Unintended (and Predictable) Consequences

Credit card reform bill

• Intention: To protect consumers from "unfair and abusive" practices by credit card companies.
  
• What many consumers are already getting: Notice from credit card companies for increased rates and fees, reduction of borrowing limit, or outright cancellation.
  
• What all consumers will eventually get: higher rates across the board, regardless of their spending and paying habits.

Federal Reserve's decision to buy longer-term Treasuries

• Intention: To keep the interest rates on longer-term loans low.
  
• What's happened: Fed becoming the buyer of last resort. 10-year and 30-year Treasury yields have gone up.
  

Bank "Stress Test"

• Intention: To restore public confidence
  
• What's happened:
  - The test itself, and the test results are perceived as joke or worse.
  - Has helped banks to raise capital at a much higher level, which has made investors more suspicious of the test's intention.

The White House and Congressional outrage over AIG bonuses

• Intention: To show that they share the outrage by average citizens over excessive compensation by an entity on life support with taxpayers' money
  
• What's happened:
  - Initially it was working, until the word got out that AIG may have been used to funnel tens of billions of dollars to the US and foreign banks. The sheer size of AIG bailout ($170 billion) started to get more attention, too.
  - The punitive 90% tax rate proposed by Congress for AIG employees who received bonuses was perceived as setting a dangerous precedent.

Chrysler's bankruptcy/restructuring

• Intention: To restructure Chrysler into a viable, competitive business; to protect US workers [=UAW workers] and keep the jobs in the US.
  
• What's happened so far:
  - Fiat is getting a free lunch with no money down.
  - 1st-lien secured bond holders got half of unsecured claim holders (totally ditching the bankruptcy law).
  - Investors will be wary of investing in any troubled US company receiving any form of US government aid.
  - It looks more and more like Chapter 7, not 11. Chrysler and soon-to-be bankrupt GM are shutting down their dealerships which will result in job loss and bankruptcies.
  - GM says it will import cars made in China.

I hope they were at least "unintended".

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