The Wolves, the Lamb, and the Dinner Menu

Wow. I am dumfounded. I just went back and reread my last three columns (my Economy trilogy), and am seriously finding it hard to fathom just how much our politico-economic situation has deteriorated in just the meager four months since I wrote them. The examples of economic illiteracy I cited in them have already been outdone so many times over that they seem like they were written ages and ages ago. The housing bubble? Fannie & Freddie? The CRA? AIG? Stimulus? Bailouts? Who even remembers that shit?

All of those things had seemed unthinkable just a year before I wrote those columns. The shit that has gone down since then seemed unthinkable while I was writing them.

Since then, we’ve seen the most brazen power-grabs by the federal government in, well, at least since Roosevelt’s New Deal, possibly before, and certainly in the memory of anyone reading this blog. Arguably the most egregious, definitely the most obvious, example of this would have to be the takeover of Chrysler and General Motors.

They called it a bailout. I call that bullshit. What we ultimately saw happen was an utter subversion of bankruptcy law and contract law, with legitimate lawful creditors being given the shaft (aka, ‘having their money stolen’) in favor of the government and Democrat cronies, most notably the United Auto Workers.

I do not know all the ins and outs of bankruptcy law or of the bond market, but I do know enough to fill up a couple of paragraphs and bore you to death. Since I believe my trilogy probably already accomplished that particular goal, I’ll keep it brief:

A bond is a financial security, as is a share of stock. The difference is this: when you purchase a bond, you are in effect lending the issuer your money on defined terms, but without any ownership stake in the company or government entity issuing the bond. When you purchase stock, you are purchasing a share of actual ownership in the company. The payout for a well performing stock is generally better, and potentially far better, than that of a bond. But the stockholder, as part owner of the company, is implicitly assuming part of the risk associated with the company’s performance, and so the stock is also riskier than the bond.

Part of this is because when a company goes into bankruptcy, there is order in which the law prescribes that debtors be dealt with, after administrative and legal costs are met. In the case of the GM and Chrysler takeovers, certain bondholders who were secured creditors (the ones who get first crack) were paid out substantially less on the dollar than the UAW, which was a non-secured creditor, and which also received 18% ownership of GM and 55% ownership of Chrysler (The federal government now owns 60% of GM; I’m not sure how much of Chrysler, which is now also partly owned by Italian auto maker Fiat). I’ve read some conflicting reports as to specific numbers on this (or at least unclear, possibly due to an insufficient understanding of terminology on my part), but it appears that in some cases bondholders were forced to surrender the debt they owned in exchange for stock shares. Of course this is all happening because GM and Chrysler just went in the drink, so those stocks are practically worthless.

Bear in mind, by the way, this is after more than $20,000,000,000 were dumped into these companies, courtesy of the U.S. taxpayer, for the specific purpose of preventing a bankruptcy. Much of that money has been provably squandered, and still more is unaccounted for.

Predictably enough, proponents of the takeover, and even President Obama himself, have derided those bondholders and creditors who objected to all of this as greedy, as looters, as lacking a will to sacrifice for the greater good, and as eeeeevilll speeeecuuulaaaatoooors. Obama himself derisively uses the term “the money people” and declares “I don’t stand with them.”

But who are these bondholders? They are hedge funds, mutual funds, and investment firms. They are pension plans, retirement plans, and 401(k)s (including mine). It’s all one and the same, folks. Yes, there are people in there who are trying to play the market for a quick buck. The thought of them can be irksome, but there’s nothing really wrong with it. But most of that money is coming from peoples’ paychecks; savings; earnings. Yours and mine. And we are the ones being told to take the hit and like it. If all that’s not enough, we’re being told this by the same people who are taking our tax dollars to fund this madness.

Still more bizarre, the appointment by Obama of Steven Rattner as the head of the auto task force, aka “the car czar.” Despite very specifically say that he and his administration “have no interest in running the auto industry,” the president seems to have appointed someone to possibly do just that. I say possibly, because it’s still not really clear what this guy is supposed to do. Little of his specific job description seems to have been released, and he doesn’t seem to like interviews. But if he’s anything like the dozen or so other “czars” Obama has appointed (such as the “bank czar,” the “climate czar,” the “Great Lakes czar” (I shit you not), and the CEO “pay czar”), he’ll wield an awful lot of influence, and answer to no one but the president. Sound like any other countries we know?

I’ve heard people debate as to who the biggest loser is in this scenario (though I’ve yet to hear anyone name any winners). Obviously the U.S. taxpayer tops the list, but beyond that, I’d have to say:

Ford.

The Ford Motor Company has thus far resisted its original impulse to partake in this whole bailout craze, and as such is still an independent auto manufacturer. I don’t know exactly why they backed away from the fed’s bailout. Maybe they saw what was happening in other sectors that took bailout and TARP money, and decided they didn’t want the government meddling in their affairs in that way. You can bet their higher-ups took serious notice of fed actions to regulate CEO pay.

But now Ford faces the very real prospect of being in direct competition within its industry, against the federal government. This means that their competition will have a virtually unlimited pool of money (again, courtesy of John Q. Taxpayer!), and will be directly linked to the federal agencies both that regulate them, and that enforce those regulations. Remind you of an old parable? Something about two wolves and a lamb voting on what’s for dinner?

Sounds like Ford’s about to get a taste of what it’s like to be John Q..