View Full Version : Anti-Trust Laws
In addition to being unconstitutional, wouldn't gov ownership in two competing auto makers be in violation of anti-trust laws? Could the anti-trust laws be used to force the gov to get out of the private sector?
CryingWolf
06-01-09, 08:13
I would agree if there was only two automakers. Ford is still going and didn't take the government aid that I know of. You still have all the foreign automakers with interests in the US, Toyota, Honda etc.
The_War_Wagon
06-01-09, 13:41
Assuming American laws actually had any BEARING on this administration. :mad: Kenyan/Indonesian/British nationals are all smarter than us, anyways... :rolleyes:
So why do you believe antitrust laws to be unconstitutional?
I'm not being snarky, I really want to know. I've worked as an antitrust economist for on both sides of the issue. I even worked in an exempted industry (basically that made me a legalized price fixer).
The question I would pose is this: Does it even matter? One of the most basic definitions of monopoly is that the monopoly is afforded enough market power that it can operate inefficiently, as in Marginal Revenue greater than Marginal Cost.
Now unless other companies go out of business, I don't see this working. The government won't and can't operated a business that well. It ain't actually that easy. And there are other sellers in the market who can and will force the efficiency issue. If the government tried to operate at an inefficient pricing point, Toyota, VW, Honda, Mazda, Nissan and others would see a market advantage by underpricing the government.
So by the most simplistic definition, I don't see how they can really HAVE a monopoly or even an oligopoly. In fact, Ford proves the point even better. They're already positioned well to beat GM and Chrysler, and are now probably (and maybe by total luck) ready to beat out Toyota post recession through a better product mix and better sales channel mix. This would reduce GM and Chrysler's market power and position (and thereby the government's). So I'm not sure how this your example would be a monopoly.
I dont think the antitrust laws are unconstitutional. It is the gov in the private sector that is unconstitutional. I'm no expert just curious to know. There seems to be a pretty wide range of expertise on this board, on many more subjects than guns. Gov is the regulator and now owner in the same industry, with a vested interest in two particular companies. Wouldn't that violate anti-trust, or at least be a serious conflict of interest?
I think I see what you're asking. It's probably not an anti-trust issue, but a broader regulatory issue. And we've already seen the kind of heavy handed destruction that it does, for example, with the Chrysler senior bondholders. Not only did Obama force the issue, he priced instability into all future markets because senior debt can now lose seniority through an arbitrary process (and senior debt is, by definition, supposed to withstand that arbitrary process). Because of that, cost of capital is probably going to react across the board by moving up, as the risk to senior debt is now higher. The markets lose faith both in the risk rates, and also in the government as the supposed arbiter of the legal process for this type of issue, and they clearly did it wrong. So institutional faith is going to drop, and the markets will react badly to that.
So, I happen to think that what they did should be or was illegal, and we're already seeing bad ramifications from it.
I think I see what you're asking. It's probably not an anti-trust issue, but a broader regulatory issue. And we've already seen the kind of heavy handed destruction that it does, for example, with the Chrysler senior bondholders. Not only did Obama force the issue, he priced instability into all future markets because senior debt can now lose seniority through an arbitrary process (and senior debt is, by definition, supposed to withstand that arbitrary process). Because of that, cost of capital is probably going to react across the board by moving up, as the risk to senior debt is now higher. The markets lose faith both in the risk rates, and also in the government as the supposed arbiter of the legal process for this type of issue, and they clearly did it wrong. So institutional faith is going to drop, and the markets will react badly to that.
So, I happen to think that what they did should be or was illegal, and we're already seeing bad ramifications from it.
Am I dumb? I understand all of the words you used, but I have no idea what you said.:)
sorry, I'm an econ dork. You're not dumb. I'll lay out why I think Obama screwed the pooch in more detail.
1) At some point in the past, hedge funds and others invested in Chrysler by purchasing their debt with some interest rate. This debt also had some level of "seniority." Seniority covers the idea that if the company goes bankrupt they are first in line to get paid from either an equity exchange, future cash payments, or through asset sale.
2) When it became apparent that Chrysler was going file for a restructuring bankruptcy (Chapter 11), everyone has their go in court. Typically, the senior bondholders get go go first. In this case, the senior bondholders wanted some number of cents on the dollar of debt or dollar of asset sale (debt in this case, I believe). They wanted it to be pretty high, I think .80-.90 per dollar of agreed upon and purchased debt.
3) The Obama administration wanted the Bondholders to agree to a much lower payment of something like .30 on the dollar. When the bondholders balked, the Obama administration allegedly threatened to politically destroy the hedge funds and bond holders. The bondholders then caved, and the good old United Auto Workers got one of the greatest rip-off transfers of wealth we will ever likely see. Most of the assets that would normally have gone to the bondholders using the proper application of bankruptcy laws basically then got transfered to the United Auto Workers.
Result: The result of this is that the Obama administration has created instability in the market place.
1) Hedge fund managers typically get different rates on debt because of seniority. Equity and other asset holders typically have higher returns, but no seniority in bankruptcy. Obama basically overruled decades of good investment procedure and law. The result of that is that fear among debt-investors will drive interest rates up, or even damage the overall corporate bond markets. Think of it this way: You ran a hedge fund, and you typically took 10% interest for a bond that had a high likelyhood of payback, and even paying back something in bankruptcy. Now you believe, because of the Obama administration's actions, that that 10% isn't enough to cover the arbitrary risk of some government jerk-off throwing weight and screwing up the markets, increasing the likelihood of you losing money. You're either going to want a higher interest rate or you're just not going to invest in companies that have this risk.
2) In the short term, Obama made the UAW happy, but in the long term he screwed chrysler and every other company that's "too big to fail," and all the others that aren't. Chrysler will now have a harder time raising capital, and their expenditures associated with capital (interest rate) will go up, thus making them a less profitable company.
3) Obama robbed peter to pay paul. The Obama administration demonized the hedge fund managers successfully. In reality, the hedge fund managers represent billions and trillions of dollars from investors just like you and me: Pensioners and investors just like UAW members. But they overrode the market system for assuring fairness in these proceedings. So the market loses confidence in bankruptcy proceedings and will assume it is now more risky and less stable. They also lose faith in the government, whose literal job it is to assure the fairness of the proceedings!
I hope that makes more sense. Sorry about that.
noops, I agree with what you said.
The state of Indiana is one of the Chrysler bond holders that didn't give in - including teacher and police pension funds.
First of all, it was a bad idea for them to invest in Chrysler in the first place. But I'm sure government meddling was part of the reason. Chrysler has a massive presence in Kokomo Indiana and I'm sure some people in the state government wanted to use the public pension funds to help Chrysler to prevent job losses. The UAW probably had influence there as well.
But now that the state pension funds are trying to stand up in court against the bankruptcy package, they are getting steamrolled. The senior bondholders were willing to accept 50 cents on the dollar but that was too much. Obama offered only 30 cents.
The judge just rubber stamped the deal, so there's nothing more they can do except file the appeals and go through years of litigation.
The best part is that Obama screwed the UAW long term. After the Chrysler and GM bankruptcies, good luck to any UAW organized company that wants finance debt with bonds. What investor would be stupid enough to do that now? It will be equity or continued government help. Chrysler and GM are going to become the Amtrak of the auto industry - forever supported by the government.
montanadave
06-02-09, 06:49
sorry, I'm an econ dork. You're not dumb. I'll lay out why I think Obama screwed the pooch in more detail.
1) At some point in the past, hedge funds and others invested in Chrysler by purchasing their debt with some interest rate. This debt also had some level of "seniority." Seniority covers the idea that if the company goes bankrupt they are first in line to get paid from either an equity exchange, future cash payments, or through asset sale.
2) When it became apparent that Chrysler was going file for a restructuring bankruptcy (Chapter 11), everyone has their go in court. Typically, the senior bondholders get go go first. In this case, the senior bondholders wanted some number of cents on the dollar of debt or dollar of asset sale (debt in this case, I believe). They wanted it to be pretty high, I think .80-.90 per dollar of agreed upon and purchased debt.
3) The Obama administration wanted the Bondholders to agree to a much lower payment of something like .30 on the dollar. When the bondholders balked, the Obama administration allegedly threatened to politically destroy the hedge funds and bond holders. The bondholders then caved, and the good old United Auto Workers got one of the greatest rip-off transfers of wealth we will ever likely see. Most of the assets that would normally have gone to the bondholders using the proper application of bankruptcy laws basically then got transfered to the United Auto Workers.
Result: The result of this is that the Obama administration has created instability in the market place.
1) Hedge fund managers typically get different rates on debt because of seniority. Equity and other asset holders typically have higher returns, but no seniority in bankruptcy. Obama basically overruled decades of good investment procedure and law. The result of that is that fear among debt-investors will drive interest rates up, or even damage the overall corporate bond markets. Think of it this way: You ran a hedge fund, and you typically took 10% interest for a bond that had a high likelyhood of payback, and even paying back something in bankruptcy. Now you believe, because of the Obama administration's actions, that that 10% isn't enough to cover the arbitrary risk of some government jerk-off throwing weight and screwing up the markets, increasing the likelihood of you losing money. You're either going to want a higher interest rate or you're just not going to invest in companies that have this risk.
2) In the short term, Obama made the UAW happy, but in the long term he screwed chrysler and every other company that's "too big to fail," and all the others that aren't. Chrysler will now have a harder time raising capital, and their expenditures associated with capital (interest rate) will go up, thus making them a less profitable company.
3) Obama robbed peter to pay paul. The Obama administration demonized the hedge fund managers successfully. In reality, the hedge fund managers represent billions and trillions of dollars from investors just like you and me: Pensioners and investors just like UAW members. But they overrode the market system for assuring fairness in these proceedings. So the market loses confidence in bankruptcy proceedings and will assume it is now more risky and less stable. They also lose faith in the government, whose literal job it is to assure the fairness of the proceedings!
I hope that makes more sense. Sorry about that.
Amazing. You're actually defending the hedge fund managers that helped drive us over a cliff and ****ed everybody within reach to line their own pockets. And you're blaming the Obama administration for destroying confidence in the marketplace? ROTFLMAO!
Montana Dave
I think you paint with too broad a brush.It also tells me you problem don't know that much about the finance business.
There were, and still are, plenty of hedge fund managers that had nothing to do with the bad real estate markets or the bad parts of the financial sector. They were, and indeed, still are an important part of the financial markets.
When hedge funds are used properly, as a hedge against risk they are an extremely valuable part of an investment portfolio. When they are used solely for arbitrage or silly investments like the real estate swaps, they cause damange.
The people in this saga are mostly good hedge fund managers. By definition they are tryin not to lose more money for their investors. And you ignorance is glaring. You blame the hedge fund managers for losing all of this market value, yet at the same time would have other hedge fund managers give up value to the market (or the UAW in this case). That doesn't even make sense. I mean, which is it. They're trying to **** us over by increasing the value of their fund for their investors, which is the opposite of the ones that you say created the market problems? By definition, the Obama administration forced the hedge funds to lower their values. How is that good for their investors?
And do you really think it's OK for the Obama administration to override a century of investment procedure and bankruptcy law?
p.s. Montana Dave:
Besides answering my questions in my last post, which parts of the post that you responded to aren't true?
Amazing. You're actually defending the hedge fund managers that helped drive us over a cliff and ****ed everybody within reach to line their own pockets. And you're blaming the Obama administration for destroying confidence in the marketplace? ROTFLMAO!
Let me start with the disclaimer that I am neither an economist nor a financial analyst/expert, and I didn't stay at a Holiday Inn Express last night, but I have done a bit of reading about this current situation and I believe that noops portrayal of the situation is accurate and does not amount to a 'defense of the hedge fund managers'...it just is what it is.
Fact is, what has just happened is, as already described, a huge transfer of wealth. The Obama administration has used political power to force those with rightful claims to relinquish those rightful claims in order to pay back some campaign debts, to put it one simplistic way. In the process they have rewritten the rule book (and used the existing one as toilet paper).
Unintended consequences can be a real bitch and I don't think it's far-fetched to count as plausible what noops has listed as very real consequences of the actions of the government. It seems you have really bought into the Obama populist class envy propaganda.
Obama and his people ARE destroying confidence in the market. The populist anti-hedge fund propaganda is nothing but spin. Three of the funds leading the opposition to the bankruptcy "package" are state employee retirement funds from Indiana - including the police and teachers funds. So they get screwed, which costs the taxpayers more, and harms the very populace that the populists claim to defend. This was payback to the UAW pure and simple. I saw first hand how hard the UAW lobbied for Obama last fall.
Now I'm currently looking for a job because the automotive plant where I worked is closing. I used to be in engineering and management at a diesel engine facility and we got hammered a year ago due to the high fuel prices decimating our sales. Now the place is closing because our primary customer negotiated an end to our supply contract.
The word I am getting from people I know in the recruiting business is that nobody wants to hire anyone now, especially in my industry, because they have no idea what Obama/Congress are going to do next. They are scared of carbon taxes, cap and trade, value added taxes, excessive debt causing interest rate increases, inflation, you name it. Employers have no idea how to scale their businesses or where to invest because they don't know what the rules are going to be. So they are just waiting to see what happens.
Obama and his people ARE destroying confidence in the market. The populist anti-hedge fund propaganda is nothing but spin. Three of the funds leading the opposition to the bankruptcy "package" are state employee retirement funds from Indiana - including the police and teachers funds. So they get screwed, which costs the taxpayers more, and harms the very populace that the populists claim to defend. This was payback to the UAW pure and simple. I saw first hand how hard the UAW lobbied for Obama last fall.
Now I'm currently looking for a job because the automotive plant where I worked is closing. I used to be in engineering and management at a diesel engine facility and we got hammered a year ago due to the high fuel prices decimating our sales. Now the place is closing because our primary customer negotiated an end to our supply contract.
The word I am getting from people I know in the recruiting business is that nobody wants to hire anyone now, especially in my industry, because they have no idea what Obama/Congress are going to do next. They are scared of carbon taxes, cap and trade, value added taxes, excessive debt causing interest rate increases, inflation, you name it. Employers have no idea how to scale their businesses or where to invest because they don't know what the rules are going to be. So they are just waiting to see what happens.
And this is the stuff that needs to be in the news. You need to write a letter to the editor explaining this. People like Glen Beck (since no one else will) need to explain this to the masses. The masses will not put 2+2 together.
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