I’ve had it with the Obama administration’s thuggish behavior in the Chrysler bankruptcy. From what I’ve seen, President Obama’s behavior isn’t substantially different than what I’d expect from Hugo Chavez or Fidel Castro. Robert Robb’s column, combined with Captain Ed’s post and Powerline’s post this morning, tell us that President Obama’s actions are gangesterlike. Put another way, their actions are downright Nixonesque. (Yes, I’m old enough to remember Nixon’s dirty tricks.) First, here’s what Ed’s posted today:
Of course, that’s what has happened to the American taxpayer under this plan, too, although Barack Obama seems awfully quiet about it. The administration buried the fact that they don’t expect repayment on any of the TARP funds granted to Chrysler, and won’t even keep a position in the company for any extended period of time. The American taxpayer literally will get nothing for the billions of dollars showered on Chrysler, from which the UAW and FIAT will benefit the most. Henry Blodgett says, “Suckers!”
The next piece to this puzzle is supplied by Powerline’s post:
Here’s a shock. When hedge funds, pension funds, mutual funds, and individuals, including very sweet grandmothers, lend their money they expect to get it back. However, they know, or should know, they take the risk of not being paid back. But if such a bad event happens it usually does not result in a complete loss. A firm in bankruptcy still has assets. It’s not always a pretty process. Bankruptcy court is about figuring out how to most fairly divvy up the remaining assets based on who is owed what and whose contracts come first. The process already has built-in partial protections for employees and pensions, and can set lenders’ contracts aside in order to help the company survive, all of which are the rules of the game lenders know before they lend. But, without this recovery process nobody would lend to risky borrowers. Essentially, lenders accept less than shareholders (means bonds return less than stocks) in good times only because they get more than shareholders in bad times.
Bankruptcy court was established to provide order in chaotic times. President Obama’s actions threw aside orderliness, which leads to several important questions, which Mr. Robb has asked in his column:
So, why should the federal government care who it is that sells us our cars? There are two rationales offered. First, to preserve an “American” auto industry. Second, to preserve “American” jobs.
The proposed Chrysler restructuring gives the lie to both rationales. Under the Obama administration’s proposal, Chrysler would, in essence, be given to Fiat, an Italian company, to operate.
So, how is an Italian car manufacturer operating in Michigan any more “American” than a Japanese manufacturer operating in Kentucky? And why should the federal government give a market preference, through taxpayer financing and warrantee guarantees, to Italian cars produced by American workers in Michigan over Japanese cars produced by American workers in Kentucky?
Let me spell out the differences between that “Japanese manufacturer operating in Kentucky” and the “Italian car manufacturer operating in Michigan”. The first difference is spelled U-A-W. The second difference is spelled U-N-I-O-N.
What’s happened here is that President Obama threw aside well-established bankruptcy law to pay off the UAW, who, not coincidentally, supported his campaign with generous donations and armies of GOTV workers.
As disgusting as this information is, here’s what’s worse:
The Obama administration’s proposed restructuring is more than just unjustified, however. It dangerously undermines the rule of law, as explicated so beneficially by Friedrich Hayek in his classic, “The Road to Serfdom.”
The essence of the rule of law, according to Hayek, is that what the government will do is known to all economic actors in advance. That government will not act arbitrarily in specific circumstances to favor some economic actors over others.
Chrysler has $6.9 billion in secured debt. Under the law, secured lenders have the first claim on the assets of the debtor in the event of non-payment.
The Obama administration is attempting to muscle past this law. Under its proposal, the health care trust of the auto workers’ union, an unsecured creditor, would forgive 57 percent of what Chrysler owes it, and receive 55 percent of the company’s equity in exchange. The federal government would forgive about a third of what it would loan Chrysler and receive 8 percent of the company’s equity. Fiat would pay nothing for its 20 percent initial ownership.
If President Obama got his wish, the UAW would come out of this the best, getting a huge chunk of Chrysler and getting the least amount of debt forgiven, with the federal government coming out next best. The secured bondholders, who should be at the top because of the capital they invested in Chrysler, would get back pennies on the dollar and no equity in Chrysler.
Traditionally, presidents have stayed out of bankruptcies. Instead of following tradition, President Obama didn’t just inject himself into the process; he threw well-established bankruptcy laws in an apparent payoff to a political ally. If we had a real congress that acted on principles, they’d be justified in opening an investigation into President Obama’s actions.
Unfortunately, Pelosi’s Democratic lapdogs will ignore this ethical lapse just like it’s ignoring John Murtha’s corruption.
Because he’s acted like a thug, I’m no longer willing to trust President Obama. My rule is to trust people until they’ve given me a reason not to trust them. President Obama didn’t give me a single reason not to trust him. He’s given me a bunch of reasons not to trust him.
It’s time we started working to return Nancy to her first title, that of Minority Leader Pelosi. That’s the only way we can curtail this president’s thuggish behavior.
Cross-posted at California Conservative