Public vs. Private

Folks on the Left prefer public institutions over private ones because they percieve them as more "fair."  But the power of lawmaking and police and prisons allows public institutions to be far more abusive than private entities could ever be.  We spent months and years torturing ourselves about accounting abuses at Enron, but these are trivial compared the accounting shenanigans state institutions engage in every day.

Or consider this, from Europe, particularly the first bit

“In the event of default (i) any non-official bond holder is junior to all official creditors and (ii) the issuer reserves the right to change law as needed to negate any rights of the nonofficial bond holder.

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“We should not underestimate the damage these steps have inflicted on Europe’s €8.4 trillion sovereign bond markets. For example, the Italian government has issued bonds with a face value of over €1.6 trillion. The groups holding these bonds are banks, pension funds, insurance companies, and Italian households. These investors bought them as safe, low-return instruments that could be used to hedge liabilities and provide for future income needs. It was once hard to imagine these could ever be restructured or default.

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“Now, however, it is clear they are not safe. They have default risk, and their ultimate value is subject to the political constraint and subjective decisions by a collective of individuals in the Italian government and society, the ECB, the European Union, and the International Monetary Fund (IMF). An investor buying an Italian bond today needs to forecast an immediate, complex process that has been evolving in unpredictable ways. Investors naturally want a high return in order to bear these risks.

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“Investors must also weigh carefully the costs and benefits to them of official intervention. Each time official creditors provide loans or buy bonds, the nonofficial holders become more subordinated, because official creditors including the IMF, ECB, and now the European Union continue to claim preferential status.”

This is not to say that bondholders in private entities don't get crammed down in a refinancing or bankruptcy.  But here we are talking about differential treatment of holders of the exact same class, even issue, of securities.

6 Comments

  1. morganovich:

    this is much worse for the holders of CDS's.

    imagine you owned greek debt. you (wisely) got worried about their ability to pay, so you bought a CDS which is essentially bond insurance.

    you thought you were protected.

    but you weren't. your insurance turned out to be worthless, not because the guy who wrote the policy could not pay, but because the greeks deliberately circumvented the law to make it not pay.

    because the 70% write down is "voluntary" the CDS is not triggered and does not pay off.

    that write down is "voluntary" in the same way giving your wallet to a mugger with a gun is "voluntary". you have a choice, but "your money or your life" is not much of one.

    thus, a massive taking has occurred.

    imagine if the government passed a law preventing homeowners insurance from paying off after a fire.

    there would be massive outrage.

    yet here, we see none.

    sigh.

  2. Matthew Walker:

    That's a perfect example of what progressives think IS fair. "Fairness" is when the truly deserving entity comes out ahead, and there's no way to guarantee that other than putting progressives in charge and letting them act arbitrarily, because only progressives can correctly identify who's truly deserving. Clear, impartially-enforced will always tend to produce "unfair" outcomes on a regular basis, unless they're interpreted and enforced with an understanding sufficiently deep and nuanced to help the process produce a socially just outcome in all cases.

    If you doubt the ethics of progressives, just consider the fact that their friends, family, and political allies are always, without exception, truly deserving. Only a very deeply ethical person can manage to arrange his life such he never owes any favors to anybody who isn't truly deserving of government intervention in his favor.

  3. Rick Caird:

    Do not forget the GM and Chrysler bondholders. They did not even need a change in the law to get cheated. The President did it all by his lonesome.

  4. me:

    While I agree with the general sentiment (reduce the power of governments), I find the labeling ("the left", "progressives") objectionable.

    Generally speaking, the folks who I know who would self-identify with that label would like to see a level playing field, clear rules and the ability to contest rulings and implementations thereof by government organizations, while folks I know who self-identify with "the right" or as "conservatives" believe strongly in absolute loyalty and the wrongness of speaking up against the rule of law.

    The current abuse of powers we see is a fine combination of the desire of rules and laws to regulate the big playground and the idea that obedience is the foremost quality of citizens.

    Personally, I'd like a much reduced ruleset of laws with enforcement methods that are less draconian but at the same time much more fairly applied (the thing that gets me riled up are the differences in persecution depending on social status).

  5. Mesa Econoguy:

    The real danger is that the states in Europe simply stick their bad trades in the back of the drawer, so their true fiscal status can never be known, and their accounting cannot be trusted:

    http://www.zerohedge.com/article/spanish-region-discovers-its-budget-deficit-double-what-was-previously-thought

    See Orange County, CA, for similar behavior in the US.

  6. John David Galt:

    The terms "public" and "private" play into the hands of the statists; they connote that private endeavors are somehow less inclusive. Let's get into the habit of substituting the words "tax-funded" vs. "voluntary" or "productive" (sector) instead.