The Economist Gets Something Right

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37 Responses to “The Economist Gets Something Right”

  1. Phyrkrakr says:

    Everyone should read more Louis Brandeis. He’s a Supreme Court judge from the 20s and 30s who was pretty strongly anti-corporate. For starters, read his dissent in Liggett Co. v. Lee, 288 U.S. 517. He spends most of the dissent just ripping up the corporations of the day (right at the leading edge of the Great Depression, and he has some really interesting ideas that are still relevant about corporate regulation.

    He also made some waves supporting First Amendment rights (Whitney v. California) and the right to privacy (Olmstead v. U.S.)

  2. dcamsam says:

    Cash that might have been invested in the bonds of certain US companies with strong union/govt ties will probably go elsewhere, probably overseas, to less riskier ventures. While clearly not Putin/TNK-BP, this move by the government does make the US a less friendly investment environment. Ironically, the big loser could be unionized companies.

    Actually, no, or not necessarily. You assume that the worker will not take notice of the fact that they are better protected in the case of bankruptcy at some companies – those with strong unions – than they are elsewhere. If you’re wrong, and they do notice, then the company will have an advantage when competing for workers, because all things being equal, the worker will prefer the company which privileges the worker over the one that doesn’t.

    Better workers make for a better company and a better investment.

  3. Umbriel says:

    If you check out Reason.com (which already has a lot of cross traffic with BoingBoing), you’ll find that the hardcore pro-market libertarians over there are pretty darn critical of corporate welfare, eminent domain abuse, and the like, just as they’re critical of the heavy hand of government when it’s allegedly working for “the people”.

  4. mccleary says:

    Are we missing the point here? Whether or not you can make a valid case for either class of investors as the senior creditors doesn’t really matter.

    The point of the post as I understood it is that this is an extremely dangerous precedent to set. Cash that might have been invested in the bonds of certain US companies with strong union/govt ties will probably go elsewhere, probably overseas, to less riskier ventures. While clearly not Putin/TNK-BP, this move by the government does make the US a less friendly investment environment. Ironically, the big loser could be unionized companies.

  5. aelfscine says:

    The best argument I’ve heard for keeping the auto companies afloat is that it’s the cheapest short-term fix for keeping jobs afloat. It’s not that letting GM die is a bad thing, it’s that it would be a bad thing… right now.

    As a former Michigander, let me tell you that it’s no lie that the entire state is built on the auto industry, and that dead GM also means dead suppliers, tool and die manufacturers, hairdressers, everything. Michigan goes under, period.

    Now, if the rest of the country were in better shape, and the economy was good enough that other carmakers could move in to Michigan and build plants, or other industries could move in and employ people, then GM’s death could be made to have minimal consequences. At this, precise moment, it would be devastating.

    Keeping GM alive at the moment is sort of like waiting until after her mom’s funeral to let your girlfriend know you’re breaking up with her – it’s not that you’re not going to eventually break up, it’s that when she’s standing in front of the casket is not quite the best time.

  6. Roy Trumbull says:

    There are two bond holders here. The suckers who paid full price before the bonds crashed and the ones who bought them at a steep discount hoping to make a quick buck.
    As to the Economist, I’ve seen high school papers that have better writers.

  7. Joe says:

    Reason.com is filled with demonstrable nonsense. For example, they have an article claiming that countries with universal health care are “economically worse off” than the US. But since every industrialized democracy other than the US has universal health care, and since a number of countries can report better numbers than the US on any number of metrics, that claim is easily refuted, even if you grant the Reason folks the weird idea that living longer is economically worthless.

  8. Anonymous says:

    “some lenders provide cheaper funds to firms in return for a more secure claim over the assets should things go wrong.”

    Why, in this case, does this statement not apply to the employees and retirees, who theoretically could have gotten a higher wage instead of long term pension and health care commitments from GM?

    I’m not saying the Bond holders should have a lower rung on the repayment ladder, all I’m saying is that employee contributions to companies has been historically seen as less than that of investors and maybe in this case that assumption is incorrect.

  9. dainel says:

    They’re just unhappy that the government only bailed out the workers and not the other creditors. If the Republicans were still in power, they would have gotten a piece of the pie as well. Their own “rightful” share.

    Universal health care. Does it cause countries to be economically worse off than the US? I wouldn’t argue that point right now. But look at it another way. Are there countries that are much poorer than the US, and yet they opt to provide universal health care. (Think third world countries). If your country can be richer if you opt to not help your fellow citizens when they fall sick, would that be a good choice to make.

  10. FutureNerd says:

    #16 Jack’s Smirking Revenge:

    What happened to that “free-market” thing where you let an industry or bank die because of bad decisions so that new ones can come about?

    I guess the people advocating the “free-market” never thought it would be them that had to die.

    Don’t confuse market players with market advocates. Sometimes they overlap, but often players just wear pro-market rhetoric like a suit.

    Actual pro-market types– even the pro-corporate ones– are still for bankruptcy and against bailouts and stimuli. Heck, even the Republicans put up halfhearted resistance to last year’s original bailout bill.

    Greedy, self-serving players are okay as long as you limit or weed them out with reasonable rules like bankruptcy. (And as long as you don’t believe their propaganda.)

    When the rules are too tight or too loose, or both, and especially when they are inconsistent and changing, you set up situations that are good for bad players and bad for good ones.

    Really, what happened to bankruptcy? It’s that in politics, votes slosh away from the fear of change, so that promising stasis is what wins.

  11. Roku says:

    The article is absolutely correct, and the consequences are even more far-reaching than they suggest: The economy will continue to implode until the government stops trying to bail it out.

    Here’s why:

    It is impossible to invest rationally when the future value of an investment is determined entirely by whether the government chooses to intervene. This is what is happening: big money is all sitting in T-bills, because no one with any brains is going to buy bonds, or anything else, when their value becomes either lucrative or worthless according to Paulson or Geithner’s latest whim.

    The only exception is those investors who have insider information, or who control the government: then you get a banana republic, which is exactly what the US is becoming. Goldman Sachs runs the Treasury, all the big banks run the Fed, and both major political parties are bought and paid for. This is why Congress can get calls and letters opposing the TARP by 300:1 and still vote for it.

  12. jjasper says:

    Didn’t Hoover try the who’s “do nothing and let the market fix its self” strategy? I mean, outside of Smoot-Hawley.

  13. CWulf says:

    Granted that senior secured securities were originally issued with preferntial standing in the case of a bankruptcy, and granted that vulture hedge funds are the investors of last resort the worst economic times; in normal times I cannot applaud Government economic intervention in any, way, shape or form, but who are we kidding: The Government is running this show and it’s job is to make the rules; without their expected intervention any and all car maker debt would have been worthless long ago. The hedge fund crew plays by the rules that serve their interests; they are not team players, at least they thought they could cut their own deal based on precedent. The Government is not only clearly limiting the liquidity of distressed debt in this instance; it is making opportunistic money “managers” serve the public interest by waiting in line with the rest of us.

  14. RobertinBellevue says:

    Good observations, Douglas. While growth and market forces are natural rewards of success, I’ve recently been thinking about how entities need to continue adapting to new challenges they face at each new level of growth that they attain. What I think we’re seeing are huge companies that have now moved into uncharted territory. We need to start some serious new thinking on next steps. It’s much harder to think-outside-the-box when you’ve gotten to a certain scale. This also applies to government at all levels. Their sheer size prevents them from adapting to new market forces, making them slow and often dysfunctional.

    Microsoft is a prime example: Near the end of their antitrust trial, it was proposed that they break up into three separate entities, each operating independently of the other. Had they actually done that, they may well have become even more successful today rather than facing the current problems they have today during these tougher economic times.

    I don’t think that anyone anticipated such global multi-billion dollar global corporations such as General Motors. There are no business models to look back on for insight and GM’s own governance is so compromised, it’s been useless. It seems most of the old economists never anticipated growth on such a scale.

    Big is not necessarily bad. It just has to be managed better and certainly re-born on a regular basis for their own sake.

  15. Anonymous says:

    Douglas Rushkoff has done fine scholarship and I applaud his work. Moreover, I tend to agree with him in general. But in this case his argument is bizarre, like that of The Economist. Worse: Rushkoff’s and The Economist’s priorities are so weirdly skewed that an objective observer must wonder which universe they’re living in.

    In essence, Rushkoff and The Economist argue against tainting the sanctity of the corporate bond. The alleged outcome of such government tampering involves reluctance by investors to buy corporate bonds in the future, which would surely have dire consequences for the economy as a whole.

    An objective observer, however, must stand open-mouthed with wonderment. It cannot have escaped Rushkoff’s notice that the entire global financial meltdown proceeded from a vast and systemic failure in the bond rating agencies. Bluntly, honoured bond rating agencies like Moody’s told investors a pack of lies for many years, claiming that tranches of investments which were worth nothing were, allegedly, AAA-rated.

    Has Rushkoff and the editorial staff of The Economist slipped into our universe from a parallel dimension where massive systemic decades-long fraud did not destroy the credibility of financial analysts and bond rating agencies across the board?

    Surely every sentient creature with an IQ greater than an amoeba now realizes that all the Wall Street research and ratings agencies have been so thoroughly corrupted that any bond rating they give qualifies as an obvious and laughable lie. The overt fraudulence of financial ratings today continues unabated in the absurd estimates by TARP of the alleged value of their toxic assets.

    Any investor today understands clearly that all ratings are a pack of lies. No sane investor today would believe any bond rating, except possibly in a negative fashion — which is to say, that the more passionately a bond rating agency assures you nowadays of the AAA gold-plated value of a bond, the faster you should run from it.

    Investors as a whole will be fleeing from the stock market and the bond market like the survivors at the end of the 1968 movie Night of the Living Dead from the brain-eating zombies, and they’ll be shunning all investment classes other than T-bills for at least a generation, probably two.

    In this climate of unreformed systemic breakdown and massive endemic corruption in both Wall Street and all the financial analysis and ratings agencies, no sensible person would believe anything any ratings agency said about any corporate bond, regardless whether the government “taints” its value or not.

    Bluntly, Rushkoff and The Economist worrying about the government damaging the sanctity of corporate bonds in a financial environment where any kind of bond has the approximate value of flesh-eating bacteria is about as bizarre as worrying about a guy lighting a cigarette while his house is burning down.

    Earth to Rushkoff: come in Rushkoff…the global financial system has revealed itself as a toxic Ponzi scheme helmed by lunatics, regulated by lying thieves, and managed by demented fools who appear to have overdosed on hallucinogenic drugs. And the demented fools and lying thieves are still in charge. The idea that anything Obama can do will damage the alleged “legitimacy” of corporate bonds after the epochal orgy of fraud we’ve witnessed over the last 30 years in corporate America is on the level of claiming that the parrot isn’t dead, it’s just sleeping. Please. Wake up, folks. Capitalism has discredited itself at a basic level.

    The question is not whether Obama (or anyone else) can resuscitate the credibility of the corporate bond in the current necrotic state of corporate accountability, but whether capitalism as we have known it will degenerate gracefully, in the manner of the Gustav Husak’s dictatorship giving way to the Czech Republic in a Velvet Revolution, or whether capitalism will have to be violently overthrown and the CEOs and Wall Street titans and all the bond ratings agencies will have to be disposed of the same way the people of Romania got rid of Nicolae Ceausescu and his goons.

  16. Uncle Geo says:

    “Pro-market advocates often forget that the corporations whose interests they’re championing are actually the beneficiaries of government policies and rule sets developed to favor the activities of giant, centralized, conglomerates”

    They also benefit from many other government provided incentives that are not so sinister -educated workers, roads, courts, the military (so their assets are not blown up every 40 years or so), deductions for expenses, research universities that create the basic research behind many of today’s products, police and fire protection and much, much more. I’m a leftie and I’m all for these kinds of benefits as they promote healthy businesses that employ people and make products we need or want to buy.

    “they argue against regulation, when it’s regulation that have built the monopolies preventing truly free commerce from taking place.”

    The sinister regulations need to go, but many pro marketers make the case that all regulation is bad. That regulation is inherently ineffective and/or destructive. Yet after we have all just lost our asses huge-time, just what is it about the free market that’s so whoopdeedoo fabulous anyhow?

    Free market advocates draw no distinction between incentive, which encourages a strong economy, and greed, which can tear it all down in months. To imply that regulation is central planning (or in the words of others, “socialism”) and must be avoided at all costs just means we, as citizens, are powerless to reign in the greedy bastards who would ruin our life savings and the hopes of our children.

    “…interventions as unfair to those who have come in expecting the rules they signed up for to be enforced by government, rather than rewritten.”

    And if there were no bailout for the car companies and they fail -then they’d likely have bupkis ayway. We give them all those nice bennies and a bailout to boot and we stand last in line? As for shareholders, where were they when the car companies made stupid decisions over and over again for decades? What genius thought it a good idea to lobby for deductions on SUVs as a way around low mileage regulations when we all know the gas is drying up? And why did Detroit make the stupid things? Do you ever see a dirty SUC or huge pickup? Most often I see trophy wives driving to the grocery store.

    Your point is not lost on me. I do believe the contracts we make in business need to be respected so the system works. I’m, obviously no economist. I’m just venting because in the end, when someone needs to bend over, it’s rarely the guys at the top -it’s usually the hard working folks who just wanted a home, a family and a comfortable retirement who get smacked when greedy people unload their risk on the taxpayer.

  17. SKR says:

    @#2 Joe,

    and since a number of countries can report better numbers than the US on any number of metrics, that claim is easily refuted,

    Which countries are those that, when averaged over that last 10 years, show higher GDP, higher per capita income, higher per capita purchasing power, lower unemployment, and lower tax burdens?

    Also, didn’t Rushkoff just post about how creditors produce no value to the economy?

  18. Anonymous says:

    I think the confusion is caused by the US government misadvertising its bailout of GM’s health and retirement benefits as a bailout of the company. If you total the taxpayer money that went to GM and Chrysler, it is pretty clear that is what they did, and then they turned around and handed what they bought to the workers at those companies and to the taxpayers. The bond holders are actually getting exactly what they have coming to them, their share of the remains of the companies less the retirement accounts that the US government bought recently — which, unfortunately for those bond holders, doesn’t amount to much.

  19. starfish and coffee says:

    @#7
    “… higher per capita purchasing power … and lower tax burdens?.. ”

    I suspect the the way you are asking the question is a way of obtaining the answer you want. Yes, typical European welfare states will have higher taxes, or “tax burdens” as you call it. More tax means less purchasing power, fair enough. However, for US citizens to get the same level of services as many Europeans, money from their purchasing power will have to be diverted to pay for private schools, hospitals and more. These are services many Europeans get for “free”, hence less impact on their purchasing power. So even if their purchasing power might have been smaller in the first place they might be left with at least as much when health care etc is provided for.
    The many different quality of life and living standard indexes will be better comparative tools in this respect than your above list of metrics.

    Anyhow… we are trailing off here. Let’s hope the next post is about government bailouts vs bond holders.

  20. rneches says:

    Once again, The Economist demonstrates that it doesn’t understand how American bankruptcy law works. The creditors are payed back in order of seniority, and whoever is providing the debtor in possession financing is always the most senior creditor. In this case, the government is the most senior creditor, and has every right to wipe out the less senior creditors if they refuse to cooperate.

    This is how bonds are SUPPOSED TO WORK.

    It’s written into every bond contract; in fact, it’s the basically the definition of a bond. Is it unfortunate that the senior creditor had to throw its weight around? Always. But is how these things work.

    It’s easy to be bamboozled by The Economist — their contributors do know a lot of stuff. But they are idealogs, not economists. It’s never more obvious than when they talk about American law; they don’t understand it, and they can’t be bothered to find out.

    Europe’s bankruptcy system is different from ours, and if given the choice, I’ll take ours any day. Our system provides an effective mechanism for losses to be realized, and for companies to restructure and move on. Without the measures The Economist is complaining about, companies that could be saved would often be liquidated, and companies that can’t be saved would often limp along like zombies.

    Idiots.

  21. Aloisius says:

    An objective observer, however, must stand open-mouthed with wonderment. It cannot have escaped Rushkoff’s notice that the entire global financial meltdown proceeded from a vast and systemic failure in the bond rating agencies. Bluntly, honoured bond rating agencies like Moody’s told investors a pack of lies for many years, claiming that tranches of investments which were worth nothing were, allegedly, AAA-rated.

    It didn’t help ratings agencies much that people tied calls to pay back debt to ratings. Once enough people did that, a rating agency could essentially force a debt-burdened company to become insolvent with a flick of a switch because there is no way to quickly liquidate billions of dollars in assets.

  22. WalterBillington says:

    Yes, the Economist is right. Technically, as they so often are. Within the bounds of the currently dispersed and accepted economic theories, which, please remember, constantly fall back on the fallacy of the “rational agent”.

    I can’t stand the Economist, ever since their campaign to recruit the support of the professional classes for the attack on Iraq. It’s a shameful episode in their history, and for me, unforgiveable.

    But the matter at hand: WHO would have invested anything in these turkeys? There’s no credibility here. There was none. On a superficial level, investors looked to the law and their pieces of paper for security, but it was clear to all and sundry these firms were in immense difficulties, before the crisis, and that the contingent outcome was that they would be fine. The probable outcome was they were holding valueless paper. It was written on the walls.

    And so it is.

    The most important principle for a functioning economy: caveat emptor. Bond agencies or not, look at what you’re buying, shake it, smell it. Don’t rely on the words of other people to create reliance.

    So I do not weep for these sorry investors, and I feel that in all the hurly-burly of the crisis, we’re getting some timely reminders of the real granite underlying the economy, the real motivations and priorities.

    It would be nice not to re-create the mess to be worse next time. Let’s not invest in dogshit again (we will).

  23. SKR says:

    @#9

    Ok take purchasing power and tax burden off the table. Which country, across the board shows better economic numbers than the US, not just an indicator or two?

  24. rushkoff says:

    @26 – It’s possible to go overboard in this thinking, as well. Indeed, the economy has revealed itself as a pyramid scheme with banking at the top. And a lot of it is overtly corrupt.

    But I don’t know that the concept of the contract in relationship to money is completely null and void.

    What I think the Economist got right, as a few have mentioned, is the notion that markets can’t really happen when government (or anyone) can change the rules of contracts. I’m not sure capitalism has to be replaced completely – only that its legalized monopoly of our currency system has to be broken to allow for complementary models to co-exist.

    It’s also true that corrupt credit ratings agencies gave GM AAA-ratings on bonds that were actually of questionable security.

    But it’s also also true that while one person’s healthcare and pension are dependent on the labor unions Obama is protecting with government money, another person’s pension and healthcare are dependent on the bonds he is devaluing in the process. GM bonds were called “senior notes” because they were “senior” until the government stepped in and became *more* senior.

    Oh – and as for lobbying for lower fuel efficiency standards, you know who was participating in that? Toyota! That’s right: they lobbied for lower standards even though they, themselves, had beaten those standards well into the future. Why? I’d assume it was to keep lazy GM further behind.

  25. SKR says:

    @#9

    The many different quality of life and living standard indexes will be better comparative tools in this respect than your above list of metrics

    Yes that is true if we were actually discussing living standards, but the Reason article mentioned is talking strictly about the economy. Joe asserted that the Reason argument is demonstrably false. I’m asking where are those economic indicators that prove Joe’s assertion. Now, arguing that HDI or Human Development Index or other quality of life indicators are more important than the general state of the economy is a completely different and valid argument. But that is not the argument that was initially made in Joe’s indictment of Reason Magazine.

  26. WalterBillington says:

    I think we’re heading into a post-innocence popular recognition of the rules of the game. As always, the constant is: the more driven, powerful and influential you are, the better off you are.

    And never, ever trust bankers or anyone in finance. They don’t know what they’re doing (from my professional experience), they’ll lie while they mis-do it, and they will always charge the heftiest fee that flies under the collusion / market distortion radar.

    Did I mention that they will lie, lie, lie? They also recognise totally that there actions destroy the financial foundations of the economy – which is why you’ll find big money invested in land and other tangibles.

    It’s a jungle out there, simple as that.

  27. Anonymous says:

    to my way of thinking, a home is an investment.

  28. Anonymous says:

    Which countries are those that, when averaged over that last 10 years, show higher GDP, higher per capita income, higher per capita purchasing power, lower unemployment, and lower tax burdens?

    Those are all metrics, but I’d like to see some new ones. Gross Happiness Quotient (GHQ); Time Spent in Hammock (TSH). Friend-Family/Work time Quotient (FFWQ).

    Maybe I’m just jaded and spoiled because I’ve had a pretty high per-capita income myself, but I’m starting to think that the monitization of life in time is the last thing we should be striving for.

  29. Joe says:

    To elaborate on #9: currently, my employer covers 80% of my health insurance premiums and I pay 20%. In addition, I pay deductibles, co-pays, and so forth. Let’s say that we change the system so that these expenses are paid by the government, and my taxes and corporate taxes go up to compensate.

    Horrors! The tax burden has increased! But notice that (in my scenario) both I and my employer are paying the same amount. However, before the amount was called “health insurance”. Now it’s called “taxes”.

    But my scenario is not realistic. It isn’t realistic because the administrative overhead and need for profit of the private insurance company, which can be 20%, is eliminated, and replaced by an overhead that’s more like 5%. So either I can pay less for the same coverage, or the difference can be used to fund coverage for the unemployed.

    The big losers would be the armies of people who staff insurance companies, hospitals, and doctors’ offices, doing nothing but fighting either to deny claims or to get claims to be paid. There are about a million such people.

    Europeans resent their taxes less because they pay for so much more: health care, free college, better infrastructure. We let corrupt defense contractors piss our tax revenue away.

  30. Joe says:

    SKR, you’re directing the request for proof in the wrong direction. The Reason article made an extraordinary claim. For that claim to be true, the US economy would have to be #1 in all respects.

    But the US is seriously in debt to other countries, to the point where if we weren’t the USA, the IMF would be calling us a failed economy. Our productivity per hour worked lags Norway, which provides universal health coverage. Our unemployment rate is worse than many countries, even though we skew the numbers by classifying a worker as “discouraged” and therefore not counting as unemployed. Our budget deficit is enormous (and was enormous on Jan 19th).

    It is true that our productivity figure was the highest, but this is achieved by requiring Americans to work more hours than those in other countries. Also, I say “was” because our most “productive” and “profitable” GNP source was finance, and it’s now turning out that a lot of that money was phony.

  31. The Unusual Suspect says:

    I distrust any economic theory that attempts to assign motive or morality to the market. The market is what it is – a big, dumb beast.

    Though the market is made up of the motives and moralities of individuals, so many individuals with so many conflicting motives and moralities go into the mix that the beast serves no one all of the time.

    It is possible for individuals, corporations and governments to influence the market (for a brief moment and to a minor degree). But nobody prospers from the market who doesn’t recognize the warning signs that let you know when it’s time to get out of the way – because the beast has turned.

  32. Marja says:

    “Pro-market advocates often forget that the corporations whose interests they’re championing are actually the beneficiaries of government policies and rule sets developed to favor the activities of giant, centralized, conglomerates; they argue against regulation, when it’s regulation that have built the monopolies preventing truly free commerce from taking place.”

    That’s certainly true of the politically-connected pro-market voices. That’s even true of some libertarian pro-market voices.

    Kevin Carson has called this blind spot “vulgar libertarianism,” and there has been an ongoing debate over this, with Carson, Roderick Long, Charles Johnson, and others criticizing vulgar libertarian apologies for corporatism, and Stephen Kinsella and others criticizing Carson’s analysis.

    “Anti-market arguments, on the other hand, too often rely on the false promise of central planning or equally large institutional forces to address societal ills.”

    I consider myself a socialist. I believe that one of the great lessons of the twentieth century is that the state cannot be trusted to build socialism or even to restrain corporatism. The difficulties of building socialism through the market are nothing compared to the pitfalls of trying to build socialism through political institutions.

  33. Jack's Smirking Revenge says:

    What happened to that “free-market” thing where you let an industry or bank die because of bad decisions so that new ones can come about?

    I guess the people advocating the “free-market” never thought it would be them that had to die.

    Russia is laughing it’s ass off right now.

  34. SKR says:

    @ Joe

    I wasn’t arguing for or against universal healthcare. I am asking that you prove your assertion that Reason Magazine printed demonstrably false data about the US economy versus the economies of nations that provide universal healthcare. You still have not provided any data supporting your claim. You have only illustrated that you simply disagree with the Reason article not that they have performed journalistic misconduct by printing false information, which is a very serious indictment. An indictment which I believe requires evidence.

  35. dcamsam says:

    So, I should support the creditors because they bet that the workers would be screwed over before them – and lost.

    And yet I don’t.

    Also, I should support the “rules” of “game” because they are the rules, even if those rules were written by the wealthy and powerful to disadvantage the poor and powerless.

    And again, I don’t.

    That said, I don’t buy that the “rules” have even been broken, here. The Economist speaks of “principle,” not law. The fact that these bankruptcies violate a “principle” held by the Economist doesn’t mean that they violate the “rules” established by law. The fact that these creditors are squealing doesn’t mean anything, either.

    Consider:

    The many creditors who have acquiesced include banks that themselves rely on the government’s purse. The objectors have been denounced as “speculators” by Barack Obama. The judge overseeing the case has consented to a quick, “prepackaged” bankruptcy, which seems to give little scope for creditors to argue their case or pursue the alternative of liquidating the company’s assets. In effect Chrysler and the government have overridden the legal pecking order to put workers’ health-care benefits above more senior creditors’ claims, and then successfully argued in court that the alternative would be so much worse for creditors that it cannot be seriously considered.

    So, a major investor in the creditor banks ordered them to accept this deal, and they did. They argued in court for this deal, and the judge sided with them over the other creditors. Which rule does that violate? Because I don’t see it.

    Somehow, if the major investor weren’t the government, I doubt the Economist would be as sympathetic to the whining creditors.

  36. Anonymous says:

    Clifff Asness’s letter was a little more direct: http://zerohedge.blogspot.com/2009/05/cliff-asness-i-am-ready-for-my.html

    “The President and his team sought to avoid having Chrysler go through this process, proposing their own plan for re-organizing the company and partially paying off Chrysler’s creditors. Some bond holders thought this plan unfair. Specifically, they thought it unfairly favored the United Auto Workers, and unfairly paid bondholders less than they would get in bankruptcy court. So, they said no to the plan and decided, as is their right, to take their chances in the bankruptcy process. But, as his quotes above show, the President thought they were being unpatriotic or worse.”

  37. VictoriaPandora says:

    http://www.washingtonpost.com/wp-dyn/content/story/2009/05/08/ST2009050801596.html

    The U.S. government is pouring billions into General Motors in hopes of reviving the domestic economy, but when the automaker completes its restructuring plan, many of the company’s new jobs will be filled by workers overseas.

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