The huge if necessary U.S. government intervention into the economy is raising some fundamental questions about the nature of our capitalism.
Among them are does patriotism trump capitalism? Does morality? Whose definition of patriotism and morality do you use? Are globalization and national interest compatible?
Things were simpler when business and finance were robust and government help wasn’t needed. Then it was cleaner and easier to argue that market rules: straightforward if sometimes brutal, were the best overall path toward the greater economic good. Yes, there were casualties, but globalization trumped patriotism and self-interest topped empathy. It’s not that simple anymore.
Examples of these conflicts abound. Let’s start with the latest.
“While many stakeholders made sacrifices and worked constructively, I have to tell you some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices and they would have to make none.”
That’s President Barack Obama Thursday explaining the background of the Chrysler LLC bankruptcy filing.
You don’t have to like the methods of the credit holdouts, their strategy or their rationale. But no one questioned the legality of their holdout. They were trying to maximize the return on their investment in Chrysler, presumably figuring they would make out better in bankruptcy court than in a government-orchestrated deal.
Isn’t that their right? Isn’t that what bankruptcy court is for?
President Obama didn’t let up on the holdouts as he added, “I don’t stand with them. I stand with Chrysler’s employees, their families and their communities. I stand with Chrysler’s management, its dealers and its suppliers.”
Isn’t it accurate that Chrysler’s management and employees, current and past, had more to do with getting the company to its current perilous state than the holdout creditors? When everything is boiled down, the company did not build cars that enough people, primarily Americans, wanted to buy. The holdout creditors didn’t do the design work.
Last week, news broke that Bank of America Corp. Chief Executive Kenneth Lewis felt pressured late last year by two top government officials not to reveal to bank shareholders the declining condition of takeover target Merrill Lynch, lest the financial system take another severe blow from an aborted merger. His version has been disputed by the regulators.
Lewis went along, he said, reaping significant shareholder anger. It’s part of the reason he’s no longer Bank of America’s chairman. Was he being patriotic? Thinking beyond the self-interest of Bank of America holders?
Perhaps, but holders clearly thought his allegiance should have been to them, not the greater good of the financial system. “Mr. Lewis and the board owe their fiduciary obligation to the corporation and its shareholders, not to the regulators …” That’s from CtW Investment Group, a union-affiliated institutional investor.
Big investors and highly paid Wall Street types no doubt pine for the days legally pursued self interest was applauded, if often enviously, not denounced from on high. Those days won’t likely return for some time.
