January, 2012, when the first postmortems are written on the Barack Obama presidency the attention will rightfully center on the still depressed economy as the reason for the downfall of the presidency which began with so much hope and promise only to limp through its last three years, two of which were spent fighting Republican majorities in the house and senate. The Monday morning historians will point to the depressed global economy, slow, to no, job growth domestically and even the misdeeds of the Bush years as reasons for the malaise.
My belief is that you need not look any further than the GM/Chrysler bailouts in the spring on 2009 as the soft cornerstone that eventually crumbles the entire house. At the time, in the midst of +/- trillion dollar TARP give-a-ways, +/- trillion dollar stimulus bills, and +/- trillion dollar pork filled budgets, one would not think that this paltry $80 to $100 billion “investment”, would be the act that would shake this country’s economic foundation to its core.
The government takeover of two, once proud, American industrial giants, while distasteful and utterly unconstitutional, was not the trip wire that caused the explosion. The blast occurred when the administration, while dividing up the goodies that came with its new toy, let the United Auto Workers union “break in line”. Everyone recognizes the way things are done in Washington. You get elected and you pay back those who paid to get you elected. And pay the UAW did, donating some $20,000,000 of their member’s dues to candidate Barack Obama and Democrat lawmakers. In fact, the only national Republican to receive UAW donations during the last election cycle was Pennsylvania Senator Arlen Specter, who is now a Democrat. Everyone expects for some rules, beneficial to the unions, to be buried in congressional legislation and Commerce Department directives, but the administration reached too far … and fell, and amid all of the background noise, we simply did not hear the bang.
By putting the interest of the UAW ahead of the senior creditors and investors, in clear violation of decades of settled bankruptcy and business law, the president changed the rules and changed the investment landscape for years to follow. He not only, with a stroke of a pen, changed the rules in the legal sense, but also in the gut sense that every investor, from the teacher with a small 401K, to the pension fund advisor and the hedge fund manager, uses before precious capital is risked. The government said to the investment world that they, the omniscient government, would pick the winners and losers based upon current political expediency and without regard for the law.
Who were these investors? Large and small banks, insurance companies, public employee pension funds and teacher’s retirement funds. All are ultimately owned by individual members and stock holders, in other words, YOU. These investors all purchased “secured” company bonds, that were slashed in value in some back room, coerced, negotiation where the president said, in essence, you can go along with this or you will be destroyed. You can take the politician out of Chicago, but you can’t take the Chicago out of the politician.
Where are all of these investors and their billions of dollars that are so desperately needed to get this economy going again? They are standing on the sidelines. No one wants to play in a game where the rules can be changed in the middle of the game or even after the game is over. They are standing on the sidelines with their hands in their pockets wondering if it is worth the risk.