The Czarist Threat

The difference between economic and political power is that business operates through free and voluntary trade. You buy the products and invest in the stocks of those companies in which you choose.

But a "czar," which translates literally as "monarch" or "emperor," operates exclusively thorough coercion and force. Yet that's the direction in which our government is rapidly headed. The prevailing notion in Washington is that free markets don't work, that capitalism is destructive, disruptive and hurts the "public good." A government-appointed "car czar," so the thinking goes, would ensure that the "right" decisions get made about how auto contracts are structured, what products are developed and how the companies are run.

Of course, that's precisely what the government has already done since March in forcing taxpayers to support companies they wouldn't dare touch otherwise, and what it will continue to do as it exercises power over a larger and larger swath of the economy, including the soon-to-be-named "car czar."

Centralized planning simply doesn't work. If the best and brightest automotive experts in the country, each working out of their own profit-driven self-interest, can't turn around General Motors (GM), Ford Motor (F) and Chrysler, then how can Paul Volcker? When force is involved, the question only becomes, whose rights are violated? Taxpayers? Stockholders? Bondholders? In the span of a few short months, this country's economy has quickly sunk toward a mob mentality where, provided you get the support on Capitol Hill, anything goes.

Moreover, as I've been pointing out for months now, simply having the government as a participant in the market distorts are now indicating an eye-popping yield of almost 47%.

Paper, but No Profit

General Motors 7.375% Senior Notes due 5/15/2048 (BGM) Current Yield: 47%

Just as AIG (AIG)bailout started at $85 billion and quickly skyrocketed to almost double that figure, the $14 billion emergency auto loan will undoubtedly serve as just a down-payment on companies that, by every measure, should already be in bankruptcy.

A month ago I called a bailout of domestic auto makers "theft." Now "enslavement" seems to likely be a more appropriate characterization, as an unelected "car czar" moves our country further away from the capitalist principles on which it was founded. The results won't be pretty.