Gangster-in-Chief Muscles Chrysler Bankruptcy
On Friday the federal government officially became a bonafide criminal enterprise.
And scarcely a discouraging word could be heard above the distant ghostly roar of a 338 powered Mopar Muscle Car.
In the Chrysler bankruptcy proceedings the President of the United States formally, and without hesitation, undermined the rule of law, which he has taken an oath to uphold.
Fredrick Hayek, in the Road to Serfdom, succinctly explained the importance of the rule of law in economics:
“The essence of the rule of law 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.”
Similarly in the Federalist Papers James Madison wrote that “laws impairing the obligation of contracts are contrary to the first principles of the social compact, and to every principle of sound legislation.”
Not a soul in the Obama Administration agrees with Hayek and Madison.
But you can bet that businesses, entrepreneurs and investors will take notice and make decisions accordingly–they can no longer proceed on the assumption that the government will follow its own laws.
Under Bankruptcy Law secured creditors have priority over unsecured creditors. In it’s simplest terms this means if a corporation is totally liquidated, the secured creditors are paid off, and if there is anything left it is divvied up between the unsecured creditors.
But if the rule of law was followed, it would not produce a new Chrysler to the liking of Barack Obama and his team of gangsta policy wonks. He wishes to turn over control of the corporation to the United Auto Workers, and have it operated by an Italian company, which will produce boxy little cars that run on big batteries, which will primarily be purchased, with taxpayer dollars, for official government use.
Under the Obama administration’s proposal, the UAW health care trust, an unsecured creditor, will forgive 57 percent of what Chrysler owes it, and receive 55 percent of the company’s equity in exchange. The federal government will forgive about a third of what was loaned to Chrysler and receive 8 percent of the company’s equity. Fiat will pay nothing for its 20 percent initial ownership.
The secured creditors who should be first in line, will receive twenty-nine cents on the dollar and no equity.
The vast majority of secured creditors are large banks like JP Morgan, which have received TARP funds and are beholden to every whim of the president.
But the non-TARP creditors, owing a fiduciary duty to their investors, which are primarily various pension plans, refused to go along and were holding out for what they were legally entitled. Obama, looking and acting much like Hugo Chavez, appeared on television and basically told them to “bring it on.”
Today these creditors gave up their fight in the face of White House bullying.
Bankruptcy attorney Tom Lauria put it this way:
“One of my clients,was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight.”
The Gangster-in-Chief, and his union flacks, win.
That’s the way they do business in Chicago.
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