Thinking beyond your interests

Posted by Marc Hodak on April 25, 2009 under Revealed preference | Be the First to Comment

Congressman Mark Schauer joins a chorus of politicians pressing the creditors:

The unions have made a number of concessions to ensure the survival of Chrysler.  The question now is what the company’s creditors will do… They have to look at the broad economic impact (of Chrysler collapsing) and not just their own short-term financial interest.

Representative Schauer understands what it takes to look beyond his short-term financial interest.  He’s a community service kind of guy.  Never worked at a productive job a day in his life.  And just because 25 of the top 40 campaign contributors were unions (UAW was #8) doesn’t mean he’s serving his financial interests in arguing for the altruism of others.  I don’t doubt this guy sincerely believes that stiffing the creditors will be good for the economy in a “broad impact” sort of way.

But if sacrifice is what this is really about, Congressman, please show us the way.  I know a Chrysler bondholder, one of the “little guys” who hasn’t accepted government money.  He voted for Obama, FWIW.  He figures he can get about 65 cents on the dollar in bankruptcy, a little less on liquidation than restructuring.  The politicians are asking them to take about 15 cents.  My friend, hearing the Congressman from the UAW asking for some sacrifice, is willing to match him, dollar for dollar.

He says, “I’m willing to take my lumps to the tune of what I contractually signed up for, i.e., a 35 percent loss.  I bought the bonds.  I screwed up.  If you, Mr. Congressman (or Senator Levin, or Governor Granholm, or any other of the politicians standing in front of your union masters and asking us bondholders for an additional sacrifice) are willing to look beyond your short-term financial interest, and share in my loss beyond what the market says I could get from bankruptcy, then I’ll do it.”

So, if you, Congressman Schauer, put up $30,000, my friend says he will take an additional $30,000 hit, below the 60 cents he currently expects.  Put $100,000 into the Chrysler kitty, and he’ll put up $100,000.  What do you say, Congressman?  Senator?  Governor?

I will pre-emtively and perhaps unfairly say, “I thought so.  You’re happy to ask for sacrifice, as long as it’s coming from others.”

I’ll give my friend the last word:

There are people who have bought into these securities at already depressed prices.  I’m not one of them.  We picked them up at issuance.  While the unions were happy to collect their well above-market wages and benefits, I watched the value of my bonds drop.  Now that they’re willing to work for only slightly above market wages and benefits, they’re expecting me to suck up much worse losses.

He closed with an unprintable invitation for the politicians to engage in something that sounded like self-copulation.