In the past months, Washington has used its pull over and over to force businessmen to buy into its programs. From cornering banks into accepting TARP money to firing GM’s CEO to insisting that AIG employees return their contractually guaranteed retention bonus—Washington has demanded and businessmen have acquiesced.
So it has been with Washington’s latest demand—that secured creditors surrender their property in favor of “the common good“. Secured creditors are lenders who lend at a lower rate because they “secure” their loans by placing a lien on a tangible asset. If the loan is not repaid, they have the right to repossess the asset and recoup some of their loss. Their right to that property acts as an insurance that makes possible a cheaper loan. In bankruptcy, this translates into first claim on company assets—again, in return for the low rates associated with secured debt, secured creditors rely on the assurance that they will be at the top of the bankruptcy waterfall in the event of failure. Without that assurance, they wouldn’t lend. Now the Obama administration is demanding that secured creditors of Chrysler voluntarily stab themselves in the back and relinquish these rights.
One businessman has finally said NO. Cliff Asness, hedge fund manager at AQR Capital Management, has declared in an open letter that he is “entitled to [his] voice and to speak it loudly.” Despite intimidation from the Obama administration and the general public, he has refused to “intentionally ‘sacrifice'” his clients’ money without their permission.
A particularly good line from Asness’s letter:
“The President’s attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to “sacrifice” some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power.”
He concludes: “I am ready for my “personalized” tax rate now.”
Bravo, Mr. Asness, Bravo indeed. If there were more men like you on Wall Street, perhaps the country would not be heading towards disaster. Washington’s blatant and systematic destruction of contract rights presumes that businessmen will continue to silently yield to outrage upon outrage. It presumes that businessmen will themselves keep running to Washington, clamoring for the government to violate someone else’s contract rights before their own. Your letter challenges this presumption.
Ayn Rand argued in Atlas Shrugged that irrationality was powerless without the support and consent of the good. She called this the principle of the sanction of the victim. Her point was that it is virtue—the free, independent mind in action—that creates human values. The irrational, to flourish, must be parasitical on this good. Left to its own devices, Washington bureaucrats could not produce any of the wealth they are now self-righteously confiscating and redirecting.
Withdraw your support, Wall Street, as Mr. Asness has done, and reveal the thieves who declare themselves the dictators of the “common good” as the craven fools they truly are.