Wednesday, June 9, 2010

The Obama Chrysler Confiscation – One Year Later

June 10 is the one year anniversary of the Obama Administration’s illegal confiscation of the assets of the old Chrysler Corporation to benefit its union allies and supporters, writes Indiana Governor Mitch Daniels in a recent Wall Street Journal essay (link). It seems to me that this act has received far too little attention, although understandably somewhat lost in the crowd of countless other Obama team insults to the American system which compete for our attention.

The facts are simple. Chrysler’s secured creditors had first dibs on the assets of the company and had their own sense of what those assets would be worth in bankruptcy. Obama and his team did not want the company to enter traditional bankruptcy because it would have eradicated the cushy, dysfunctional, company-crushing agreements on union wages and workplace rules. So in a faux-bankruptcy Obama seized the company and gave most of it to the legally undeserving union and a part of what was left to a foreign company to absorb Chrysler and its union agreements. The secured creditors got the scraps. Illegal, sure. But so was the forced confinement of Japanese American citizens during WWII, but it happened and most looked the other way, because at the time it seemed expedient and the Roosevelt Administration seemed too powerful to resist. In retrospect, however, we see it for what it was – a dismal deviancy from American law. This time around, the motive for the Chrysler confiscation was far less justifiable and the circumstances far less extenuating -- profit and protection for the auto unions. The critical factor in how this theft came to pass – Nicole Gelinas, in her terrific new book “After the Fall,” explains that most of the big, secured creditor banks had earlier taken government bailout money and were strong-armed by the Obama team to accept the raw deal of the confiscation, leaving the smaller creditors politically and legally on their own. Investor’s Business Daily said (link) that this confiscation showed that “political clout matters more than rightful claims.”

Three Indiana pension funds, Chrysler secured creditors, sued in federal court to uphold their rights and interests under American law. They were rebuffed, but not on substantive grounds, writes Governor Daniels:
Bankruptcy came [for Chrysler], all right, but in a new, extra-legal form run by the federal government. The United Auto Workers, who owned no interest in the company, were simply handed a 55% interest, a gift valued then at $4.5 billion. When no one else wanted to buy the firm, Fiat was given a 20% stake for free to take it over. After this looting, the legitimate creditors were told to be happy with the remnants. For Indiana's retired teachers and state policemen, this amounted to 29 cents on the dollar, a loss of $6 million versus the purchase price and millions more below the expected value in a standard Chapter 11 [bankruptcy] proceeding. When, alone among the victims, Indiana retirees went to court, they caused a lot of discomfort but no change in the outcome. The Second District U.S. Court of Appeals declined to overturn the cramdown, but the judges refused to go within a mile of the merits. How could they? The law calls certain instruments "secured" credit for a reason, and there was absolutely zero precedent for the Chrysler confiscation. [However,] On Dec. 14, 2009, in the under-reported news story of the year, the Supreme Court granted the request of Indiana pensioners and took the case. The Court immediately ruled from the bench to strike down the decision of the Second Circuit Court of Appeals, eliminating it as a possible precedent in any future proceeding.
So fortunately, this lawless act of the Obama Administration, acquiesced to by the legal establishment and the liberal media in the name of expediency and for the benefit of a major Democrat party constituency, is at least negated as precedent by the US Supreme Court. But the great theft by Obama and his minions and the receipt of stolen property by the auto unions remains on the history books and imprints an indelible stain on their already deeply tarnished legacies.

John M Greco

Related Post:
Obama, the Car Companies, and the Rule of Law