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The Illegal, the Immoral, and the Crazy May 4, 2009

Posted by Dwight Furrow in Current Events, Dwight Furrow's Posts, Ethics.
Tags: , , , ,

 Cross-posted at Reviving the Left

Chrysler’s recent decent into bankruptcy was precipitated by the fact that some of Chrysler’s bondholders (especially hedge funds) refused to accept the Obama administration’s proposal to buy up their bonds at a steep discount.

Obama chastised the hedge fund managers, calling them speculators” who were “refusing to sacrifice like everyone else” and who wanted “to hold out for the prospect of an unjustified taxpayer-funded bailout.”

Obama’s condemnation received a good deal of push back from investors and libertarian types:

George Schultze, the managing member of the hedge fund Schultze Asset Management, a Chrysler bondholder, said, “We are simply seeking to enforce our bargained-for rights under well-settled law.”

And the Cato Institute’s Doug Bandow slams Barack Obama for “attacking people for exercising their legal rights”.

Matt Yglesias rightly criticizes these comments for failing to recognize that what is legal is not necessarily morally right.

What Obama did was to criticize the hedge fund managers who forced Chrysler into bankruptcy for doing something that, though legal, Obama (correctly) viewed as immoral. Is that really such a crazy course of action?

Confusing the legal with the moral one of my pet peeves, but in this case I think the problem lies elsewhere.

It is an article of faith in our society that corporations have one and only one moral responsibility—that is to their shareholders to whom they are contractually obligated. According to Milton Friedman, who most famously articulated this principle, for a corporation to do something for the good of society, at the expense of shareholders, is a kind of theft.

In contemporary capitalism, corporations are granted the legal status of persons who can sue and be sued, who possess rights, and can make claims on the rest of society. Yet they are “persons” with one and only one obligation—to maximize profits for shareholders. If an investment fund can increase share price by a dime by destroying a company and throwing thousands of people out of work, it is morally obligated to do so!

As Joel Bakan argues in his film (and book) The Corporation, a person who is free from all responsibility except maximizing her own welfare is a psychopath. Corporate law has essentially created massive, unregulated, powerful psychopaths on which all of us depend for our material existence.

That in a nutshell is our problem today.

I discuss some possible solutions in Reviving the Left.