Wednesday, June 10, 2009

Hammer and Tongs

Slumped by the courthouse
With windburned skin
That man could give a fuck
About the grin on your face
As you walk by, randy as a goat.
He's sleepin' on papers
But he'd be warm in your coat.

— Romeo Void, Never Say Never

The Supreme Court waved through the Administration's sale of Chrysler to Fiat today. For the moment, the pillars of the Republic seem to have withstood the blow. As of this morning, the secured lending market has completely failed to implode, and I am reliably informed that the sun ignored the hullabaloo and rose in the East according to plan. Meanwhile, all those wailing and gnashing their teeth these last few weeks about the onrushing juggernaut of creeping socialism and crypto-fascism seem to have swallowed their tongues and are busy inspecting their fingernails.

It is likely that this silence is simply a temporary reprieve, a pause for breath before the larger struggle looming over the reconstitution of General Motors. Call me naïve, but I would like to believe it also has some little relation to the fact that the conflict between government policy and the rights of private capital in this instance has had a full hearing under the rules set up by the Constitutional checks and balances of our tripartite political system. I also take comfort that the final decision not to forestall the Administration's actions came from a body of life-tenured jurists, none of whom owe their appointments or their ongoing authority to this selfsame Administration.

This will not satisfy the naysayers, however. I would be disappointed if it did. Genuine lawyers and law professors—as well as commentators whose credentials appear to have been gleaned from a cursory reading of Wikipedia or the Napoleonic Code—continue to differ on the legality of the methods the Administration used to rescue the automakers. I pretend no definitive expertise in this area. I will only note the oft-overlooked truism that our current legal system relies on opposing arguments by committed advocates to settle legal disputes. Said simply, lawyers argue. That is their job. They do not pursue some elusive and unchanging truth: they try to win.

Similarly, I have made the point before that dealmakers do not seek some elusive and unchanging truth about value, or its proper allocation among competing claimants: they negotiate. Strangely, this concept seems to be a difficult one for many people to grasp, even some who clearly should know better.

* * *

For what it's worth, I myself have severe doubts about the wisdom, sustainability, or eventual economic success of the Government's current attempts to rescue the US automaker industry. I tend to think it is bad economic policy. However, I also understand that economic policy is not what is driving the government's actions in this case. It is politics, pure and simple.

Preserving tens if not hundreds of thousands of jobs counts for a lot of votes in any Congressional or Presidential election, which is one very important reason why successive governments in this country—Republican, Democrat, and mixed—have not done more over the past four decades to fix the problem. Now that Chrysler and GM have driven themselves into a ditch, upside down with wheels spinning, I can only hope someone figures out how to prevent their rescue from becoming a permanent ongoing taxpayer-funded wealth transfer to the state of Michigan from the other 49.

* * *

There is a larger issue at hand, however.

As a theory of political economy and a socioeconomic ideology, financial capitalism is beating a hasty retreat all over the globe. The reasons for this should be clear: while it alone has not been responsible for all of the sources and effects of the late financial meltdown and the ongoing global recession, it certainly has taken a central role, and it has utterly failed to cover itself in glory during recent events. The countervailing forces of regulation, government control, and wealth redistribution have roused themselves from their long slumber, and they are both cranky and hungry. It would be hard to find anyone outside the cloistered confines of finance and investment who believes in free and untrammeled markets anymore.

More importantly, vast swathes of ideologically uncommitted citizens who were happy to drink the free market Kool Aid when it justified, encouraged, and helped pay for a standard of living they could not otherwise afford now view anyone from the finance sector with as much enthusiasm as a dose of the clap. The challenge for those of us who work in the ways and byways of the industry is that these former friends—added to the dyed-in-the-wool enemies of capitalism from the left and elsewhere—vastly outnumber our own relatively meager numbers. Politics, for those of you who need reminding, is definitely a numbers game.

I have argued elsewhere that the Administration's actions in ramming an accelerated sale of Chrysler down the throats of other creditors were not actually driven by a desire to change the rules of the game. I still believe this to be true, and I view both Chrysler and GM as special cases motivated by special circumstances which even the government has no intention of repeating. I could be wrong. Only time will tell.

But I may in fact be even less sanguine that some who have argued against me that the current rules of the game in our economy will remain unchanged. I believe there is great pressure from many quarters for a sustained reworking of the ground rules in this economy, with greater regulation, less financial freedom, and more equal distribution of wealth highest on the agenda. Equity, for a change, has come to replace efficiency as the most important god in our socioeconomic pantheon.

This is why I think the forces who are waging a rearguard action against what they see as unconscionable attacks by the government on (what they define as) the rule of law are completely missing the point. There is nothing fixed and immutable about the law, or its interpretation, or even the weight which a society gives to legal precedent in arbitrating important political and economic disputes. Law, and the rules of the game in general, are being reshaped as we speak. Nowhere is it written that they cannot be.

I stand with those who believe that both capitalism and democracy are each the least bad of a set of far worse solutions to organizing economic and political activity, respectively. But that does not mean that democracy and capitalism are completely compatible, or that they cannot become antithetical to each other under certain circumstances. We find ourselves in such circumstances now.

It is time for those of us who value both to stop whining about the good old days, engage with our critics, and help hammer out a new solution, before a new solution is hammered out for us.

I personally have no ambition to become an anvil or a nail.

© 2009 The Epicurean Dealmaker. All rights reserved.