Thursday, 21 May 2009

unintended consequences

L: 78% S:49% G: 126% N: 29% ~ $D -49% $G 12% $V 0% $P 3%

The Raven has to very much agree with the sentiments expressed in this piece by Schultze. The Obama administration in its lust for "change" has crossed the line and set a dangerous precedent, much as the UK government did in calling for Goodwin to give back his pension, the congress in the US did with asking AIG employees to give back their bonuses, etc. Politicians have to respect the rules of the game, just because their jobs are pathetically reliant on short term populism and the lowest common denominator of the electorates intelligence does not mean that they can tear up the law whenever they chose and impose retrospective measures.

The cost for this sort of action is much higher than their inability to honestly file expense claims. It is simple game theory and rational expectations, if a player doesn't know what the rules of the game are going to be, but realizes that when special interests are threatened then their private property will be stolen to bribe and payback favours then they will have to have a much higher investment threshhold. Additionally they will appropriately have to reduce their lending to reflect the much higher loss potential from each loan. Its disgusting that the unions who have no capital to lose, who's unreasonable demands and legacy costs have destroyed so much value, who were offered equity in the firm the LAST time it was restructured and bailed out by the government are going to be the main beneficiary again?!?! WTF!! The electorate moans and castigates private capital when it attempts to influence the political process, yet unions that destroy firms and jobs in the long term enjoy a priveledged status?

The Raven is never going to invest long term in any business with legacy costs or any rotten union, not even in terms of liquidity provision, arb trades, etc.

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