May 12, 2009
Hartmax Bankruptcy: A Right to Not Lose a Job?
The New York Times, on page one of the the Business Section today, has a story on the Hartmax bankruptcy. Workers, in league with politicians are attempting to use public pressure on the companies major lender, Wells Fargo bank, to keep the company factory in Illinois open. There are worker meetings and demonstrations attacking Wells Fargo and politicians are talking tough with the press ("I will be there [Wells Fargo] worst nightmare."). What has Wells Fargo done?? The business makes high end mens' suits in the United States. The trademarks are valuable but the revenue of the business is way off given economic conditions. The obvious choice is to sell the trademarks to another company that can manufacture the suits less expensively -- probably with foreign labor. The company has lost 30 million dollars the last two years and has defaulted on a 115 million dollar debt to Wells Fargo. Wells Fargo 1) "reduced" its outstanding credit line 2) forcing bankruptcy and 3) is shopping the company. What do workers and politicians want?? 1) A more robust credit line or 2), if necessary, a sale to a company that will guarantee to keep the losing facility open. How do you demand 1) with a straight face, asking a bank to put more money in a losing company? The answer: Wells Fargo has government bailout money and should pass some of that largess on to Hartmax. This is the cancer of government bailout decisions. How do you demand a sale to a company that will keep the company open, if Wells Fargo will lose money relative to a decision to liquidate the company and sell the brands?. Same answer, Wells Fargo should pass on some of the government bailout money it has received. Workers and politicians are demanding that a private bank invest in a losing venture on their behalf because their jobs are at stake. The expectation that the bank should respond to this pressure reflects a basic misunderstanding of the core mechanisms of our economy. Do we now have new enforceable right, the right not to lose a job due to economic conditions?
May 12, 2009 | Permalink
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