radioguy
05-01-2009, 02:56 AM
Banana Republic Capitalism
April 30, 2009
The Chrysler reorganization is shaping up as another milestone in the decline of the rule of law under Barack Obama. We've said for quite a while that bankruptcy is the only viable option for Chrysler and General Motors, not--as Obama claims--because they don't know how to make the right kinds of vehicles, but because their unsustainable union contracts make it impossible for them to be profitable. That reality has now been turned on its head, as the administration has tried to bully Chrysler's secured creditors into going away, while the United Auto Workers Union, solely on the basis of political clout, would be paid at an implied rate of 50 percent and would emerge owning 55 percent of the company, with the government also holding a stake.
This is banana republic capitalism at its worst. Political influence, rather than the law, dictates the rights of the parties. When some of the secured creditors refused to be intimidated, Obama libeled them in the press, saying, outrageously, "I don't stand with those who held out when everyone else is making sacrifices." Actually, under Obama's plan the politically favored parties, principally the UAW, will benefit--will steal money, to put it crudely--from the parties who held out. Those parties call themselves the "non-TARP lenders."
This highlights the government's conflict of interest in this transaction, as in so many others now underway. Some of Chrysler's secured creditors are banks who received TARP money. As the New York Times put it, those lenders are "beholden to Washington" and "defying the administration was never a serious option."
It remains to be seen what will happen in bankruptcy court. Already one key player, Perella Weinberg Partners, "under intense pressure from the White House," has caved in and agreed to accept Obama's terms. Whatever the ultimate result, this episode will have consequences. The Wall Street Journal notes:
If the current plan is pushed through, then good luck to any unionized firm trying to raise secured debt on decent terms in the future.
For Chrysler, the administration's plan spells disaster. It is inconceivable that the UAW, the principal source of Chrysler's problems, will manage the company back to profitability. More likely, Chrysler will become a vehicle through which the federal government provides uneconomic subsidies to unionized auto workers and retirees.
Barack Obama's conduct in this affair has been disgraceful. Our bankruptcy laws are well developed and are fairly implemented by experienced bankruptcy judges. Priority among creditors is established according to legal rules and precedents. The process is transparent and subject to appellate review. But in this case, the law did not favor the parties who have the most influence with the White House--notably, the United Auto Workers--so Obama substituted political threats and bullying for due process. Il Duce would have approved.
Link (http://www.powerlineblog.com/archives/2009/04/023460.php)
April 30, 2009
The Chrysler reorganization is shaping up as another milestone in the decline of the rule of law under Barack Obama. We've said for quite a while that bankruptcy is the only viable option for Chrysler and General Motors, not--as Obama claims--because they don't know how to make the right kinds of vehicles, but because their unsustainable union contracts make it impossible for them to be profitable. That reality has now been turned on its head, as the administration has tried to bully Chrysler's secured creditors into going away, while the United Auto Workers Union, solely on the basis of political clout, would be paid at an implied rate of 50 percent and would emerge owning 55 percent of the company, with the government also holding a stake.
This is banana republic capitalism at its worst. Political influence, rather than the law, dictates the rights of the parties. When some of the secured creditors refused to be intimidated, Obama libeled them in the press, saying, outrageously, "I don't stand with those who held out when everyone else is making sacrifices." Actually, under Obama's plan the politically favored parties, principally the UAW, will benefit--will steal money, to put it crudely--from the parties who held out. Those parties call themselves the "non-TARP lenders."
This highlights the government's conflict of interest in this transaction, as in so many others now underway. Some of Chrysler's secured creditors are banks who received TARP money. As the New York Times put it, those lenders are "beholden to Washington" and "defying the administration was never a serious option."
It remains to be seen what will happen in bankruptcy court. Already one key player, Perella Weinberg Partners, "under intense pressure from the White House," has caved in and agreed to accept Obama's terms. Whatever the ultimate result, this episode will have consequences. The Wall Street Journal notes:
If the current plan is pushed through, then good luck to any unionized firm trying to raise secured debt on decent terms in the future.
For Chrysler, the administration's plan spells disaster. It is inconceivable that the UAW, the principal source of Chrysler's problems, will manage the company back to profitability. More likely, Chrysler will become a vehicle through which the federal government provides uneconomic subsidies to unionized auto workers and retirees.
Barack Obama's conduct in this affair has been disgraceful. Our bankruptcy laws are well developed and are fairly implemented by experienced bankruptcy judges. Priority among creditors is established according to legal rules and precedents. The process is transparent and subject to appellate review. But in this case, the law did not favor the parties who have the most influence with the White House--notably, the United Auto Workers--so Obama substituted political threats and bullying for due process. Il Duce would have approved.
Link (http://www.powerlineblog.com/archives/2009/04/023460.php)