Casting the Hedge Funds as Villains

I thought this Washington Post article on the Chrysler creditors who wouldn't take the administration's deal -- and thus tipped the whole jumbled apparatus into bankruptcy court -- was pretty strange. The negotiations were complicated, in part because it's hard to make an apples-to-apples comparison between what the UAW will get, what Fiat will get, what Canada will get, and what the hedge funds were offered. But instead of trying to sort out the details -- I recommend the Treasury's fact sheet as a decent place to start doing that -- the Post mostly speculates about how smart it was for Obama to start attacking the hedge funds:

Political veterans said, however, that it would be tough for hedge funds to overcome their image as villains. Most politicians have a favorite punching bag. Many Republican politicians like to bash trial lawyers. Many Democrats like to take aim at big oil companies. Hedge funds can serve as a safe diamond-studded scapegoat in tough economic times.

"It's hard to go wrong right now being tough on those guys," said Jeff Shesol, a former speechwriter for President Clinton who noted that Obama had been criticized earlier for not showing enough outrage about AIG bonus payments. He said that Obama's "frustration, while it may be calibrated, is real. And it's certainly where the public is."

This makes me wonder about why business and policy stories get reported like campaign stories. Is it because reporters experience a campaign as the journalistic pinnacle, through which all other written words must flow? The fact that "most politicians have a favorite punching bag" will surprise exactly no one. Why a former speechwriter for Bill Clinton would be considered the relevant expert on hedge funds remains mystifying. And the reminder that "Obama had been criticized earlier for not showing enough outrage about AIG bonus payments" seems like it's a few orders of magnitude less important than the question of whether or not he, y'know, should have gotten outraged. Why is the president obliged to "show" outrage?

And to the substance: It isn't that hard to see how getting tough on hedge funds could go wrong. A day before the administration released some details of the Chrysler plan, it released an update on applications to its public-private investor program to repurchase toxic assets. This program, whether you like it or not, relies crucially on the partipation and confidence of private investors. The administration extended the application deadline, and it reportedly had some trouble rustling up qualified applicants. (On just about every conference call with potential investors, a couple will express wariness about partnering with the government.) Even in purely horserace terms, it's not obvious going after the holdout creditors is a good idea.

But for more on the substance, I thought Steven Pearlstein had some good thoughts elsewhere in the Post.