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Chrysler Bondholders: Who Guards the Guards?


Companies should never get "too big to fail" in the first place.

Quis custodiet ipsos custodes?

Asked by the Roman satirist Juvenal, and before him by Plato, the question remains largely unanswered to this day, despite our system of so-called checks and balances: Who guards the guards?

Or, as we might ask today, who regulates the regulators?

The treatment of Chrysler bondholders, subordinating their claim despite their senior status, has generated tremendous controversy - and rightly so. It even got one Minyan to say that he wouldn't touch the debt of any auto-related company, including Sirius XM (SIRI), the satellite radio operator whose convertibles I profiled earlier today.

But I do have to ask one inescapable question: Doesn't the December bailout change things, to some degree, impossible to measure?

Once you've thrown yourself on the mercy of the government, you shouldn't be surprised by any subsequent treatment you get. If you don't believe me, watch an episode of The Tudors some time.

Now, I'm trying to keep this apolitical. I understand both sides of the argument. I'm both a lifelong Democrat, a product of Berkeley, California, and someone who's made his career on Wall Street.

Seems to me the real point is that we need to discourage organizations from getting "too big to fail" in the first place. Perhaps economies of scale were never all they were cracked up to be. Perhaps duplicative effort is the price we pay for avoiding putting too much control into too few hands. Maybe, in a sense, we go too much against checks and balances when we encourage -- or permit -- too many mergers.

Maybe we need to think more about how we inspire the worst in human nature -- in fighting, backbiting, outright theft -- when we encourage firms to get big.

Maybe we need to do more to foster small business in every industry, especially as information technology makes fewer and fewer middlemen necessary.

If we don't, we end up with a lot of power in precious few guardian hands. And who will guard against what those hands do?
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No positions in stocks mentioned.

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