow nicer than “new leftists”, I was just trying to distinigusih the thought processes behind them. Perhaps not terribly successfully. It’s first thing in the morning. Sorry.

  • Vercingetorix

    Progressives of the modern type don’t even start with good intentions. They believe the world is irretrievably corrupt and are merely interested in being the dominant class. I’ve been struck by this in arguments with “ordinary [American] liberals” on the web. They are entirely unidealistic.

    Not sure I agree with that at all. Anyone not a liberal (conservative above anything else) is reflexively racist, sexist, anti-gay, paternalistic, war-mongering, evil. Even libertarians with the small government bent which refuse reparations for slavery, for instance, or affirmative action, or a progressive tax code, will get a salvo if there aren’t any easier targets in the area or if Limbaugh takes a vacation for a few days.

    I would make a distinction with a subtle difference: Liberals are unidealistic – they have no discernable philosophy but power – but not un-moralistic. They still regard their own annointment as right-thinking stewards as a moral good on its own, and any dissension as a moral evil.

    Small point, but I think worth making.

  • Vercingetorix

    They are entirely unidealistic.

    No, that’s wrong. The Left is ferociously moralistic. Disagree on anything from taxes to crime to affirmative action, and you’ll be hit by the racist, sexist, antigay inquisition.

    Rather, the Left believes its own power is a moral good. Their ideology, such as it is, is narcissism; as the anointed ascend, so does the inherent justice of the society. Perhaps a small distinction, but important.

  • Vercingetorix

    They are entirely unidealistic.

    No, that’s wrong. The Left is ferociously moralistic. Disagree on anything from taxes to crime to affirmative action, and you’ll be the enemy.

    Rather, the Left believes its own power is a moral good. Their ideology, such as it is, is narsacism; as the anointed ascend, so does the inherent justice of the society.

  • matlock

    I’m not a big fan of government interfering with bankruptcy laws but in this instance creditors lending to the Detroit big-three must have lent money in the full knowledge that the government was always a third party actor in the sector (as compared to lending to say a circuit-city or taco bell). Presumably, up until now, creditors have benefited from the Government lending money to the companies on non-commercial terms as well as a whole host of other regulatory benefits and governmental largess bestowed upon the detroit three. I don’t have too much sympathy for the creditors in this suitation.

  • Paul Marks

    Anyone who invests in companies or propety (or whatever) in the United States under the present regime is making a terrible mistake.

    Even those clever people who think “we have connections with the Administration – it is backing the companies we are investing in” will find they are making a terrible mistake.

    Short term stock market booms (fueled by Federal Reserve system funny money injections) are an accident waiting to happen – sorry but “the hair of the dog” (issuing more money in order to try and stop the effects of the bust of the boom created by all the other injections of money) will not work for more than a few months (and the day it collapses can not be predicted exactly).

    Nor is investing in particular companies that ar “in with the regime” a good idea.

    General Electric may have had 127 billion Dollars of its debt backed by the regime and it may be in line for lots of goverment contracts (especially for “green” projects) but those people (no matter how rich they are) who invest in it are still making a terrible mistake.

  • Paul Marks

    “You are not being specific about Chrysler Paul”.

    True – so I will be.

    It was a Mafia style operation by the Obama Administation (true to both their Marxist heritage and to their Chicago Machine political training).

    The creditors were told agree to this or we will get you.

    But instead of broken knee caps they were threated with Executive Action by the government (anything from various regulations to I.R.S. audits – which can freeze all of someone’s assets even if they have paid every cent of tax).

    And they were threatened with “we will set the Whitehouse Press Corps on you”.

    So much for the press being “watchdogs” – they are in fact attack dogs.

    Attack dogs that will destroy anyone the Obama government tells them to.

    The United States may have tens of thousands of “laws”, but it is getting further away from a Republic under the rule of law.

    Investing in country without the secure rule of law is an error.

    This is not to say that some business enterprises are not booming in the United States.

    However, the best example of an industry that is booming is firearms and ammunition.

    Anyone who thinks I am making that up should go look at the sales increase numbers.

    Most Americans may still be going “hope, change” with a blank look in their eyes.

    But a very large minority have seen the future and they know it does not work.

  • Brad

    Does the bullying portend real problems?

    I think it’s a lot less about portending anything as it is an endgame.

    All our difficulties lie with eight decades of unfunded entitlements and handing out scrip over that time that entitle people to a share of what was to be future economic output, regardless of their unconsumed rewards for their previous inputs. The fact of the matter is that we will soon have incredibly more demands from our economic productivity than we can possibly ever produce. And so the government will protect those who serve it well. So what is being portended now is the iminent digging of post holes for the fencing to keep in the people who don’t serve it well.

  • Ian B

    In other news, Obama’s Corporate Supporters Either Stupid Or Very Stupid.

  • Relugus

    Railtrack were an incompetent company. Crap service and total contempt for their customers.
    Railtrack were a bunch of completely talentless bunch of corporate welfare pigs, much as I hate Byers the stupid morons at Railtrack deserve no sympathy.
    Railtrack’s investors did not speak up for the commuters forced to endure the utterly terrible service.
    Rail privatisation was a disaster; where are the alternative railway lines I can use if I don’t like the service I’m getting? Where’s the competition?
    Our public transport companies are so stupid, so inept, that they have to be subsidised by the taxpayer.
    They don’t even bother to check if people have tickets, at night you can use the trains for free at the taxpayers expense.

    The banks are not being bullied by the US government ffs, they OWN nearly all the politicians. This is crony capitalism just like in Iraq where there is still no water or electricity because of the taxpayer screwing private contractors.

  • Eric

    It is much better to be the “regulator” taking from A to B and B to A and get the power of that. And of course playing one against the other.

    People used to call that sort of thing fascism. But I guess that was before the word was re-purposed to mean anything involving George Bush.

  • mike

    Relugus:

    Yes, rail ‘privatisation’ in the UK was a disaster and I can personally recall much of you what you say.

    Yet the privatisation of Britain’s railways was a disaster because it was not done properly, as Patrick Crozier explains.

    It is less ‘crony capitalism’ than ‘crony statism’, and yes the names do matter.

  • Letalis Maximus, Esq.

    Can anyone here say “British Leyland”? Chrysler and GM (which you might as well call “Gettlefinger Motors”) will almost certainly never be profitable again. The government will continue to prop them up as a jobs program. Fiat has nothing that American car buyers want or need. Ford will almost certainly follow the other two in bankruptcy soon enough. When Toyota is losing money, how can anyone expect the Big Three to survive without huge infusions of taxpayer cash?

    And Paul Marks is right, everywhere in the United States firearms and especially ammunition are flying off the shelves as fast as they get there.

    The only question that remains is whether the Obama administration is destroying the economy on purpose.

  • Forrest Covington

    I don’t think memories wiil fade well here in the U.S. since what the government did here is unprecedented in our society. They are about to try exactly the same thing with GM, except this time the sums are more like 27 billion instead of 300 million. In the GM case the debt is held by private funds which are not on TARP. (I have a piece of one of those funds) so they will be less willing to cave in and they have more mass on their side. The two bancks that caved in the Chrysler case were ‘slave’ banks that are utterly dependent on TARP, and were also negotiating what the results of their ‘stress tests’ would be. Expect a bigger more public fight over GM, and for the secured investors to recover more than in the Chrysler case.
    Neither company can expect more than token private financing and are essentially dead. GM has more potential to survive but not in the American market. These firms will be on taxpayer subsidy essentially forever since it will be politically impossible to cut them loose. Imagine UAW workers getting laid off by a Democratic administration! Not going to happen.

  • There’s a test case of sorts, in that Municipal Assistance Corporation in the 70s took over NYC bonds and forced a trade to new unredeemable bonds paying less interest, rather than proceeding in NYC bankrupcy court as full faith and credit would require.

    I guess some people are still buying municipal bonds today though.

  • 200

    An increasing number of people – of all levels of wealth – are getting wiped out as the White House continues to make up its own rules and act thuggishly in transparent bids to reward their supporters with ‘wealth transfers’.

    Some of these people now have nothing to lose. This will not end well.

  • Melvin Winter

    Check out this Onion-style parody of Obama’s UAW/Chrysler deal:

    http://optoons.blogspot.com/2009/05/obama-gives-uaw-55-control-over.html

  • K

    I hope Forest and the GM investors go get a better deal. IMO they will get worse.

    After having cowed the Chrysler people and emboldened the UAW Obama is not likely to become meeker. Nor are the bankruptcy judges going to be more inclined to resist.

    In particular, the UAW will resort to violence if they have any belief they can get more at GM. It is pretty clear criminal acts won’t be prosecuted unless they are both brutal and overt.

    As they say on TV. They know where you live.

    Those outside the US may not know that the regulation of bankruptcy is in the Constitution itself. So Congress has the authority to do about what they desire in that matter. If they do not check O then the courts probably won’t.

    Later… today is Mother’s Day….

  • Vercingetorix

    This is crony capitalism just like in Iraq where there is still no water or electricity because of the taxpayer screwing private contractors.

    What water and electricity there is in Iraq (and it certainly is not “none” – the level is much higher than prior to the invasion, when Baghdad robbed the surrounding province of electricty to keep up appearances at night) is entirely due to private contractors doing the work.

    Neither the US military nor the State department possess the technical jobs to stand up an entire civilian infrastructure in one afternoon (or twenty years). Nor do they stockpile generators the size of buildings or water pumps the size of parks.

    Not in the job description for any of the armed services, not even today.

    As someone else put it, the words you are looking for are crony statism, not crony capitalism.

  • kentuckyliz

    Congratulations on the Instalanche!

  • Johnathan Pearce

    I’m not a big fan of government interfering with bankruptcy laws but in this instance creditors lending to the Detroit big-three must have lent money in the full knowledge that the government was always a third party actor in the sector (as compared to lending to say a circuit-city or taco bell).

    Wrong. I think it would have come as a genuine suprise to bond fund investment houses such as PIMCO – part of the German insurance giant Allianz – to have seen how the Obama administration was prepared to tear up the convenants in bonds and reduce the chances of bondholders getting back their original capital. Sure, I guess any business that might be deemed “too big to fail” is now in a situation where a bailout is possible, especially if there are unions involved.

  • The foundation of the U.S. success in world business is the sense that your investments are safe and that the country is run by law rather than raw power. Without that we are sunk. No rules = no predictability = bad for business.

  • Paul Marks

    Relugus asks where the compeition would be for private railways.

    The competition would come from road and air travel (and, in freight, from canals). Of course such things as road should not be subsidized by the government – come up Relugus – you are a Progressive person government road building projects are “coporate welfare” for contrators and are “bad for the environment” as well.

    Join with me in denouncing such projects – then we can be comrades.

    Also to denounce government subsidies (corporate welfare) for rail, roads, or banking and then to denounce “privitization” shows that someone does not know what private enterprize is.

    In railways of course (as even John Major undertood – before the Civil Service steamrollered him) for a company that owns the track to not be allowed to own the trains and run the service makes the whole thing a statist farce.

    By the way some bankers thought they “owned” the government – they do not think that anymore.

    Those who (voluntarily or because of various threats) accepted TARP money have found they were riding a tiger.