As featured on p. 218 of "Bloggers on the Bus," under the name "a MyDD blogger."

Friday, May 01, 2009

The Whine Of The Brooks Brothers Suits

Hedge fund managers are awfully steamed about the Snidely Whiplash mustache that Obama hung on them yesterday:

President Obama's harsh attack on hedge funds he blamed for forcing Chrysler into bankruptcy yesterday sparked cries of protest from the secretive financial firms that hold about $1 billion of the automaker's debt.

Hedge funds and investment managers were irate at Obama's description of them as "speculators" who were "refusing to sacrifice like everyone else" and who wanted "to hold out for the prospect of an unjustified taxpayer-funded bailout."

"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." [...]

"It sounds like people are being bullied right now," said Ron Geffner, a partner at the law firm Sadis and Goldberg, which represents hedge funds. "To play the 'I stand with Chrysler, I stand with families, I stand with the dealers, I stand with the consumers' -- that's great conceptually, but . . . I stand with the fact that we live in a capitalist society where companies who don't modify their business plans and stay current die and go by the wayside."

It's simply a lie to say they wanted a payout in line with the unions and Fiat. They wanted a bankruptcy so they could cash in on credit default swaps that pay out in the event of a bankruptcy, and make a killing at the expense of Chrysler.

Also, if we indeed do live in a capitalist society, where everyone is treated equally and companies must act within the boundaries of the regulatory landscape, then I expect these hedge fund managers to march en masse to Capitol Hill and demand they be charged the regular marginal tax rate on their income rather than the capital gains rate that allows them to hide billions from the federal government. Surely, because they believe in capitalism and the level playing field so much, they'll get right on that.

I don't have a problem with investors acting purely in their economic interests, but government has a role to play in making sure those interests aren't as perverse as this, where a minority of investors (the bigger banks signed off on the 28 cents-on-the-dollar deal) can throw a company into bankruptcy because of the side bets. And those investors can own up to the fact that their desire for CDS money left them rooting for bankruptcy. It'd be the honest thing to do.

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