Sunday, March 4, 2012

A Greek Tragedy At Home

     This week the private bond-holders of Greek debt are going to be asked to sign their names to a deal which will ensure at least a 53.4 percent loss of their investment. It is also looking as though they will not be allowed to insure that debt with credit default swaps. All this while the public financiers of the Greek debt, the European Central Bank, et., al., will protect themselves from loss and actually be able to profit from the deal. With this kind of assault on free market principles I wonder why anyone would invest in European sovereign debt.
     Just as I was becoming indignant about the European debt crisis, I remembered that a worst situation happened in this country just three years ago. I am, of course, referring to the bailout of the GM and Chrysler, when President Obama, with no authority to do so, forced the bond-holders to relinquish their rightful stake in those companies and give their equity to the unions. This heavy-handed government interference with the free market, as much as anything else, has lead to uncertainty in the markets and sluggish growth in the economy.
     We were told that if a government bailout was not proffered that bankruptcy was sure to follow. In the case of GM, a bankruptcy occurred anyway. The government bailout was used to transfer wealth from the legitimate bond-holders to the unions. It was also used as a method for the Obama administration to close profitable dealerships owned by Republicans, who did not support him. The ruse was also used to allow the administration to force the manufacture and sale of electric vehicles that no one wanted to buy. Only five thousand of the fifteen thousand Chevy Volts sold in the last year were bought by private individuals, the rest were purchased by the government to shore up sales. When the government interferes with the free market in this way, it can only lead to manipulation and crony capitalism. It also dissuades investors from entering into long-term debt, fearing that the government can confiscate it from them and give it to groups who support the administration.
     If we are ever going to get back on the path of a healthy economy, the free market forces must be unencumbered by the fear that an over-reaching government will violate their equity stake simply for political gain.

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