Monday, May 04, 2009

William of Orange, What would you advise?

It seems that Obama has forgotten the lesson of the Glorious Revolution: a king that can break contracts has trouble getting people to lend him money.  Michael Barone's book on the Revolution of 1688 explains that one of the consequences of the weakened position of the king was that the king paradoxically became more powerful.  Why?  He was not able to walk away from deals with creditors and confiscate the assets of anyone that went into business wiht him.  Result?  A lot more people were willing to give him credit and go into business with him.  Royal borrowing went from under 5% of GDP to almost half while interest rates went from around 17% to under 7.  Of course such debt could have weakened the kingdom but for the fact that the King made productive investments-He invaded France.

Obama is ignoring this lesson on the profitability of governmental good faith. His "offer" to Chrysler's bond holders amounts to breaking a contract and confiscating their assets. Like the kings of old, he is taking the property of the group that backed the wrong side in the succession battle and using it to reward royal favorites. This is probably isn't even penny wise (there is little chance the UAW will do anything so productive as invading France) but it is certainly pound foolish. Someday Chrysler will need to borrow again. It will be a brave creditor or fund manager who will put his clients assets at such risk. What retiree would again think of corporate bonds from an auto maker as a safe investment?

The thing I can't understand is why are Republicans so dumb about this?  Why aren't we seeing commercials of the little old ladies going to thier mailboxes only to find them empty like we do when anyone talks about the slightest change in Social Security?  I know lots of relatives back in Dayton that had corporate bonds as part of thier retirement portfolios. They don't look much like corporate fat cats and they were all Democrats. Why aren't they being put in commercials and juxtaposed with Obama declaring them "greedy speculators" and enemies of the people?  It makes you wonder: maybe the Republicans are a bunch of country club types?

No comments: