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I see a lot of liberal blogs crowing that Obama's really taking it to the hedge funds who are holding out on the Chrysler bankruptcy.  Hedge fund managers, you see, have a civic duty to lose large amounts of other peoples' money in order to ensure that the UAW makes as few sacrifices as possible in a bankruptcy.


Here's the thing:  hedge fund managers don't care what the public thinks.  The public isn't allowed to invest in them.  And the holdouts are, basically definitionally, not direct beneficiaries of federal largesse.

No, hedge funds care what rich people think.  And if you were a rich people, how would you react to the news that a hedge fund manager who had a senior lien had refused to allow his claim to be treated like unsecured debt in a bankruptcy?  Would you be outraged and pull your money?  Remember that as a rich people, you could have donated large sums to the UAW, or the US government, if you wanted to.
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This might well be good publicity for the holdouts.  I'd certainly rather put my money in with Oppenheimer than with someone manager who is going to toss his fiduciary duty to the winds and make large tax-free gifts to the United Auto Workers.  But then, I'm not very patriotic.

Which brings us to the real question, which is, when did it become the government's job to intervene in the bankruptcy process to move junior creditors who belong to favored political constituencies to the front of the line?  Leave aside the moral point that these people lent money under a given set of rules, and now the government wants to intervene in our extremely well-functioning (and generous) bankruptcy regime solely in order to save a favored Democratic interest group. 

No, leave that aside for the nonce, and let's pretend that the most important thing in the world, far more interesting than stupid concepts like the rule of law, is saving unions.  What do you think this is going to do to the supply of credit for industries with powerful unions?  My liberal readers who ardently desire a return to the days of potent private unions should ask themselves what might happen to the labor movement in this country if any shop that unionizes suddenly has to pay through the nose for credit.  Ask yourself, indeed, what this might do to Chrysler, since this is unlikely to be the last time in the life of the firm that they need credit.  Though it may well be the last time they get it, on anything other than usurious terms.


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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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