Saturday, May 23, 2009
They have all been beaten up, prosecuted, and pilloried by the federal government for taking on obligations originally described as in the national interest.
First, the government twists Bank of America's arm to bail out Merrill Lynch, then Democratic prosecutors in New York and Democratic Congressmen in Washington tear him a new one. Then the Treasury Department makes even the strong banks a TARP offer they could not refuse, whereupon the government imposes ex post facto restrictions on compensation and hiring that damage their ability to do business and deter other banks that might even need the money from taking it. Then there are the people who continued to work at troubled financial firms because they had been promised to be paid, only to find themselves the target of rifle-shot tax legislation and ad hominum demonstrations by Barack Obama's fellow "community organizers." Oh, and do not forget Ed Liddy, who stepped in for free to help the government deal with AIG, only to find himself excoriated in Congressional hearings for bonuses that he had vetted with the same government months before. Not surprisingly, Liddy threw in the towel this week.
Well, the wheels of the federal government's bus are now rolling over Chrysler's terminated dealers:
The calls from Chrysler officials were coming nearly every day, sometimes several times a day, right through the final weeks before the company filed for bankruptcy. And the message, said Robert Archer, who runs three Chrysler dealerships in the Houston area, was simple: Take more cars.
“They tell me, ‘The only way that we can survive is if you order cars, and Fiat and the government see money coming in,’ ” Mr. Archer said.
He acquiesced, he said, thinking he was doing his part to save the company. “I’m a team player and I don’t want them to go out of business, so I ordered a ton of cars.”
Then, a week ago, Chrysler told Mr. Archer, a dealer for three decades, that his three stores were among the 789 dealerships the company was eliminating as of June 9. Mr. Archer had 700 new vehicles and $1.7 million in new parts in stock when the letters arrived.
These dealers were going to get terminated one way or the other because Chrysler has been a zombie for months, but the government intervention in the otherwise natural decline of the business -- intervention to benefit the United Auto Workers -- seems to have incrementally screwed these poor guys. The government conditioned further aid -- life support, really -- on Chrysler showing "viability," which meant that Chrysler's survival and therefore all those union jobs depended on it booking at least some sales to its dealers. Not surprisingly, Chrysler used the government's condition -- that it at least seem viable -- to bludgeon these dealers into buying cars they did not need. They acquiesced, because they did not want to be responsible for taking down Chrysler when the government was trying to save it.
There are several things that might be said about this.
First, the government essentially promoted, or at least established conditions that would tend to promote, the fraudulent transfer of wealth from Chrysler's dealers to Chrysler's creditors, including particular the UAW. This is not surprising, because unions support Democrats and small businessmen usually do not and the creditors seem to be the bullet-proof constituency for both parties, but it is shocking nonetheless.
Second, if this happened in a purely private context we would regard it as fraudulent inducement. How often have creditors or auditors been held liable because the businesses they validated or certified then defrauded a third party? Even if this is slightly different legally, is it any different morally? Ought not public companies who do business with "bailout" targets have to disclose in their risk factors that the terms of their business might change at any time, without notice, regardless of contracted terms? Do not hold your breath for the SEC to start demanding that disclosure.
Third, what signal does this story and the experience of the banks send to businesses that might otherwise try to support a government program to bail out a company? The obvious answer is that the current federal government is entirely unreliable, and that people and firms who try to help in good faith stand a very good chance of getting run over for their efforts.
This does not seem like the right way to encourage volunteerism.
It is interesting how Government intervention has mimicked Obama's behavior. Say one thing, do something else. The Government has clearly shown that they can't be trusted in their relations with business. At what point does the Government's lack of credibility begin to affect investment decisions on a broad scale? Re the car dealers: Has anyone seen any criteria for the dealer closings? Chrysler/GM have no financial exposure in the local dealerships in my area that are to be closed. As for parts deliveries, they are 'on the way' to dealers that will remain open. The delivery truck pulling off the highway for 10 minutes hardly seems like an 'inefficiency' when they have to travel that route anyway.
We knew we couldn't trust what the government said decades ago. Remember when they said they were going to control the border? They have been lying to us since Nancy Pelosi became a Congresswoman, and probably even before that.
When President Obama said he was going to be honest, he was lying.
Approximately how much of this was in response to rabid populism? Could that not be deemed the true cause, given a polity that can't tell the difference between bonuses awarded in millions and bailouts awarded in billions?
I for one advocate a free market solution enforced by an unfunded government: no bailouts, no welfare, no anything-but-troops-in-foreign-countries. Many people may lose their jobs and many companies may die in the hysteria, but small businesses will rise up and savers will prosper. The loss of most of your worldly possessions is what you deserve for not saving before the madness rolls through.
It's sad. When the Framers drafted our series of checks and balances, they failed to take into account gross disregard for the rule of law on the part of the Executive, Legislative and Judicial branches at the same time, for the same purpose.
All occurring in a time frame where the citizens, rather than being revolutionary, are merely revolting.
When Bear Stearns collapsed and they came for AIG, we all laughed and thought "Those Wall Street high-rollers got what they deserved."
When they came for Merrill Lynch, again we laughed. Wall Street high rollers, yada -yada-yada.
When they came for the banks, and used TARP money to excercise control, we all though "Well that's way above my pay scale, so who cares!"
When they came for Chrysler, the unintended side effect (was it?) was that pension funds holding senior securities got screwed. And now the average working man is starting to feel it.
When they come for GM, it will be more of the same, only bigger. The financial cramdown on the creditors and the car dealerships will hurt a lot of everyday working people, either through job loss or their pension funds. And who will speak up to criticize Predident Obama and his policies? The networks? MSNBC? CNN? The New York Times?
And next year or the year after, when it dawns on them that overseas investors are not going to buy that much US debt (as T-bills), and we have got to bring the budget into balance, they will come after other assets, that is, your 401K and IRA. They've already shown disregard for employees pension funds. I see no limiting factor in changing the rules now to tax away self-directed savings. "Dollar Bill" Bradley was all for this 15 or 20 years ago.
And then, there will be no one with money or a voice to speak up. Behold, the road to serfdom.
Disclaimer: Of course, I, and many like me, are just right-wingnut douchenozzels, so ignore me and praise the brilliance of our 44th president.
David is on the right track. But his remarks apply also to domestic investors.
Businesses and investors will increasingly shun any scheme in which the US government will be a stakeholder.
In response the government will increasingly try to force when it cannot persuade.
Who accepts an untrustworthy partner. One virtually exempt from the law?
Answer: The desperate. Those with little to lose.
Startups rejected in the capital market and unable to find venture capital or loans.
And those, such as GM and Chrysler who are already bankrupt in fact if not in filing.
i.e. The government puts in virtually all the money for a scheme other investors decline to touch.
That is not investing, it is giving away money to political favorites.
I cannot help thinking about the fall of the Soviet Union and the democratizing (sell off) of state run enterprises. The only groups with money were ex government people, criminals and foreigners.
Who will be in a position to take advantage of the US Government theft of property.
It strikes me that so much of our world is depending on the same “Trust” relationship the Banks have, along with predictable consequences for breaking trust. i.e. I trust my bank to deposit my paycheck, my bank trusts me to pay on my car loan, if I break trust by not paying back the loan, they will wind up repossessing the car and sell it for the money I still owed, if the teller steals my paycheck, the bank will make good on the deposit and fire the teller, and so on. This Trust/Predictable Consequences meme is the “glue” that sticks together a whole world economy, along with relationships among nations. To take this trust away capriciously destroys both Trust and Predictable Consequences. Without it, everything goes to pot in amazing time, both in Government and the Real World.
Hm, sounds like a book theme. (with Amazon Kindle Links)