Many people have used the term Banana Republic to describe the change Barack Obama is bringing to our country. Going after previous administrations for their policies, the politicization of the US census, and now we have the Chrysler debacle. Barack Obama is using his power to subvert established bankruptcy law in order to reward those who are politically close to him: the UAW.
John at Power Line explains:
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.
That’s one huge political payoff – and with taxpayer dollars. As an aside, I hope Perella Weinberg Partners’ clients sue them for failing to perform their feduciary responsibility by accepting 33 cents for every dollar when they could have negotiated up to 67 cents on the dollar in bankruptcy court.
I’m not sure which of our country’s laws that were in tact before Obama came into power will still be in tact when he’s out of power. All hail the President of the Banana Republic.
Update: Obama is really going to the mat for the UAW on this. He’s going so far that he’s calling these hold out creditors and threatening them if they don’t go along with that he wants for the UAW. NewsBusters brings us this interview that Tom Lauria, attorney for the non-TARP funded creditors who are, rightfully, demanding that bankruptcy law be followed, had with WJR’s Frank Beckman:
Lauria: Well, look, there are kind of two aspects to that. The first is the right to property and the right to contract are kind of sacronsanct in this country. I think everybody understands that when you make a deal it’s supposed to be honored, and if it’s not honored you’re supposed to be able to get protection in court. And what is happening here, through the force of the United States government, and that’s what’s disturbing about this — I mean, private parties have contract disputes all the time — but for the United States Government to step in, the Executive Office of the United States Government, who under the Constitution is charged with enforcing the laws to step in and try to in effect break the laws, I think we should all be concerned about that. That is a constitutional issue.
OK, number one. Number two, realize that our Constitution is premised on the notion that there is a balance between the three branches of government: the executive, the legislature, and the judiciary.
And what’s going to be happening, in fact I’m going to have to go here, because I’m heading down to the bankruptcy court to start taking on this battle, which is of epic proportions. But what is going on here is you’ve got the executive branch coming into the judicial branch. And I think it is really important for the Constitution of the United States that people understand that the judicial branch can stand independent and interpret and apply the laws as it’s required to do under the Constitution in the face of intense pressure from the Executive branch to do otherwise.
Beckman: Tom Lauria, really appreciate it. Final question, will Oppenheimer Funds and Stairway Capital, your other two clients in this, are they committed to standing firm? I’ve got to believe they’re facing the same pressure Perella Weinberg did before it changed its mind and said “Okay, we’ll go along now.”
Lauria: Well they are today, but the Executive Office hasn’t called them yet and made threats to them. So, maybe by tomorrow I won’t have any clients, and maybe this fight will be over.