Michael Barone
Thursday, May 07, 2009
Last Friday, the day after Chrysler filed for bankruptcy, I drove past the company's headquarters on I-75 in Auburn Hills, Mich. As I glanced at the pentagram logo, I felt myself tearing up a little bit. Anyone who grew up in the Detroit area, as I did, can't help but be sad to see a once great company fail.
But my sadness turned to anger later when I heard what bankruptcy lawyer Tom Lauria said on a WJR talk show that morning. "One of my clients," Lauria told host Frank Beckmann, "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."
Lauria represented one of the bondholder firms, Perella Weinberg, which initially rejected the Obama deal that would give the bondholders about 33 cents on the dollar for their secured debts while giving the United Auto Workers retirees about 50 cents on the dollar for their unsecured debts.
This, of course, is a violation of one of the basic principles of bankruptcy law, which is that secured creditors -- those who loaned money only on the contractual promise that if the debt was unpaid they'd get specific property back -- get paid off in full before unsecured creditors get anything. Perella Weinberg withdrew its objection to the settlement, but other bondholders did not, which triggered the bankruptcy filing.
After that came a denunciation of the objecting bondholders as "speculators" by Barack Obama in his press conference last Thursday. And then death threats to bondholders from parties unknown.
The White House denied that it strong-armed Perella Weinberg. The firm issued a statement saying it decided to accept the settlement, but it pointedly did not deny that it had been threatened by the White House. Which is to say, the threat worked.
The same goes for big banks that have received billions in government TARP money. Many of them want to give back the money, but the government won't let them. They also voted to accept the Chrysler settlement. Nice little bank ya got there, wouldn't want anything to happen to it.
Left-wing bloggers have been saying that the White House's denial of making threats should be taken at face value and that Lauria's statement is not evidence to the contrary. But that's ridiculous. Lauria is a reputable lawyer and a contributor to Democratic candidates. He has no motive to lie. The White House does.
Think carefully about what's happening here. The White House, presumably car czar Steven Rattner and deputy Ron Bloom, is seeking to transfer the property of one group of people to another group that is politically favored. In the process it is setting aside basic property rights in favor of rewarding the United Auto Workers for the support the union has given the Democratic Party. The only possible limit on the White House's power is the bankruptcy judge, who might not go along.
Michigan politicians of both parties joined Obama in denouncing the holdout bondholders. They point to the sad plight of UAW retirees not getting full payment of the health-care benefits the union negotiated with Chrysler. But the plight of the beneficiaries of the pension funds represented by the bondholders is sad, too. Ordinarily you would expect these claims to be weighed and determined by the rule of law. But not apparently in this administration.
Obama's attitude toward the rule of law is apparent in the words he used to describe what he is looking for in a nominee to replace Justice David Souter. He wants "someone who understands justice is not just about some abstract legal theory," he said, but someone who has "empathy." In other words, judges should decide cases so that the right people win, not according to the rule of law.
The Chrysler negotiations will not be the last occasion for this administration to engage in bailout favoritism and crony capitalism. There's a May 31 deadline to come up with a settlement for General Motors. And there will be others. In the meantime, who is going to buy bonds from unionized companies if the government is going to take their money away and give it to the union? We have just seen an episode of Gangster Government. It is likely to be part of a continuing series.
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