The New Anti-Business President … by John Allen

I recently finished reading Amity Schlaes book, The Forgotten Man, in which she describes many of the follies of FDR’s handling of the economy during the Great Depression. One point that is made over and over is that FDR was an anti-business President. From establishing the TVA to destroy private utility companies to the National Recovery Administration that instituted sweeping wage and price controls to the undistributed profits tax which heavily taxed any profits companies made but didn’t spend. Wendell Willkie famously told FDR that because of his policies, “capital was on strike”. There is nothing worse for a capitalist economy than for the capital to disappear.

I was thinking about this in light of many of Barack Obama’s policies. Obama seems to be a very close second to FDR in creating an anti-business climate in America. Of course, he’s only been in office for about 100 days so there is still a good chance he will surpass FDR. I’m afraid that many of Obama’s policies will have the effect of causing capital to go on strike.

Take for instance Obama’s handling of Chrysler. Many investment firms, small and large, are debt holders of Chrysler. In the aggregate, they are Chrysler’s biggest creditors and, under bankruptcy laws, are first in line to be paid if Chrysler files for bankruptcy. That binding contract, guaranteeing first priority in the event of liquidation, is what made these investments safe and attractive for the investment firms.

Obama, however, tried to short-circuit the bankruptcy process and railroad his own deal through. He tried to bully (yes, bully) the investment firms into taking 29 cents on the dollar. These are firms whose clients include ordinary people like retirees, teachers unions and pension plans, not wall-street moguls. Meanwhile, Obama wants to give the United AutoWorkers, which holds much less of Chrysler’s debt, a 55% share of the company. This is a political payoff to the union, pure and simple.

Then, and this is the truly despicable part of Obama’s actions, he goes in front of the media and villifies these investment firms who are simply looking out for the interest of their clients:

A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout,” Obama said, flanked by his economic, energy and environmental teams. “They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don’t stand with them.”

Sacrifices? First of all, the reason many other investment firms “made sacrifices” and took less than they were entitled to is because they were recipients of TARP funds. They couldn’t possibly defy Obama when he controls the fate of their own companies. Of course they would take less than the non-TARP lenders when they get their marching orders from Washington. Also, many of these non-TARP firms offered to take 50 cents on the dollar but Obama demanded they take 29 cents. They were willing to sacrifice, but not be plundered for the sake of the unions. And, why do the unions get preferential treatment under the laws of Obama when they would have been in the back of the line under the laws of bankruptcy?

For Obama to sell his economic agenda, which is based mainly on class warfare, he always needs a villain. He found one in these investment firms, and he immediately went to work to smear them as evil “hedge funds” trying to get a taxpayer-funded bailout. A taxpayer-funded bailout? This is infuriating. He accuses the non-TARP firms of wanting a taxpayer-funded bailout and extols the virtues of the firms that were willing to make sacrifices. In other words, the TARP firms that already received the taxpayer-funded bailout look like the good guys for “sacrificing” and the firms that never asked for a taxpayer dime are demonized for trying to get what they were contractually entitled to before Obama decided to re-write the rules according to his political preferences.

And, by the way, these investors were not day-traders or speculators. They bought Chrysler’s bonds, which is the same as saying they gave Chrysler a loan when Chrysler needed it. They are the people that keep corporations afloat as they expand or restructure. But, now they are greedy villains. The modern-day robber barons.

Is this how we conduct business in America now? If corporate bonds, long considered to be among the safest investments, are now subject to be nullified according to the whims of the President what message does that send to investors? One of the reasons America has been such a great place to invest is because we have well-established and well-enforced contract laws. The rules of the road are known ahead of time. But now, does anybody know the rules of the road? Can anyone be sure that their investments, whether in bonds or mortgages or who knows what else, aren’t going to be altered or nullified in the middle of the game?

John Hinderaker of PowerlineBlog calls it Banana Republic Capitalism. Some investors are going to be very reluctant to invest in corporate bonds with this kind of uncertainty. In other words, capital will go on strike. How does this help business in this country? Large companies often have to raise capital for a variety of reasons (acquisitions, expansion, etc.). When capital goes on strike these companies are not going to have as much money to expand and grow their companies.

And with the unions in charge of Chrysler how do we suppose that company will be run? My guess is that their priority will not be to make business decisions based on what is most profitable. Obama will demand they make “green” cars that consumers don’t want. The unions will run the company like a public jobs program. And the taxpayers will subsidize this inefficiency for as long as it takes to fool the public into thinking that the company is self-sufficient. It’s pretty much the same sort of deal Obama structured with GM. At GM, however, Obama gave government 50% control (but, of course, he has no interest in running the car companies. Right.), the union got 40% and the debt holders got 10% even though they held more debt than the unions. Win for Obama, win for unions, loss for taxpayers and consumers.

When you combine this with many other things Obama has done or wants to do you get a picture of a President who harbors deep antipathy for business. Raising the capital gains tax will, undoubtedly, lead to less investment and less available capital in the market. Raising the income taxes on income over $200,000 will affect millions of small businesses.

And let’s not forget the outright effort to destroy entire industries. For instance, during the campaign Obama said his cap and trade scheme would essentially bankrupt the coal industry. And, recently, Democratic Congresswoman Jan Schakowsky admitted that the goal of Obama’s public insurance program is to bankrupt the private insurance companies and lead to single-payer universal healthcare. Obama may not admit this outright, but his allies in Congress know what this will do to the private health insurance industry.

When we have American politicians who openly brag about bankrupting American industries we have a real problem. These industries provide jobs, pensions, pay taxes and deliver services that many Americans rely on. But, that doesn’t matter now. They are not a politically favored industry so they must be crushed.

FDR may hold the title for the most anti-business President, but Obama is gaining on him fast.