Sunday, May 17, 2009


Some of my more devoted readers may remember my posting on October 23, 2006, i.e. "Gulfstream Liberals," in which I attempted to explain why the politics of so many wealthy people turn liberal once their mound of money has reached mountainous proportions. This tendency is especially prevalent among the New Capitalists running hedge funds or private equity money. For example, in the 2008 presidential election, 70% of hedge fund money supposedly went to Obama. Why, one wonders, would rich people support politicians whose policies go against everything that enabled these people to get rich. Why would the rich support those who sneer whenever they utter the words, "the rich," as if the sneerer actually believes the aphorism that at the beginning of every great fortune lies a crime. Most liberal politicians view wealthy people not as successful entrepreneurs or managers who through skill and brains have created great innovations and countless jobs, but as greedy, rapacious money grubbers who wake up every morning with new devious ways to screw the "little guy." At least that's the view that comes across in their speeches. This stated view doesn't prevent them from accepting donations from the rich, leading one to conclude that these politicians are either venal or disingenuous.

Whether or not liberal politicians truly believe that rich peoples' money is inherently tainted, they most certainly believe that some people have too much money for their own good. This certainty justifies their confiscating at least half of every dollar earned by those whose success and talents place them in the upper ranges of taxable income. No one, in their eyes, deserves to be too rich.

That rich people actually give donations to these politicians against their own self-interest is the converse of the liberal presumption that middle class people vote Republican against their own economic interests because they are basically obtuse and naive or too wrapped up in guns and Jesus to know what's good for them. (Read What's the Matter with Kansas.) In "Gulfstream Liberals" I suggest that the desire to be in with the In Crowd, namely the Media/Hollywood liberal elite, motivates these mostly life-long Republicans to suddenly and drastically change their political stripes.

But alas, many of Obama's wealthy backers have recently become disillusioned with their man, particularly the hedge fund crowd. The WSJ recently ran an article in which several hedgies (most of whom wanted to remain anonymous) expressed frustrations with Obama. I guess that they were shocked to find that Obama really is a liberal and buys into that same liberal dogma that has been around since FDR. Did they really think that all those campaign promises about higher taxes on the wealthy and greater regulation of Wall Street were just empty campaign rhetoric? Did they really think that just because Obama was all too happy to take their money meant that he would be all too happy to take their advice?

A few in the article pointed with particular rancor at the way hedge funds have been treated in the Chrysler/GM bailouts. The Obama administration, being the lifesaver of last resort to drowning Chrysler, used its leverage to force a deal on Chrysler's stakeholders, i.e., the shareholders, who basically got nothing, the dealer network, the UAW and the lenders. According to precedence established by generations of banktrupcy cases, the senior secured lenders are first in line when it comes to divvying up the carcass of the bankrupt company. In this case, however, the Obama guys tried to put muscle on Chrysler's lenders to take approximately twenty-nine cents on the dollar for their $6.9 billion in secured loans, while the UAW's fund for paying benefits to retirees got half of its claim reinstated and 55% of the equity of the new company, even though the retirment fund would normally be in the back of the line. Most of the rest of the equity went to Fiat, who intends to put no cash into the company. And what equity is being granted to the lenders in consideration of their cutting their loans by two-thirds? Zippo. The lenders are getting screwed while the UAW workers, in comparison, make out like bandits. And the irony is that if anybody should shoulder most of the blame for the Chrysler debacle, then the UAW would be first in line.

In the case of GM, the unsecured lenders who put $27 billion into the company are being offered 10% equity in the new GM. Meanwhile, the fund set up to pay medical benefits to retirees and which is owed around $20 billion is getting half its claim kept in place and 39% ownership of the company. Naturally, the lenders are raising hell and will more than likely push GM into bankruptcy. No matter how it plays out, GM is going to be mostly owned by the US federal government and the UAW. I'm sure Toyota is trembling at the prospect of having to compete with the new GM (as in Government Made).

The end result of these blatant attempts by Obama to tilt the bailouts to the benefit of the UAW is that fewer fund managers will be eager to financially support any struggling company that is heavily unionized.

And so Mr. Hedgie is wondering what he got for his donation and all the donations that he pressured from his employees. Maybe he was hoping that Obama would be like Clinton, who regularly said things that he really didn't mean. Slick Willie, to his credit, was deep down pro-business, as are most governors who every day have to figure out ways to increase employment in their respective states. But Obama lives up to his rhetoric. He is fundamentally, dyed-in-the-wool pro-union, which means that he is fundamentally anti-business. He has never really had any exposure to the private sector. He not only doesn't truly understand it, he doesn't like it. We need Big Government to keep all those crooks and predators in line, according to his world view. Obama epitomizes the old saw about Democrats: they love employment but hate employers. I guess in the liberal Demo utopia everybody would work for the government.

But then again, maybe Mr. Hedgie looks at those donations as just the price he has to pay to hobnob with Brad Pitt, Sharon Stone, Robert Kennedy, Jr, Frank Rich and the rest of that Looney Tunes bunch.

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