The last few days have been filled with news about business with an explicit political bent. I refer, of course, to the game of chicken that various parties played during the pre-Chapter 11 filing negotiations among the federal government, the UAW, management, and senior secured lenders, i.e., bondholders.
Yesterday, the nation's president took industrial policy to a new extreme, publicly calling for a "buy American" ethic, explicitly supporting Chrysler's survival/revival, and excoriating those who lent to the failed car company in good faith for wishing to exercise their legal rights.
Truly, it seemed like a scene right out of Ayn Rand's "Atlas Shrugged."
Later in the day, I briefly viewed Michigan's Democratic governor at a press conference, exhorting all parties to produce a solution that will make the state the new leader in whatever sort of futuristic car design and manufacturing is required. Nevermind that industry usually locates in a geography for a particular reason related to either transportation, markets, or resources. Michigan would no longer seem to have any of those, since the newest auto makers have chosen to locate in right-to-work states in the southeastern US.
Today, Michigan Democratic Representative John "Tailpipe Johnny" Dingell continued the president's assault on capital, decrying "speculators" as "vultures" for sinking the pre-bankruptcy negotiations over Chrysler's future. Apparently he, too, prefers government agendas to the rule of law.
Today's Wall Street Journal published a piece noting how the Chrysler dilemma is a trial balloon for GM's own turn in the barrel later this month. If the former's capital structure does, indeed, award more control in the surviving company to a junior, unsecured creditor, i.e., the UAW, than to the senior secured creditors, the impact on general corporate debt issuance and pricing will be chilling. Any company with a strong union workforce will be viewed sceptically by potential debt investors, because the government's manipulation of the Chrysler and GM situations will alert them to the ultimate unenforceability of the bond covenants under which they lend corporations capital.
How long will it take to reverse that sort of loss of confidence? What effect will it have on the apparently still-fragile US capital markets?
What is the longer term implication of a federal government which does not enforce laws, but, instead, inserts itself on one or another side of private sector conflicts, then seeks to manipulate public opinion to get its way before legal remedies may be employed?
How is this sort of government behavior conducive to a vibrant, strong, risk-taking private sector of our economy?
The effects of this misguided government intervention in the Detroit-based auto makers' situations have implications for the US economy far, far beyond just two failing auto makers.
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