Archive for the ‘Chrysler’ Category

There is little more lawless than changing the rules of contracts in the middle of the game. Chrysler’s creditors entered into deals with one set of expectations (including their known benefits and risk in bankruptcy) only to have them changed by Obama in order to benefit a politically connected group. Obama has strong-armed secured creditors (even threatening to ruin one firm’s reputation) into signing off on a deal in order to “save Chrysler” and benefit unions, the latter of which gave up little in this process and whose pension benefits are largely unsecured obligations. This is true Bannana Republic territory, where the risk of nationalization and confiscation has long created major premiums on the cost of capital and dampened economic growth. Mexico had its own Obamas one hundred years ago with names like Diaz and Obregon. It has long lagged behind us as a result.

The Founders wrote a great deal about “minorities” in their commentaries on the Constitution, but the minority they had in mind was the minority everywhere and at every time in history most vulnerable to demagoguery and shifting winds: the relatively small numbers of wealthy investors in a given society, whose wealth is a relatively insecure monument to generations-long investments, innovations, and prudence.

Mickey Kaus notes that this whole thing will only delay the pain and prove a costly political failure for Obama. Chrysler produces a medicore product that few want to buy. Unless gas skyrockets (which itself will require swift economic growth), Americans will not be snatching up the death-traps known as Fiats. It’s unclear when Obama will ever allow a big business or connected group to suffer so long as he is at the helm. Instead, the rest of us, who are not so organized or visible, must suffer higher taxes, reduced growth, and an uncertain future so Obama can claim a victory and appear sympathetic and charitable by spending our money. This charade can’t go on forever though. The very thing Obama needs more of to ensure economic growth–predictability and respect for capital–has become increasingly absent from his administration, in spite of his moderate talk during the campaign. You can’t force people to invest, and no one will when government changes the rules in the middle of the game repeatedly.

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