Raghu writes: >> Agreed that "good" is not a black-and-white concept, but it is best >> not to avoid such "normative" questions. In this case surely we can >> agree that huge unearned profits is not "good" for society. At the >> very least you have to admit that the Hertz case shows that there is >> no "free market for capital". Ford was unable to obtain capital at >> reasonable cost when it was needed and had to settle for firesale >> terms. Is it not reasonable to suppose that if capital ownership was >> less concentrated in the hands of a few, companies such as Ford could >> obtain it more efficiently?
What is an unearned profit? To the extent it is a product of rent-seeking, I agree that it is a bad thing. The Hertz transaction was not a product of rent-seeking. Ultimately, the profit was a result of certain investors seeing an opportunity that others did not see and jumping on that opportunity. If it wasn't so risky, there would have been a line of people out the door to make the investment, but there obviously wasn't. There absolutely is a free market for capital in the United States. As a commercial bankruptcy lawyer, I have little to do right now (and have time to post to this list) because there is so much goddam liduidity in the market, investment managers are desperate for deals and are throwing money at anything that moves. The market for deals is incredibly competitive. I don't know why Ford chose the transaction it did, but it was certainly not because there was a restricted number of potential investors. David Shemano
