Saturday, May 2, 2009

Becoming a Migraine By: Timothy Chilleri

Very recently, President Obama publicly denounced the bond financers of Chrysler. This is worrisome for a couple reasons. First off, Obama says it wasn’t such a good idea to throw money at the car companies for the past few months. So, why is he upset over private investors not throwing good money after bad? Secondly, this is the fundamental right of any private investor. To impinge publicly is completely irresponsible of the President. To act as if these men are fundamentally bad people for trying to allocate their resources properly is disgusting. I do not remember a President in my lifetime publicly call out and address individuals in such a manner. The following is an excerpt from the NYT:

“Peter A. Weinberg and Joseph R. Perella are part of a band of Wall Street renegades — “a small group of speculators,” President Obama called them Thursday — who helped bankrupt Chrysler.

That, anyway, is the Washington line.

In fact, Mr. Weinberg and Mr. Perella, with sparkling Wall Street pedigrees, are the epitome of white-shoe investment bankers. And their boutique investment bank, a latecomer to Chrysler, played only a small role in the slow-motion wreck of the Detroit carmaker.

But now the two men, along with a handful of other financiers, are being blamed for precipitating the bankruptcy of an American icon. As Chrysler’s fate hung in the balance Wednesday night, this group refused to bend to the Obama administration and accept steep losses on their investments while more junior investors, including the United Automobile Workers union, were offered favorable terms.
In a rare flash of anger, the president scolded the group Thursday as Chrysler, its options exhausted, filed for bankruptcy protection. “I don’t stand with those who held out when everyone else is making sacrifices,” Mr. Obama said.” (The Lenders Obama Decided to Blame, http://www.nytimes.com/2009/05/01/business/01hedge.html)

Our President is fuming at a group of private bond holders who were tired of losing money and wouldn’t agree to the government’s terms?! The freedom of choice is a fundamental right of all investors.

And on the topic of sacrifices, everyone but our government is making sacrifices. Tell me Mr. President, how is spending $1.2 trillion in this years budget a sacrifice? How is passing a $3.5 trillion budget in 2010 a sacrifice? You praise Americans for cutting back, yet you are entirely offsetting the effects by spending trillions of dollars. Don’t you see the contradiction?

Either way you dice it, the Obama administration is repeating the same mistakes as they continue to get more involved in markets when they should be getting less involved.

In my view, the world is becoming more fragile by the day. This doesn’t mention further economic weakness in the pipeline between Alt-A and Option Arm mortgages, the commercial real estate market, as well as the geopolitical risk lurking around the world. All in all, this headache is becoming a migraine which doesn’t bode well for the future.

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