The Chrysler bail-out made the news a few times over this. Last week it was announced that Chrysler would have to declare bankruptcy because an agreement could not be reached with some hedge funds. This earned them a public rebuke from Obama. More recently, these hedge fund managers have started speaking out about the way they were treated. Their complaint is that the government wanted to do to them what it did to the large banks holding Chrysler debt - dictate terms outside of normal bankruptcy protections. In both cases, they were told that the losses on their secured debt would be higher than on unsecured debt. They were also told that there would be no discussion about this. The head of a hedge fund had this to say:
Let's be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. If they give away their clients' money to share the 'sacrifice,' they are stealing.
Newsweek thinks that this is an isolated case and no cause for further alarm.
In ordinary times and circumstances, there's no justification for the government to intervene in a way that privileges unsecured lenders over secured lenders. But the times and circumstances surrounding Chrysler aren't ordinary.
While the circumstances may not be normal, the president is disturbing and part of a general pattern of anti-business behavior by the Obama administration.
In March the large banks that had accepted TARP funds were surprised to find out that the Obama administration felt that this gave the government control over these banks. Several have expressed a desire to return the funds. Currently the government will not allow this. Several possible restrictions on returning the TARP funds have been advanced but restrictions continue to change. Just this week the government suggested that banks that return TARP funds will also need to quit the FDIC. In the meantime, the government controls salaries and bonuses on Wall Street banks.
Obama recently announced that the government was going to take over student loans. Currently the student loan market is split between the government and private lenders. The reason for the government takeover seems to be to remove profit from the loans.
Obama proposed new tax laws on companies operating overseas. Currently, money earned overseas is only taxes at the local rate until it is brought to the US. If a company builds a call center in Ireland and re-invests its profits in expanding the call center then it would only pay Ireland's modest 15% corporate tax. Obama would tax all corporate profits at US rates. That would more than double the taxes in the Irish example. To Obama, this is nothing more than a tax break for moving American jobs overseas.
Obama also proposed requiring financial companies world-wide to provide detailed records to the US. Anyone in the US who placed money in an institution that did not comply would be assumed to be guilty of tax evasion by the IRS and have to prove their innocence.
The Obama administration has expressed a strong desire (negotiated down from a requirement) that any universal health care proposal include a government-run alternative to private insurance. Senator Byrd denounced the for-profit motive of insurance companies. Conservatives fear that the government program would be subsidized and slowly drive the private insurers out of the market ending up with a Canadian-style single-pay system.
All of these cases show that the Obama administration is not comfortable seeing people profit from investing. They want to see corporations putting other priorities ahead of making money. This sort of mushy Marxism sounds nice but capitalism requires that companies succeed or fail on their own. Companies that put other priorities ahead of success (profit) will eventually either fail or require further government bailouts.
1 comment:
Post a Comment