The Ethic of Greed and the Spirit of Capitalism
Washington Post article on the hedge fund holdouts who forced Chrysler into bankruptcy is headlined: “In Chrysler Saga, Hedge Funds Cast As Prime Villain: Firms Say They Were Right to Hold Out”.
I was interested to see what kind of argument the firms would be able to mount for the proposition that their actions were “right,” which I take to be a term connoting something like “ethical” or “morally justified.” It turns out, however, that they mean something rather different:
“Some of the characterizations that were used today to refer to us as speculators or to say we’re looking for a bailout is really unfair,” said one executive who spoke on condition of anonymity because of the sensitivity of the matter. “What we’re looking for is a reasonable payout on the value of the debt . . . more in line with what unions and Fiat were getting.”
George Schultze, the managing member of the hedge fund Schultze Asset Management, a Chrysler bondholder, said, “We are simply seeking to enforce our bargained-for rights under well-settled law.”
They’re not actually saying that what they did was right. Rather, they’re saying that it was selfish but also legal. Which is fair enough. People aren’t allowed to just do any old selfish and greedy thing they like. You can’t break into my house and steal my TV. But the law does afford wide latitude for the impulses of selfishness and greed. So one is within one’s rights, under certain circumstances, to insist on one’s ability to inflict suffering on vast numbers of people in order to make more money for your rich self and your rich clients. But it seems very odd to characterize it as “unfair” to be subjected to moral criticism for one’s conduct.
This, however, is one of the signal properties of our age. It’s one thing to model human activity as driven solely by the relentless pursuit of money. Such models can enlighten various situations. But it’s another thing entirely to actually recommend such a lifestyle as optimal or moral, or to make the claim that any conduct that rationally serves the goal of increased personal wealth is therefore “right” or that to criticize self-interested and socially destructive behavior is “unfair.” I think Obama is to be congratulated for his handling of the situation. He didn’t have the FBI storm in, guns blazing, and take these people’s money. He respects the law. He respects property rights. He’s going to go through the bankruptcy process. But he also didn’t respect the ethic of greed that’s come to dominate American public life. He reserved the notion that some conduct is wrong and worthy of criticism and held out the ideal that selfish people might someday be motivated not only by acquisitiveness but by some kind of shame and a desire to behave—or, at a minimum, be seen as behaving—in a public spirited manner.
Reclaiming the idea that there are ethical issues in life that don’t relate to gay marriage or abortion will be an uphill struggle, but it’s an important one.
97 Responses to “The Ethic of Greed and the Spirit of Capitalism”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
May 1st, 2009 at 1:52 pm
Its possible that they hold CDS against default so that they would rather that Chrysler default.
May 1st, 2009 at 1:53 pm
i must point out that if you read the article there is a great qoute from a man named Ron Geffner. It appears half way through the article..he defends the hedge funds ,and says that we live in a capitailistic society and if a company does not have a good business plan than it should be allowed to fail.He is refering to Chrysler
i nearly chocked on my breakfast.For anyone remotely connected to Wall Street to say that, with a straight face , is unbelievable.
NOTE TO WALL STREET : If you believe in capitailism and the free market so much, STOP TAKING OUR TAX MONEY!!!!!
May 1st, 2009 at 1:55 pm
I don’t think that Matthew understands the concept of fiduciary duty.
May 1st, 2009 at 1:55 pm
I believe that one of the forces driving the idea that anything legal is ethically OK is corporate personhood and concomittant “business ethics”, which lead to exactly this position.
In fact, it is the fiduciary responsibility of the directors to employ any and all legal methods to increase shareholder value, and “business unethical” for them to do otherwise.
This is how predatory lending, environmental destruction, and exploitation of the workforce is justified in the corporate world in which most of us spend most of our productive hours. Little wonder it has permeated our culture.
May 1st, 2009 at 1:56 pm
By the way ,for those that read the washington post.Steven Pearlstein has a good opinion [ as usual] on the issue, on page 14 of todays washington post .
May 1st, 2009 at 2:03 pm
I don’t think that Matthew understands the concept of fiduciary duty.
I don’t think Al understands that fiduciary duty and ethical/moral behavior are not the same thing. Which is Matt’s point. The fact that you don’t get it is not a devastating counterpoint, Al.
May 1st, 2009 at 2:04 pm
Duh. The hedge funds are insisting on their rights under the “rule of law”. Yglesias are you calling that immoral? You’d rather Obama stiff the widows and orphans these funds represent, to make the unions a big fat gift? This is just another example of how coveting another person’s earnings is true greed.
Perhaps you’d like to explain to the rest of us how Obama’s plan of bypassing the rule of law, giving controlling interest of Chrysler to the union pension fund, is moral. God, we are on the path to becoming another Argentina, and you are that path’s apologist.
Hey I have an idea, let’s all go over to Yglesias’ house and see what we think he doesn’t deserve.
May 1st, 2009 at 2:05 pm
So, “right” in Matt’s view is telling the people who gave you money in a trust relationship and contracted with you to manage their money in a particular way to go fuck themselves because you’re going to give it to the charitable cause known as Chrysler, LLC?
May 1st, 2009 at 2:07 pm
I hate it when I have to agree with Al, but I had the same thought in reading this: the hedge fund managers are undoubtedly operating under a fiduciary duty to be “selfish” in this particular way.
By the same token, though, I think they are being crybabies for complaining about what Obama said. Obama, like them, is just doing his duty with respect to the people he represents, and they should suck it up.
May 1st, 2009 at 2:09 pm
As others have noted, it is a legal requirement that public companies strive to maximize returns to shareholders.
Expecting business people to have a “social conscious” is silly and hinders good lawmaking.
May 1st, 2009 at 2:10 pm
NOTE TO WALL STREET : If you believe in capitailism and the free market so much, STOP TAKING OUR TAX MONEY!!!!!
NOTE TO PETE FROM BALTIMORE : Barack Obama is the one who’s GIVING THEM OUR TAX MONEY!!!!! If you believe in the feds so much, than show me they can act ethically.
May 1st, 2009 at 2:11 pm
Perhaps you’d like to explain to the rest of us how Obama’s plan of bypassing the rule of law . . .
Say what? Obama tried to negotiate a settlement: that isn’t “bypassing the rule of law”. And now that such a settlement couldn’t be reached, they are going to court, which will presumably apply the law. So I see no basis for your claim.
May 1st, 2009 at 2:11 pm
So, “right” in Matt’s view is telling the people who gave you money in a trust relationship and contracted with you to manage their money in a particular way to go fuck themselves because you’re going to give it to the charitable cause known as Chrysler, LLC?
No, “right” in Matt’s view is telling the people who gave you money in a trust relationship and contracted with you to manage their money in a particular way to go fuck themselves because you’re going to give it to the charitable cause known as the United Auto Workers.
May 1st, 2009 at 2:12 pm
The hedge managers are in charge of other people’s money. When your own money is concerned, you can be moral all you want, and let the money go. Whe you’re in charge of other people’s money, though, you have to act in their interests to the extent permitted by law.
What would qualify as “selfish” would be for the hedge managers to satisfy their own sense of morality at the expense of their clients.
May 1st, 2009 at 2:15 pm
I don’t think Al understands that fiduciary duty and ethical/moral behavior are not the same thing.
I think that acting in compliance with one’s fiduciary duty is almost always acting ethically. Unless you think that breaching the trust and confidence that the funds’ clients have placed in the funds is ethical.
May 1st, 2009 at 2:15 pm
I really don’t see what’s wrong with the Debt Holders doing this. I’m assuming these guys are unsecured creditors, in which case, the Bankruptcy court can cram down on them.
Bankruptcy isn’t that bad of a deal.
I’m actually quite pleased with this.
May 1st, 2009 at 2:16 pm
So if it’s enacted by Congress, a 90% top marginal rate tax whose funds are used to pay for other peoples’ health care is legal. Sure, it’s selfish to take money from some detested minority to fund “free” health care for yourself and others with whom you identify, but democracy does allow for the impulses of mob rule and greed.
May 1st, 2009 at 2:17 pm
I’m assuming these guys are unsecured creditors
They are secured creditors. The entire reason they are objecting is that the unsecured creditors are getting a better deal than the secured creditors.
May 1st, 2009 at 2:18 pm
+1 on all the points about fiduciary duty. In a sense, the law requires people to behave in a greedy fashion. I’m all for significant policy interventions that either change those laws or mitigate their negative externalities, but complaining that people who do not commit malpractice are greedy, unethical bastards is unfair and stupid. Unfortuantely, it’s symptomatic of a growing moralism on the left.
May 1st, 2009 at 2:23 pm
Regarding Mark up at comment 11
I never said Obama was not bailing out Wall Street.Both he and Bush did so. You say i “believe in the feds’.When did i say that ??
As i have said before , in previous comments , I am a free market conservative.
I have noticed that on this blog ,if you disagree with someones opinion, they automatticly regard you as “THE ENEMY” and assume that your political phylosiphy is the opposite of their own.
I have argued in favor free market capitalism for years.
MARK UP , you try doing that in a bar in Baltimore City.[ I know how general Custer felt, believe me]
Regardless of your opinion of me , i wish you the best, MARKUP, and i thank you for your opinion.I always like when people challenge my viewpoint, i hope that it keeps me more openminded
May 1st, 2009 at 2:24 pm
Matt–
While I certainly sympathize with the plight of the Chrysler labor force, I think those who villify the investors here have it wrong. When those investors loaned money to Chrysler (i.e. purchased its senior secured debt), they did so with the understanding that if Chrysler were unable to pay that debt back, they would then have recourse to Chrysler assets in order to recover some of their loans. That recourse, and the pecking order of those owed money by Chrysler, was explicitly spelled out in loan documents and in law, and the pricing of Chrysler debt was affected (and in this instance made less expensive) by the lenders’ potential ability to recover losses by their recourse to Chrysler assets.
What the Obama administration, for whom I voted, proposed was essentially to declare force majeure, or to abrogate, those legal documents, and to change the prescribed pecking order. Countries where the rule of law and property rights can not be trusted are shunned by investors,and the cost of capital in those countries is much higher than otherwise. Russia, not a country known for its wonderful respect for workers’ rights, is a perfect example of this.
Let’s not suggest that the banks who agreed to the administration’s terms are a shining example of selfless behavior, in contrast to the behavior of the hedge funds. Recall that they are all huge recipients of government largesse, and thereby are not quite wholly independent actors–let’s even entertain the possibility that political pressure and quid pro quos might have been discussed with them.
Lamenting the shabby treatment of the UAW workers,and sympathizing with their plight, is all fine and dandy. But their problems needed to be addressed long ago, and attempting to do so now, esentially after the fact, through what seems an unconstitutional seizure of property rights, may be smart politically in the short term, but might equally have deleterious long-term consequences for the health of our capital markets, consequences which may result in much more expensive costs of funding for future enterprises of all kinds.
To characterize the hedge funds’ actions as selfish or greedy seems odd, or misplaced, to me. Is the UAW selfish or greedy in wanting a greater share of the newly-capitalized Chrysler than that to which legal documents entitled them? Was Ron Gettelfinger selfish and greedy back in 2006, when, having made concessions in negotiations with GM and Ford, both of whom were losing money like mad because of poor management decisions to emphasize gas-guzzling SUVs, he gave not an inch to Chrysler, which was losing money equally, but had a deep-pocketed parent in Daimler?
In all of these instances, aren’t the various actors simply representing their constituencies to the best of their abilities? I’m not at all certain why one group here should be singled out and excoriated for doing precisely what all the other groups are doing, nor do I think you, were you represented by any of the parties at the table during these negotiations, would want or expect them to do other than as they have done.
Best regards.
May 1st, 2009 at 2:25 pm
I’m assuming these guys are unsecured creditors
No, they are the secured debtors. The UAW are the unsecured debtors, and they get the best deal, a reward for helping him get elected.
May 1st, 2009 at 2:25 pm
Theoretically, the proponents of “fiduciary duty” should also be supporters of very strong government regulation.
After all, they are saying that if it is legal for a company to profit by, say, abusing workers and poisoning people, then the company has a legal obligation to do so. It would be immoral for the company not to do so!
Therefore the law is incredibly important in determining the boundaries of actual behavior. We cannot just leave things to the “free market” because there is no guarantee that good outcomes will arise; in fact, it is bad outcomes that are virtually guaranteed.
May 1st, 2009 at 2:29 pm
Others have covered the main points on fiduciary duty, but there’s also a larger one that is pretty complex so I’ll just try to mention at a high level:
If we live in a country where politicians can arbitrarily decide to apply political muscle to cut deals for favored constituencies, in violation of legal agreements, that seems to be a bad thing for everyone. It means the rule of law is less meaningful. It means that all investments are now riskier, so it will be more expensive to raise capital for growth. Having a settled rule of law that everyone follows is in and of itself a moral and economic good. There is no tension here.
May 1st, 2009 at 2:33 pm
All I know is that i am looking up the funds that resisted giving away their investors’ money and giving THEM my money. They can be trusted with it.
Those that rolled over and gave away money THAT WAS NOT THEIRS to give away will find they will NEVER get any of my money.
I gotta thank the president for showing me which funds can be trusted and which can’t.
May 1st, 2009 at 2:37 pm
Also,If I were running those funds, i’d be starting an advertising campaign RIGHT NOW highlighting how hard we work to secure your money, even in the face of overwhelming and inappropriate political pressure.
May 1st, 2009 at 2:41 pm
I really don’t see what’s wrong with the Debt Holders doing this.
As I see it, the biggest issue is that Chrysler is going to shut down a lot of production while it is in bankruptcy, and that might have been avoided if a settlement had been reached.
Theoretically, the proponents of “fiduciary duty” should also be supporters of very strong government regulation.
Or other legal constraints, such as strong tort laws. But yes, I agree that some form of legal coercion has to be operating to keep fiduciaries within acceptable boundaries of behavior.
We cannot just leave things to the “free market” because there is no guarantee that good outcomes will arise; in fact, it is bad outcomes that are virtually guaranteed.
On the other hand, competitive markets still remain valuable tools when organizing an economy. So, I think the law’s goal has to be making sure that firms are competing only on appropriate dimensions (innovation, price, and so forth).
May 1st, 2009 at 2:41 pm
Gnat really gets to the heart of the matter. There’s nothing wrong with a creditor deciding that they’re better off forcing the debtor into bankruptcy than they would be in a consensual deal. But if you have done a side deal that creates a bias for forcing the debtor into bankruptcy, then there *is* something wrong–not legally, but certainly ethically. You can only make yourself whole by harming someone else–you’re allowed, but you don’t get a free pass from criticism.
May 1st, 2009 at 2:42 pm
Everyone should read Scott Frew’s comment number 21.
Secured credit is available in our economy because it is supposed to be secured. If you want it to be seen as immoral or unethical to expect that these contracts will be honored, then you are removing any possibility that people will extend such credit in the future. I think that’s a dangerous precedent. (And I also voted for Obama, and I’m still glad I did.)
May 1st, 2009 at 2:45 pm
MY wants these hedge fund managers to display the same “public mindedness” that Kenneth Lewis did. When Obama, Geithner, or Bernanke get some guy in a room for a shout-fest, they expect these corporate curs to heel. Plus, think of the sweet-heart deals that will come Kenneth Lewis’ way later in life for bowing down the way MY expects these guys to bow down. Mmmmm… that’s some good crony capitalism.
May 1st, 2009 at 2:46 pm
I’m not sure if can agree with you on this one Matt. I think everyone involved acted as they were supposed act. The hedge fund owner have a fiduciary (ethical?) duty to they’re clients, just as Obama has a duty to uphold the broader public interests. What Obama deserves praise for, is not that beat down the evil capitalists, but the fact that he favored broad public interest over narrow private ones; and he did this while respecting and upholding our laws and customs. I am of a mind with Bob Reich’s thinking on these matters: that asking for corporate “social responsibility” is both unrealistic and paradoxical; better to intelligently regulate than expect market bound firms to act against the interests of their clients, shareholders, management, etc. What we must wonder about is the fact that Obama basically got this right and didn’t cave to capital; and why Congress seems incapable if this. Whither Campaign Finance Reform?
May 1st, 2009 at 2:49 pm
pete from baltimore,
I recant and apologize for being a jack-ass. Plus, I should show respect for the man from the town that gave us both Wallace and Snoop.
May 1st, 2009 at 2:50 pm
Yes Barbar, that is definitely the case. If a market actor is moral they will tend to be crowded out of the market by purely selfish actors; even if the actor has sufficient market power to make decisions they regard as “moral” without going bankrupt, there are many different views of morality and no certainty or consistency in what “moral” action will entail. It is much better for all concerned for market actors to maximally advance their interests and government to sensibly legislate such as to incentivize the actions which create a better society and disincentivize the actions which create a worse one.
May 1st, 2009 at 2:50 pm
Right. Publicly vilifying a group in public as bad actors, because they won’t go along with a plan to reward the union, is an abuse of Presidential power. Everyone of those funds knows they are going to be audited this year or worse. This is the behavior of a banana republic thug.
May 1st, 2009 at 2:52 pm
Matt,
I’ve read some pretty silly things here but this one may be the my all-time favorite. Let’s review…
1). Asking hedge funds to give up money so the UAW and Fiat can benefit has nothing to do with ethics, it’s charity.
2). Asking rapacious wall street hedge fund managers to do things you’re too afraid to ask the Obama administration to do is called projection. Obama supports the greatest wealth transfer in our history from the poorest to the wealthiest in the form of federal bank bailouts. Why no discussion of the “ethics” of that?
3). Chrysler and their creditors are best served by a functioning capitalist system. That system has been burned to the ground in the last six months. You think the President and his economic team are doing a great job. Maybe, just maybe, what bothers you about these hedge fund managers isn’t their ethics but the fact they dared oppose the President and his plan?
In your eyes, it seems anyone who opposes Obama is essentially unethical.
May 1st, 2009 at 2:53 pm
I think a key point here is the a) the hedge funds were secured creditors, and thus have absolute seniority over the UAW, which is an unsecured creditor, and b) trying to overturn that settled seniority, upon which the entire cost structure of financing was based (i.e., unsecured creditors get much higher returns than secured creditors, for less security), will be highly disruptive to stare stasis in this country.
From a purely moral and rational point of view, secured creditors are to be paid before unsecured creditors. That was the moral understanding when the original credit was extended; and that remains the moral agreement in force. The fate of UAW workers are unfortunate, no doubt; but it has no legitimate appeal to moral authority, as applying agreed-upon principles of seniority (as should be the case here) is not only a settled legal principle, but also a moral one. Whatever human-factor reasons might be in the UAW’s favour, most certainly, a established moral principle such as seniority immediately nullifies would any attempts to use moral reasoning to the detriment of bondholders.
May 1st, 2009 at 2:54 pm
Scott Frew,
Best comment here. Much better than MY’s post.
May 1st, 2009 at 2:58 pm
I read the post. Matt makes it very clear that hedge funds are within their legal rights to try and grab as large a piece of the pie as possible regardless of the cost to the Nation and its people.
Same with naked short sellers. They are within their legal rights to target a company and destroy it for quick profit. If they prove capable, they are well within their legal rights to target the United States of America and destroy it.
Nobody is saying these type of people are criminals. That’s the beauty of modern finance. You can make a hefty profit by impoverishing tens of millions Americans and you get your picture on the cover of Fortune magazine with an exclusive 12 page article detailing your methods and proclaiming your greatness.
Nobody is questioning legality. For many of us, it is a simple cost/benefit analysis. Is destroying the country actually good for it?
May 1st, 2009 at 2:59 pm
This post was almost as embarrassing as MY’s infamous “bruschetta” post.
May 1st, 2009 at 3:01 pm
“No, they are the secured debtors. The UAW are the unsecured debtors, and they get the best deal, a reward for helping him get elected.”
Well, it seems kinda complicated. On the one hand, the
secured creditors should in theory be paid in full before
the unsecured creditors get anything – which in practice
would probably mean the secured creditors would get some
fraction of what they’re owed, and the unsecured creditors
would get zilch. On the other hand, the liquidation value
of Chrysler probably wouldn’t be much, so the total pie
is going to be bigger if they can manage to carve out a
viable business that can survive for a while and maybe be
sold in a couple of years once the economy is healthier.
But to come up with a plausible business plan for a viable
post-restructuring Chrysler, you need extensive cooperation
from the UAW to deal with existing pension and health
benefits, and future compensation. From that point of view
it’s arguable that giving the UAW a big chunk of equity in
return for their cooperation might make sense.
And while the UAW might be getting “the best deal”,
I’m not actually sure that having a big chunk of equity
in a weak unprofitable automaker with poor products in a
market with overcapacity in the middle of a deep recession
is such a good deal: it’s little more than a lottery ticket.
Now all this will be argued in court. It will take longer,
but maybe it’s the only way to sort out the complexities.
May 1st, 2009 at 3:01 pm
Publicly vilifying a group in public as bad actors, because they won’t go along with a plan to reward the union, is an abuse of Presidential power.
Really? Which Presidential power would that be?
Everyone of those funds knows they are going to be audited this year or worse.
Oh, I see. Obama violated the rule of law by doing things you made up.
This is the behavior of a banana republic thug.
Indeed. Banana republic thugs are well-known for abusing their adversaries by . . . going to bankruptcy court to settle claims with rival creditors?
I know that you all are trying hard to spread a meme here, but you might want to look for better material.
May 1st, 2009 at 3:06 pm
Barbar says:
We cannot just leave things to the “free market” because there is no guarantee that good outcomes will arise; in fact, it is bad outcomes that are virtually guaranteed.
Whats strange to me about this is that the USA was once known for its ingenuity, industry, and innovation, in what could be considered a free market. During this time the U.S. produced more ideas, cures, products, and inventions then any else. Because of this the standard of living was raised the world over. I just cannot see how bad outcomes are guaranteed by the free market. I think that it is the most heavily regulated markets that produce the worst outcomes, the U.S.S.R. or North Korea, for instance.
May 1st, 2009 at 3:07 pm
Max/DTM/MY, can you at all entertain the idea that these funds have money deposited by retirees, 401(k)s, workers of all stripes, and possibly even you? Almost all office workers have 401(k)s and not everyone investing a fund is a wall street fat-cat. Some of us are just middle class people trying to save for a retirement that looks increasingly further away.
Why is defending their investors’ money a sign of unethical behavior? Isn’t that exactly what we expect in a bank? Isn’t that what “ethical” MEANS in a bank?
May 1st, 2009 at 3:08 pm
You’d rather Obama stiff the widows and orphans these funds represent (comment 7)
Wow, is that who is into the hedge funds for billions and billions of dollars? I thought hedge funds were the playground of the extreme-net-worth crowd.
Now that I know they are just the supplemental security funds of widows and orphans, I think they should have carte blanche to do as they will.
(Does anyone actually carry a Carte Blance card these days? The $300 annual fee for widows, orphans and regular folks is kinda steep.)
May 1st, 2009 at 3:08 pm
This thread is ridiculous. Of course what these firms did was wrong. MY’s point isn’t that it was illegal, or even stupid — it’s that it was wrong. It’s not hard to understand how something can be legal, smart, and immoral. The fact is that we all — hedge fund managers or not — have moral responsibilities than extend beyond minimum legal standards. We do not have the right to do whatever we want in order to maximize profit, and that’s true regardless of the law or our “fiduciary duty” — a concept which is itself a silly attempt to put an ethical sheen on naked greed.
Only winger ideologues and schmibertarians think that the market punishes decency. It is simply not true that moral actors are crowded out of the market by purely selfish actors. We usually refer to “purely selfish actors” as “criminals” or “psychopaths.” Crime and a lack of conscience are not good long-term strategies. It’s easy to find very successful firms who do well while behaving more ethically than their competitors.
Personally, I am thrilled that the unions will now own large parts of these automakers. It is entirely appropriate that those who work have greater access to the wealth they create.
May 1st, 2009 at 3:11 pm
Max424:
Nobody is questioning legality. For many of us, it is a simple cost/benefit analysis. Is destroying the country actually good for it?
I thought the newsworthy event this week was that at the press conference Obama said they’d have new financial regulations by the end of the year.
I’ll bet money they squeal like stuck pigs. In a way it’s good they’re pissing off Obama, b/c maybe it will cause him to come down harder on them.
But ultimately I agree with Pete from Baltimore, it’s as if these bankers like Ken Lewis and these Wall Streeters and hedge fund managers don’t comprehend that the US government and taxpayers bailed them out and the whole thing would have collapsed (see Lehmann bros.) had the government not intervened. It’s not as if Obama had much of a choice. Clueless, oblivious people.
May 1st, 2009 at 3:12 pm
To add to Richard Cownie’s point, the secured creditors also aren’t entitled to any additional financing Chrysler may need from the U.S. government to emerge as an ongoing entity (about $8 billion, as I recall), nor the government’s backing of Chrysler’s warranties. So as Richard pointed out, insisting on getting what they are legally entitled to, but only getting what they are legally entitled to, would likely be a big mistake for the secured creditors, since the liquidation value of Chrysler is likely negligible.
Anyway, this is what Chapter 11 is all about.
May 1st, 2009 at 3:15 pm
Posts like these are the reason we love you so, Matthew. Greed is, after all, one of the Seven Deadly Sins, is it not? So let’s talk about the Prosperity Gospel infecting evangelical churces…
May 1st, 2009 at 3:17 pm
Max/DTM/MY, can you at all entertain the idea that these funds have money deposited by retirees, 401(k)s, workers of all stripes, and possibly even you?
How did I get on your list? I agreed the managers had a fiduciary duty to be “selfish” in this way. In fact, I don’t see how the nature of the investors is even relevant: whether the investors are nuns and orphans or Paris Hilton, the fund managers still have this fiduciary duty.
May 1st, 2009 at 3:19 pm
Whats strange to me about this is that the USA was once known for its ingenuity, industry, and innovation, in what could be considered a free market. During this time the U.S. produced more ideas, cures, products, and inventions then any else. Because of this the standard of living was raised the world over.
First off, what sort of government regulations/legal restrictions were in place during this Golden Age? Second, and more important, I am not saying that markets only produce evil and do not contribute to our prosperity. I’m just pointing out that when you say that tobacco companies are legally REQUIRED to obscure the truth about the health effects of their products, and that chemical manufacturers are legally REQUIRED to be as cheap as possible when it comes to protecting the health of their employees, then laws and government regulations are quite important to ensure that capitalists don’t murder people. This has nothing to do with technological progress and innovation.
May 1st, 2009 at 3:21 pm
It is simply not true that moral actors are crowded out of the market by purely selfish actors. We usually refer to “purely selfish actors” as “criminals” or “psychopaths.” Crime and a lack of conscience are not good long-term strategies.
If this is true, then, of course, purely selfish actors will be indistinguishable from moral actors.
May 1st, 2009 at 3:25 pm
regarding MARKUP’s comment 32
I hope you were joking about the apology. you certianly do not owe me one.I think we all make assumptions about other’s beleifs on this blog.I try not to do it , but i am sure that i have in the past.
For the record . My attitude is that of a school kid that has to stay after class with the rest of the class, because one goofball threw a spitball across the room. Yes the teacher over reacted. But a lot of my anger is directed at the kid who got everyone in trouble in the first place.
I understand why many free market conservatives do not want the government interfering in the economy.But who asked for the bailouts in the first place ?
If you ask your parents , or anyone else, for money they have a right to tell you how to run your life.That is why i have never borrowed mony from my parents ,or anyone else.
We should not let Wall Street off the hook for getting all of us in trouble.
I have no hard feelings at all ,to you MR MARKUP or any other commenters
Best regards to you
May 1st, 2009 at 3:27 pm
This material is pretty juicy actually. Here we have a President personally interfering in a legal process involving the fate of a private concern. Actually, inteference may be the wrong word, Obama is actually lobbying for the UAW. He wanted secured creditors to compromise their duty to the people they represent, in order to push the union to the front of the line.
It is recognized all around that insisting on their rights in court is an act of integrity by the funds, in the face of being reviled publicly by the President of the United States.
In short, a President tried to intimidate a private party, to reward a crony. Perhaps you’d rather Obama be compared to Blagojevich than Chavez?
May 1st, 2009 at 3:28 pm
Two points:
1) Yes, the hedge funds are secured creditors, who legally have first claim on the assets, while the UAW workers are not, and get to come in behind. I really question the morality of a set of rules that leave the employees as unsecured creditors. This is one of the ways in which capital is privileged over labor in this country. Workers’ contribution of time and effort to the company is every bit as real as those who contributed money. However, we have structured bankruptcy such that it is treated as distinctly inferior.
2) The big hangup everyone is having is on the fact that there are different moral imperatives for different roles that the same people play in life. The hedge fund manager does have an ethical duty to maximize returns; in this role, greed is a virtue. However, the hedge fund manager is also a human being, and is subject to the same moral code that the rest of us are; in this role, greed is a vice. As a society, we have, without any real discussion of the issue, come to an implicit assumption that the first role takes absolute precedence over the second in determining what constitutes ethical behavior on the part of those who run companies. I question whether this set of priorities is really the right answer.
May 1st, 2009 at 3:28 pm
“To add to Richard Cownie’s point, the secured creditors also aren’t entitled to any additional financing Chrysler may need from the U.S. government to emerge as an ongoing entity (about $8 billion, as I recall), nor the government’s backing of Chrysler’s warranties.”
Yes, it’s going to take a chunk of cash to get Chrysler
through its restructuring: much of that is going to come
from the taxpayer. I’m not sure if Fiat is going to put in
some cash as well.
One puzzling feature of the negotiations is the fact that
the offer to the secured creditors, as far as I could tell,
was all cash and no equity. I’m not sure why you’d do it
that way, especially in a situation where you’re going to have
to put a lot more cash in to accomplish the restructuring.
Maybe Fiat wanted to be sure they wouldn’t have a bunch of
troublesome stockholders, just the UAW and the US govt ?
I’m not optimistic about all this, but then Chrysler was so
badly broken that there’s no good solution.
Of course this is all just practice for the main event of
managing GM’s shrinkage, dismemberment, and possibly
bankruptcy.
May 1st, 2009 at 3:29 pm
It is simply not true that moral actors are crowded out of the market by purely selfish actors.
It’s easy to find very successful firms who do well while behaving more ethically than their competitors.
Sure, you can find some firms that do well while behaving more ethically than their competitors. Does this mean that the best-performing firms are necessarily ethical? That unethical behavior is always punished and eliminated by the marketplace? Talk about “schmibertarian.”
May 1st, 2009 at 3:35 pm
What I find most shocking is that most people who voice these kinds of justifications aren’t even aware of what craven ingrates it makes them appear.
Seriously, I’ve heard a lot of folks say how terribly naive it is that I don’t understand fiduciary responsibility, and that the harsh reality is the dog-eat-dogness and the amazing minds on Wall Street generate massive wealth, blah blah blah. People who make these arguments think they are terribly sophisticated. But they’re suckers getting played.
You seriously think these guys give a crap about fiduciary responsibility? Follow the money! Their executives are massively overpaid, many with contracts that actually reward them for being fired. On what planet do rational people pretend a contract that pays you for getting fired incentivizes good behavior? Not to mention, throughout this entire crisis, they have done exactly what you would expect someone with no sense of fiduciary responsibility to do: dissembled on the true state of their finances (does ANYONE think Citibank really turned a profit in Q1 2009?).
Most people on Wall Street are doing the nearest legal equivalent of going downstairs to the company safe and stuffing gold bricks in their pants. Their goal is to get rich and have a workable exit strategy.
You can suck up to them in the hopes some of this ill gotten gain will trickle down to you. And if you’re ever in a position to do them a favor, it might. But you’re a fool if you believe this is anything but spin.
And I’m sorry, these guys blew their fiduciary responsibility when they made massively leveraged loans to Chrysler. Their bet was the government wouldn’t let Chrysler fail, and that government would bail them out. Only oops, Obama didn’t. Now they’re screwed. Which is exactly what should happen to someone who makes reckless bets with other people’s money.
May 1st, 2009 at 3:43 pm
This is also a valid point. People paid on the 2+20 system aren’t really in a very good position to plead fiduciary responsibility.
May 1st, 2009 at 3:43 pm
Here we have a President personally interfering in a legal process involving the fate of a private concern.
Nonsense. Here we have a Administration first participating in a negotiation over the reorganization of a firm, and then subsequently joining in bankruptcy proceeding, because the United States government is contributing billions of dollars and valuable guarantees to the firm. For the Administration NOT to participate under those circumstances would be a violation of its duty to the public.
Again, I have no problem with the hedge funds taking their chances in bankruptcy court if they think they can get a better deal. But to shed all these tears about the President participating in the process is just silly. And comparing this situation to what happens in a “banana republic” is even sillier.
But let me know if the government starts throwing hedge fund managers out of airplanes. Or disappearing them to secret prisons and torturing them. You know, the sort of stuff that really happens in banana republics–and sometimes elsewhere.
May 1st, 2009 at 3:44 pm
Theoretically, the proponents of “fiduciary duty” should also be supporters of very strong government regulation.
After all, they are saying that if it is legal for a company to profit by, say, abusing workers and poisoning people, then the company has a legal obligation to do so. It would be immoral for the company not to do so!
Therefore the law is incredibly important in determining the boundaries of actual behavior. We cannot just leave things to the “free market” because there is no guarantee that good outcomes will arise; in fact, it is bad outcomes that are virtually guaranteed.
I can only speak for myself, but yes, exactly. I think that market-driven outcomes are not always socially desirable, and I disfavor ideologically-driven restraints on government regulation. Whether a specific regulation is a good idea should, of course, be decided on its own merits.
The only thing I’d add is that I’m only recognizing the constraints of the law of fiduciary duty as it currently exists. I don’t necessarily think that law is sound, but it is what it is. In light of that, insisting not only that hedge fund managers breach their duties to their clients, but that their failure to do so somehow makes them unethical human beings, is stupid and unfair.
May 1st, 2009 at 3:45 pm
“However, the hedge fund manager is also a human being, and is subject to the same moral code that the rest of us are; in this role, greed is a vice”
Not necessarily. I think you’re making an implicit assumption
that business is a zero-sum game, where if I indulge my
“greed” by taking actions that maximize my own wealth, then
that must necessarily imply that someone else is losing out.
However, the majority of economic activity consists of
consensual co-operative transactions, where two parties
make an exchange precisely because the transaction is
beneficial to both.
One point of my earlier post was that co-operation for mutual
benefit may be a consideration even in this situation: a
hypothetical deal where the secured creditors had 10% and
the UAW had 50% might offer greater expected returns,
even for the secured creditors alone, than a deal where they
had 20% but the UAW was hostile. Co-operation can grow the
whole pie, often so successfully that it offers greater
rewards than short-term selfishness.
In fact this is the basic argument for capitalism: that
allowing each individual to maximize their own profit, and
to freely exchange goods and services with others, does
in practice, on average, grow the whole economy more
effectively than other systems. If we say “greed is a vice”
then we’re dangerously close to throwing the baby out with
the bathwater.
May 1st, 2009 at 3:45 pm
To add to Richard Cownie’s point, the secured creditors also aren’t entitled to any additional financing Chrysler may need from the U.S. government to emerge as an ongoing entity (about $8 billion, as I recall), nor the government’s backing of Chrysler’s warranties. So as Richard pointed out, insisting on getting what they are legally entitled to, but only getting what they are legally entitled to, would likely be a big mistake for the secured creditors, since the liquidation value of Chrysler is likely negligible.
From what I’ve read, the liquidation value isn’t “negligible” – it is, in fact, likely to be greater than what these funds were offered in the Obama restructuring.
The rest of the point is correct, but if the funds are correct that they could get more from liquidation than from restructuring, then what they are doing is likely correct.
May 1st, 2009 at 3:48 pm
This thread is ridiculous. Of course what these firms did was wrong. MY’s point isn’t that it was illegal, or even stupid — it’s that it was wrong. It’s not hard to understand how something can be legal, smart, and immoral. The fact is that we all — hedge fund managers or not — have moral responsibilities than extend beyond minimum legal standards. We do not have the right to do whatever we want in order to maximize profit, and that’s true regardless of the law or our “fiduciary duty” — a concept which is itself a silly attempt to put an ethical sheen on naked greed.
You’re missing the point. It’s not just that there is no law that bars them from single-mindedly pursuing their client’s interests in the way they have, it’s that the law affirmatively obligates them to do so. Put your outrage down for a second and read what people are actually typing.
May 1st, 2009 at 3:50 pm
This is also a valid point. People paid on the 2+20 system aren’t really in a very good position to plead fiduciary responsibility.
That point actually strikes me as nonsensical.
If you want to claim the way hedge fund managers are compensated may constitute, or at least very often lead to, a breach of their fiduciary duties to their investors, then that is a claim I may well agree with. But why would you then conclude that since they may be breaching their fiduciary duties in one way, they are ethically free to breach their fiduciary duties in another way?
Not to get all kindergarten about it, but I thought we all knew the rule that two wrongs don’t make a right.
May 1st, 2009 at 3:50 pm
Looking at Fitch’s analysis of the senior secured debt ($6.9 billion of it I think), they expect 50 – 70 cents on the dollar in the liquidation of Chyrsler. The value is in the equipment and lines of the Dodge Ram pick-up truck and the Jeep. Imagine Honda or Nissan having a respectable SUV/truck to compliment their cars. So that is why they turned down 33 cents. I don’t see why you don’t give them their asked for 60 cents on the dollar and get on with it. We’ve already lost so much money; what is another couple billion dollars?
May 1st, 2009 at 3:50 pm
From what I’ve read, the liquidation value isn’t “negligible” – it is, in fact, likely to be greater than what these funds were offered in the Obama restructuring.
Show me what you have read.
May 1st, 2009 at 3:51 pm
And I’m sorry, these guys blew their fiduciary responsibility when they made massively leveraged loans to Chrysler. Their bet was the government wouldn’t let Chrysler fail, and that government would bail them out. Only oops, Obama didn’t.
That’s, um, exactly the opposite of true. Their bet was that in bankruptcy they would get control of the assets, and recover at least its liquidation value. This is what would be happening now only, oops, Obama decided he wanted to intervene on behalf of a political constituency.
Also, people keep asserting the liquidation value of the company is almost nothing. This seems obviously false, as there is no reason to believe that out of bankruptcy the plants and vehicle designs could not be sold to an automaker or private investor (free of union obligations) to make cars profitably.
May 1st, 2009 at 4:12 pm
No, this isn’t what I am assuming at all. I make no statement whatsoever about that. Capitalism is a system that, among other things, attempts to provide incentives such that the sin of greed is channeled in ways that produce social value. It recognizes that greed is an inherent part of human nature, and that you’re better off trying to work with it than against it. (Never mind that many of the proponents of this don’t seem nearly as tolerant of the rest of the deadly sins, except, for some people, Pride.)
That greed is channeled in productive ways, and that it is, for certain roles moral behavior, does not change the fact that, in the role of an individual human being, greed is not a virtue. For human beings, it’s a vice. For corporate CEOs, it’s a virtue. Of course, corporate CEOs are also human beings. Thus, determining what constitutes moral behavior on their part is a rather complicated endeavor.
I do not think that it is obvious that we are better off for giving their role as CEO absolute primacy in establishing the proper code for them to operate under on the job. This does not mean that their greed necessarily leads, in all instances, to sub-optimal outcomes. If it did, then we would need to dispense with the idea that we have created a system in which greed is channeled for social good, and try something other than capitalism. I don’t think that capitalism is a complete failure. In fact, I think that, speaking very broadly, it’s the best system available to us.
However, it isn’t perfect. There are lots of times that the greed of a CEO or hedge fund manager leads to outcomes that are decidedly not optimal for society. Obviously, one way deal with this is to impose laws and regulations that constrain their behavior. However, even absent regulations in a particular instance, I question whether we should encourage an ethos in which the moral imperative of the CEO trumps the moral imperative of the human being in all instances. We can talk about fiduciary duty all we want, but there should be instances in which, when they are in conflict, the human being that is a CEO should do what the first role indicates is ethical, rather than what the secobnd role does.
May 1st, 2009 at 4:15 pm
I might be willing to listen to an investor appeal to fiduciary duty in many instances. However, that’s not who we have complaining here. It’s the hedge fund managers themselves who are making this appeal. Their concern over fiduciary duty is strangely congruent with their own financial self interest, and has a way of disappearing when they make more money ignoring it. Therefor, U have zero interest in listening to them complain about fiduciary duty. They should just shut up until they are prepared to be consistent about it.
May 1st, 2009 at 4:19 pm
Lost in the hubbub over “fiduciary” responsibility is the nature of this “secured debt.” Several of these hedge funds are “distressed debt” speculators who bought up these bonds at pennies on the dollar expecting a big payday. And insofar as pension funds, endowments, etc. are putting money into such funds, they’re as guilty of speculation as the managers, who are after all just their agents. Anybody putting their constituents’ money at this sort of risk has no business whatseover trying to hide behind “fiduciary responsibility.”
May 1st, 2009 at 4:28 pm
Well, couldn’t their a case be made that in some extreme cases (and Chrysler’s position seems to be pretty exteme) that doing the “right moral thing” could actually help fidicuary duty in the long run?
Capitalsim doesn’t happen in a vacuum. For a society to make wealth, and have as money people as possible to consume and thus generate wealth for the elite, it helps that the masses aren’t totally poor and besoted by all the attendant ills that come with poverty generally i.e high crime rates, poor access to health care etc. Heck, we dont’ even have to take it that far, it would help the economic viability of the company and it’s consumers that Chrysler were to fuction properly I don’t know, it seems when a culture has too much of a gap between the poor and rich, and a small middle class, there is less likelihood that a whole of investment is gonna take place, i.e. a whole lot of the third world. Looting the pantry till it’s bone dry, in other words, isn’t smart in the long rung for these hedge fund people.
Granted, it is the responsiblity for the company to make as much money as possible for the shareholders, that’s a given, but by acting “immorally” with no exceptions, isn’t really that smart of a stragey to begin with. Aren’t they also contributing to poisoning the pond they swim in, so to speak? What is the long-term affects for an economically healthy society when compapnies like this ALWAYS act selfishly? Sometimes, actiing “self-lessly” in the short-term, can contribute to a more financially healthy company (i.e.happier and more productive employees in addition to more economically healthy consumers) in the long-term.
It seems to me, that Chrysler hudge funders, ultimately, weren’t acting in their best interest, from a bigger picture point of view. And in a dicy situation as we are in economically, with the worse economdy in decades, “business as usual” might not have been the best way to go.
I think there are limits to fidicuary duty and what that has meant traditionally. Too bad the hedge funders had to see things that way.
Just a few thoughts really. Interested to see what others have to say about this.
May 1st, 2009 at 4:29 pm
Here is a quote from Ron Bloom that gives you an idea about the situation:
May 1st, 2009 at 4:32 pm
I wonder if Not-for-profit companies and charities have fiduciary responsibility to the causes that they serve. Would it be immoral for them to be as greedy as possible to serve these causes? Or more importantly would people question the morality of that? For Instance:
Hedge Funds Care, whose donors include members of the hedge fund and prime brokerage businesses, is one in a growing number of charities that have arisen within the $1.3 trillion world of hedge funds. The Robin Hood Foundation, founded by Paul Tudor Jones II and perhaps the best-known hedge fund charity, raised $48 million at its annual benefit dinner last year. The Children’s Investment Fund, a London-based hedge fund, has its own $66 million nonprofit arm financed by a portion of the fund’s fees.
http://dealbook.blogs.nytimes.com/2007/03/02/trying-to-make-care-part-of-the-image-of-hedge-funds/
May 1st, 2009 at 4:32 pm
You’re going to have to do a better job of defining “greed.” If one substitutes “self interest”, than it becomes the defining motivation of being an individual. That is to say, your life revolves around maximizing your self interest. The career you choose, the car you drive, the person you marry, and the clothes you wear are a manifestation of what makes you happiest. Even giving to charity is a reflection of self interest. It makes you feel good.
OTOH My own definition of greed is coveting what other people have. Something the left pursues on a regular basis. Care to try again?
May 1st, 2009 at 5:02 pm
Show me what you have read.
See the post immediately above yours.
May 1st, 2009 at 5:25 pm
Justice Antonin Scalia, per the Above the Law blog:
It is not a rare phenomenon that what is legal may also be quite irresponsible. That appears in the First Amendment context all the time. What can be said often should not be said.
And I’d add that what can be done legally often should not be done. Morality is broader (and concomitantly more squishy) than legality.
May 1st, 2009 at 5:34 pm
@71 Eileen: “Aren’t they also contributing to poisoning the pond they swim in, so to speak?”
Yes, as it turns out, that is exactly what happens when Capitalism is unchained, literally and figuratively. It poisons its own water supply. That is why it must keep move moving. Capitalism is a peripatetic monster forever seeking fresh water, leaving only poisoned wells in its wake.
“Fiduciary duty.” I always loved that phrase. It’s an oxymoron, really. Your “duty’ frees you up to do pretty much anything you want short of murder. High treason? Acceptable. Death to thousands? If it makes money for your people, you’ve done your duty.
Camp guards at Auschwitz did their duty. By most accounts they were highly efficient and fiercely loyal. Perhaps that is why almost none of them were ever charged with a crime.
May 1st, 2009 at 6:36 pm
I take it that all posters here who claim that the managers’ Fiduciary duty must be subordinated to ther more fundamental moral duty feel the exact same way about the moral duty of, say, a lawyer, doctor, or priest who’s client/patient/parishoner confesses to a murder for which another, innocent person is facing a severe legal sentence to ignore their professional duties in favor of their moral duty to inform the police of what they know, right?
Right?
May 1st, 2009 at 6:58 pm
That’s Envy, which is a different deadly sin. No, I don’t care to try again. I’m not interested in getting into semantic games. The usual definitions of greed suffice. Not all instances of self interest constitute greed, but a lot of them do. The ones that don’t constitute greed generally don’t need an entire economic system designed around making them socially valuable.
May 1st, 2009 at 6:59 pm
Sometimes their moral duty as individuals overrides their moral duty as a professional. I intend to be every bit as specific as to when that is as I have been with regards to corporate officers.
May 1st, 2009 at 7:37 pm
Greed is not the problem. Man is greedy. Count on it.
The problem arises when those we elect to protect the least-well-off of us against the most-well-off of us help the latter to fuck the former.
May 1st, 2009 at 8:30 pm
“That greed is channeled in productive ways, and that it is, for certain roles moral behavior, does not change the fact that, in the role of an individual human being, greed is not a virtue. For human beings, it’s a vice”
But trying to get paid, or trying to strike a hard bargain,
is not necessarily “greed”.
Anyhow, I’ll suggest another interpretation of the behavior
of the holdout secured creditors. Maybe they’ve looked at
Chrysler and its market and its future prospects, and have
concluded that liquidation sooner or later is inevitable.
In that case keeping the company alive is just going to be
a waste of money, and the best solution for *all* the
creditors, secured and unsecured, might be to liquidate
sooner rather than later.
That judgment is not necessarily correct, but I think it’s
plausible.
May 1st, 2009 at 10:04 pm
-We want 100%
-Well, you can try for that, but if you try for that you’ll get 75%. Or you can cooperate with us and get 80%.
-We want 100%
-OK. You get 75%.
If I were the widows and orphans, I’d rather have gotten the 80%.
(Actual numbers are definitely different.)
May 1st, 2009 at 10:43 pm
@81 Econobuzz “The problem arises when those we elect to protect the least-well-off of us against the most-well-off of us help the latter to fuck the former.”
Yup.
May 1st, 2009 at 11:50 pm
I take it that all posters here who claim that the managers’ Fiduciary duty must be subordinated to there more fundamental moral duty feel the exact same way about the moral duty of, say, a lawyer, doctor, or priest who’s client/patient/parishoner confesses to a murder for which another, innocent person is facing a severe legal sentence to ignore their professional duties in favor of their moral duty to inform the police of what they know, right?
Of course. What sort of bizarre moral framework are you working from, here?
The priest–I am assuming you mean a Roman Catholic priest–has a complex and powerful religious imperative to not openly reveal anything he has learned in the confessional. However, none of these professions has any specific legal right or moral obligation to protect people they know have committed serious crimes.
Speaking of freakish morals, are you trying to equate the need for a lawyer or doctor to keep vital client information confidential . . . to a hedge fund manager’s supposed need to maximize profits? I’ll note that the doctor’s situation involves matters of life and death and the lawyers obligation is to maintain the rule of law and our society. The hedge fund manager is only trying to nip a few bucks extra for his shareholders.
What bizarre ethical system equates these motivations? Scrooge and Marley probably would nod in agreement, but they were, you know, caricatures.
May 2nd, 2009 at 1:03 am
May 2nd, 2009 at 1:18 am
I dunno, I don’t see where you get the idea that there would be a system of ethics or morality so compelling that self-interest would or should be set aside. I mean, my guess is from Christendom, either as Christianity or as reflected in the Hannukah ethics of mid-century humanism, but God is dead, don’t you remember? Everything is permitted.
May 2nd, 2009 at 1:33 am
Re: Yes, the hedge funds are secured creditors, who legally have first claim on the assets
Actually that’s wrong. First claim goes to the lawyers and courts handling the bankruptcy. Second claim belongs to any taxing authority owed money. Third in line come employees owed wages etc. Secured creditors are actually fourth in the list.
May 2nd, 2009 at 7:01 am
It’s not as if Obama had much of a choice. Clueless, oblivious people.
There is another model for presidential behavior, and it doesn’t involve deciding that providers are too big to fail and give them money for the next 20 years (Japan style).
May 2nd, 2009 at 9:14 am
You are correct. But you are also, I suspect unintentionally, muddying the waters. A lot of people have conflated the current and (potentially) severance wage claims of current employees, with the claims, in sum, of the UAW. That is exactly what I intended to point out.
Such claims only form a tiny, negligible part of UAW claims. Current wages are a dribble. The monster in the room is actually retirement pensions and healthcare, and current healthcare. Those costs are far behind the secured creditors in the queue. And there is precedent in bankruptcy rulings that healthcare obligations do not vest.
My guess is that if this bankruptcy were to be conducted properly (as opposed to being shaped by White House pressure), the majority of UAW claims would essentially be wiped out. Some of it would be considered null and void. Bankruptcy law is not very kind to employee obligations in general; to the claims as currently posited by the UAW, especially so.
I must also point out that the precedent is to give bondholders, not the union and pensions, the equity (and thus the upside as well as the risk). The bondholders are to be regarded as more appropriate carriers of equity risk.
May 2nd, 2009 at 10:55 am
The Protestant Ethic (from the Source). Note: Calvin regarded Stoics such as Cato and other Roman writers on a par with the Bible. (Dante makes Cato the guardian of Purgatory):
May 2nd, 2009 at 11:00 am
[...] Matthew Yglesias: The Ethic of Greed and the Spirit of Capitalism [...]
May 2nd, 2009 at 12:06 pm
End of laissez-faire –Keynes
May 3rd, 2009 at 10:14 am
[...] Matthew Yglesias comments in The Ethic of Greed and the Spirit of Capitalism: [...]
May 4th, 2009 at 10:33 am
[...] administration’s proposed Chrysler deal for just “an extra fifteen cents on the dollar.” The selfish greed of the hedge funds may, however, have produced a good result by forcing Chrysler into the [...]
May 4th, 2009 at 10:42 am
[...] administration’s proposed Chrysler deal for just “an extra fifteen cents on the dollar.” The selfish greed of the hedge funds may, however, have produced a good result by forcing Chrysler into the [...]
May 4th, 2009 at 12:45 pm
[...] administration’s proposed Chrysler deal for just “an extra fifteen cents on the dollar.” The selfish greed of the hedge funds may, however, have produced a good result by forcing Chrysler into the [...]