A long, sternly worded letter about President Barack Obama by billionaire hedge fund manager Clifford Asness made its way around the blogosphere on Thursday. The letter, which first appeared on Zero Hedge, accuses Obama of favoring the United Auto Workers union and its members in the deal to bail out Chrysler. The Obama administration has criticized some of Asness' fellow fund managers for refusing to accept its bid for the Chrysler bonds their funds hold. Most Chrysler bond holders, including several TARP recipients, had agreed to take big losses, but nine hedge funds held out for a better deal, forcing the company into bankruptcy. So Obama criticized them as "speculators" who were "refusing to sacrifice like everyone else" and who wanted "to hold out for the prospect of an unjustified taxpayer-funded bailout." Asness thinks that's a horribly unfair thing for the President to say:
The President and his team sought to avoid having Chrysler go through [the bankruptcy] process, proposing their own plan for re-organizing the company and partially paying off Chrysler’s creditors. Some bond holders thought this plan unfair. Specifically, they thought it unfairly favored the United Auto Workers, and unfairly paid bondholders less than they would get in bankruptcy court. So, they said no to the plan and decided, as is their right, to take their chances in the bankruptcy process. But, as his quotes above show, the President thought they were being unpatriotic or worse.
I asked economist Dean Baker, of the Center for Economic and Policy Research, what he thought of Asness' letter. Not much, apparently:
The key point here is that the government doesn't have to give Chrysler anything. Without government money, these bondholders might be looking at just pennies on the dollar, not 30 cents on the dollar. If the government steps in and does a rescue then it has the option to more generous to some people than to others. Suppose it decided to give every current or former Chrylser worker $100k, would bankruptcy law prohibit them from doing so?
These guys are just whiners. It also is important to remember that their whole deal was explicitly speculation. They bought this debt at 30 cents on the dollar in the hope that they could be big enough pains to be able to get something more than 30 cents on the dollar for it. If you pay 30 cents in February and cash out at 40 cents in June, then you have a 33 percent return on just 4 months' investment. that's a pretty good return. [emphasis added]
There are two more points that stick out to me in this kerfuffle. The hedge funds should have known when they bought Chrysler's debt that any deal to save the company was likely to involve government money and all the strings that come with it. There's a poker saying that finance guys seem to like: "If you can't spot the sucker, it's you." It applies here. The fundies made a bet that they'd be able to get a better deal than they were offered. They didn't realize Obama and the UAW held much better hands, and they lost.
Asness should also be aware of the fact that his letter and the hedge funds' intrasingence will only help Obama. Like Rick Santelli, Asness doesn't seem to understand that super-rich finance guys are not exactly the most popular demographic right now. (Asness himself has said hedge funds ''are generally run for rich people in Geneva, Switzerland, by rich people in Greenwich, Conn.") I would have loved to see the grins on Robert Gibbs' and Rahm Emanuel's faces when they learned that the funds were holding out. Jonathan Cohn explained this dynamic excellently last week:
So far, opinion on the auto industry bailout has been divided into roughly two basic gropus. You have, on one hand, people who wanted the government to support the companies—in many cases, because they depended upon car companies for their livelihoods. And then you had people who opposed support, in many cases because they thought it was handing over government money to people who didn't deserve it.
It's possible (though not certain) that the hedge fund posturing will let Obama redraw the political lines, so that it's the sacrificers—workers, big creditors, and taxpayers—on one side and the profiteers—the hedge funds—on the other.
Asness is helping Obama redraw the lines of the debate. It used to be an argument about saving or not saving the company. Now it's about what should be saved: the pensions of 60,000 middle-class people in the upper midwest or the fortunes of hedge fund managers in Greenwich and super-rich foreigners. Asness is going to lose that argument every time.