Government Spending Part 2 - The Auto Bailouts

Was the GM/Chrysler Bankruptcy Takeover an Impeachable Event?

Among the massive amounts of government spending under Obama has been TARP 2 and the Auto Bail Outs.

I understand that the email trails from the Chrysler/GM Bailout are now a matter of public record (thank God for the FOIA rules). His personally appointed Car Czar - Steve Rattner; under first hand direction by Obama and Treasury Secretary Timothy Geithner; broke a number of Bankruptcy Laws in the processes of saving the car companies. The problem was that many of the secured bond holders were on the hook for much more money through TARP than they would receive from the GM Bankruptcy. So they kept their mouths shut. Some of them pressed harder than others though; and the now publicly released email trails show just how thuggish the Administration became.

Indeed, those secured-bondholders who were not supported by TARP did not go nearly as quietly. A group of hedge funds that were among Chrysler's creditors initially objected to the bailout plan that preferred the UAW at their expense. In a now-infamous speech in April of 2009, President Obama publicly attacked these investors — who were merely standing up for their contract and property rights. Obama used rhetoric calling the secured creditors "profiteers", criticizing them for their unwillingness to make the same sacrifices as other investors (but not, of course, UAW members, who received a windfall). In response to this unprecedented public browbeating from the president of the United States, the hedge funds caved and agreed to the terms. In the end, only one group of Chrysler bond holders — the Indiana State Teacher and Police Pension Funds — continued to object. Indeed, they objected at every stage of the process; even all the way to the Supreme Court who declined to hear their case.

Obama in his speeches talked about saving American jobs – yet when the new company emerged from BK; thousands of American jobs were lost and a portion of the remaining manufacturing moved out of the country.

In short – the Administration - who is the government; did not enforce contract law - they actually used the strong arm of the White House to break contract law.

One of the primary jobs of the government authority is to enforce contract law – that is why we have Federal Bankruptcy courts in the first place.

So; in the end, retired and employed Indiana State employees along with a handful of other secured creditors got screwed out of the Legal and Contractual Guaranteed right to a greater share of the new emerging company.

How was the ownership divided up? New GM was owned jointly by:

• the Federal Government (which held 60% of the stock)
• The United Auto Workers Union (with 17%)
• The Canadian Government (with 12% ownership).

Chrysler, meanwhile, emerged through an alliance with Fiat, under which the new company was owned by:

• the United Auto Workers (with a 55% share)
• Fiat (with 20%)
• The United States Government (with 8%)
• Canada (with 2%).

(Both GM and Chrysler have significant operations and large work forces in Canada; the Canadian government, facing pressures similar to those exerted on lawmakers in the U.S., also contributed bailout funds — about $800 million for Chrysler and $2.4 billion for GM — hence its ownership stakes).

Oh – and what did Fiat pay for a 20% ownership in the new company? – ZERO – that’s right $0.00.

So we took ownership away from the employed and retired men and women who are state employees of Indiana and other SECURED CREDITORS – and left them hung out to dry – even though they had a CONTRACT!

http://blogs.edmunds.com/karl/2009/06/talk-back-tuesday-fiat-chrysler----an-automotive-experiement-we-all-get-to-pay-for.html

I want you to imagine that you are fund manager, managing the retirement dollars of a few hundred or even thousands of police workers, fireman, and state employees. Or – you are a private investor and the performance on those funds affected your ability to feed and care for your own family. You entered into a CONTRACT with certain guarantees. You took on risk; but none the less; you have a contract in place to at least protect 75% or so of your principle investment. The company goes bankrupt; and you are counting on the Federal Government to protect your rights; your contractual rights via the legally established 50 plus year legal precedent and process of Federal Bankruptcy Law. Yet - not only do they NOT help you enforce the contract; they actually become the perpetrators who violate the contract, harming and violating you in the process.

This is just one clear cut example of why people do not trust the government. When the highest office in the land; the Office of the President of the United States is using his total and executive power to break our laws rather than enforce them – then we have arrived at a very bad place as a country. We are now at a place where as private citizens we are in fear that Federal Government will not enforce the law; they will ignore the law or even worse; break the law themselves for their own political - personal purposes and pursuits. How long will our citizens put up with immoral behavior and poor ethics like this? I hope not very long - no longer than this November.

Notice that the secured creditors only received a few pennies on the dollar; when their legally binding contract secured them much more. The UAW - WHICH HAD NO CONTRACT THAT GAVE THEM LEGAL OWNERSHIP OF CHRYSLER – was given a 55% share in the new company. Do not think all the Union Workers are benefiting from this however; many of them were laid off anyway. No - the union management corporation (that is the Union Bosses) are the ones who have received a financial windfall – you know the guys who filled Obama’s campaign funds for the 2008 campaign.

When the major investors began to push hard on team Obama for their contractual rights; Obama held a national press conference to demonize them in the public image…

Wall Street Journal; May 11, 2009

“The results of these hardball tactics were on display Friday, as the last resisters of a deal to slash the value of Chrysler debt abandoned their effort to fight it in bankruptcy court. That raised the chances for a relatively swift transit through Chapter 11, producing a new Chrysler 55%-owned by a trust for union retirees, 35% by Fiat SpA -- which hasn't even been a Chrysler creditor -- and not at all by the senior secured lenders.

That conclusion would upend a longstanding tradition concerning rights in a bankruptcy: Senior secured lenders usually get paid in full before lower-priority creditors get anything. Not this time.

The White House's role in restructuring Chrysler has sent a shudder through the community of lawyers and lenders in the field of bankruptcy and corporate workouts. Critics complain that the administration has violated a bedrock principle of American capitalism and unfairly demonized financial firms that are vital to the functioning of the economy and its eventual recovery.

Administration officials reply that the Chrysler crisis required bold action. While Chrysler's suppliers, dealers and unionized workers are critical to its survival -- and so is Fiat, which will contribute high-efficiency engines and foreign distribution -- the creditors were expendable.

"You don't need banks and bondholders to make cars," said one administration official.”

Richard A. Epstein; the James Parker Hall; Distinguished Service Professor of Law at The University of Chicago wrote in Forbes…

On claim priority, unsecured creditors come at the bottom of the bankruptcy totem pole. The basic rule of credit transactions distributes the net assets first to secured creditors in the order of their priority. First mortgages are normally paid in full before second, and lower mortgagees receive anything, in order, on their loans. Unsecured creditors of all types have an equal claim regardless of the time they perfected their claims. But they receive their first dime only after secured creditors have been paid in full.

It is absolutely critical to follow these priority rules inside bankruptcy in order to allow creditors to price risk outside of bankruptcy. Upsetting this fixed hierarchy among creditors is just an illegal taking of property from one group of creditors for the benefit of another, which should be struck down on both statutory and constitutional grounds.

Conflict of Interest

President Obama--no bankruptcy lawyer--twisted the arms of the banks that have received TARP money to waive their priority, which is yet another reason why a government ownership position in banks is incompatible with its regulatory role. Yet the president brands the non-TARP lenders that have banded together to fight this bogus reorganization as "holdouts" and "speculators."

Both charges are misinformed at best. A holdout situation arises when one party seeks to get a disproportionate return on the sale of an asset for which it has little value in use. Thus the owner of a small plot of land could hold out for a fortune if his land is the last piece needed to assemble a large parcel of land. But the entire structure of bankruptcy eliminates the holdout position of all creditors, secured and unsecured alike, by allowing the court to "cram" the reorganization down their throats so long as it preserves the appropriate priorities among creditors and offers the secured creditors a stake in the reorganized business equal to the value of their claims. Ironically, Obama's Orwellian interventions have allowed unsecured union creditors to hold out for more than they are entitled to.

The now publicly released email conversations between the White House Auto Bailout Team; and the GM/Chrysler corporate leaders show just how President Obama was directly involved in the Bankruptcy Process.

Here is an excerpt from Gangster Government: Barack Obama and the New Washington Thugocracy; by David Freddoso; (2011-04-04). It includes text from the emails.

After the court proceeding was completed, internal e-mail communications at Chrysler, which were filed in the District Court just as the case ended, detailed the inner workings of how the government was laboring to ensure as bad a deal as they could for these creditors as possible.

One particular damning exchange came between Robert Manzo, Chrysler's financial advisor, and Obama Team Auto member Matt Feldman.

In the late evening of April 29, 2009, just hours before the bankruptcy papers were to be filed, Manzo wrote Feldman at his government e-mail address to tell him it would not be hard to find a bit more money for the secured creditors who were holding out. Their demands, Manzo wrote, were not excessive, and the deal was "too close to not exhaust every avenue to get this done…. We can easily find $250 million in savings to help fund this last piece. We have some other ideas as well."

Feldman's thuggish, two-sentence reply came back 2 minutes later: "I am now not talking to you. You went where you shouldn't."

Manzo, apparently in a bit of a panic, shot back this reply just 5 minutes later;

                “Sorry. I did not mean to say the wrong thing, but I obviously did. I was just trying to make sure that we had to contribute to the solution, that you knew we had some room. Sorry I did not realize it was a mistake!! Bob.”

Feldman's response, which could have been lifted from the script of a mobster movie, came at 4 AM:

                “It's over. The President does not negotiate second rounds. We have given and lent billions of dollars so your team could manage this properly. I've protected your management and your board and now you're telling me you're going to put me in a position to have to bend to a terrorist like Lauria. That's BS”.

So it is not that secured creditors could not have received more of their money. It is just that they didn't, because gangster government didn't want them to. This isn't about hope and change; this is about stop us if you can.

Mourdock finally got the decision he wanted, sort of, from Supreme Court, on December 14, 2009. It was still a defeat for his Indiana pensioners, who would not get their money back, but it was also a partial vindication of the position he had taken in pursuing the case, a position that his Democratic opponent for reelection would use against him to little effect in 2010.

The Supreme Court remanded the Chrysler case to a lower court for dismissal on grounds that it was moot, for by that time Fiat, the UAW, and the governments of the United States and Canada had all of Chrysler's equity. The High Court, however, also vacated the appeals court decision that had approved gangster government's plan for the automakers.  

The Supreme Court effectively expunged from the books, and from the realm of precedent, the lower courts rubber-stamping of the bankruptcy. No one in the future would be able to cite the Chrysler case in a court room and any attempt to swindle secured creditors in the future. This does not negate the fact, but proves the fact that the Obama administration ignored and broke the law in the process of the Chrysler take over.

Mourdock said, “We will never know how many billions of dollars in that critical period left this country to be invested overseas. If the words ’secured creditor’ do not mean what they have always meant in our court system, and that money is going overseas, where they have not changed the rules."

TARP was bad enough. A president willing to use it to increase his power and use leverage in corporate bankruptcy proceedings to pay back his union buddies is far worse.

 Lauria, the bankruptcy attorney who represented Mourdock and several of the non-TARP creditors, was certainly not an anti-Obama partisan. In fact, his political contribution history shows that he is given $10,000 to Democratic Senatorial campaign committee's in 2008 and also $1,000 to Hillary Clinton's 2006 Senate campaign. That was before he and his clients, who had purchased $295 million in Chrysler's debt in the mistaken belief that their secured debt was actually "secured", became one of Obama's targets.

Can we see now why it is a complete conflict of interest to have the President of the United States and his direct staff pulling the strings; making the demands and managing a bankruptcy process? We ended up with the Federal Government acting as both an investor inside the deal, while they were also the legal arm with the power to enforce or manipulate the deal. On one hand they were manipulating the banks/lenders via TARP, and on another were manipulating the same banks/lenders in the bankruptcy courts with the Auto Bailout.

In my opinion it may very well be illegal; and at the very least it was corruption of the highest order. I find President Obama a danger to our country, our republic and our way of life.

Bush set the initial precedent just before he left office when he said “We will abandon free market principles in order to save the free market”. What’s up with that?

So – Bush enacted the first TARP and started the ball rolling. Obama saw it as an opportunity to set a whole new precedent; using it as a way to challenge and manipulate the system, and ultimately funnel Federal Tax Payer dollars to his UAW campaign donors.

The real precedent that Obama has set is simply this – If I cannot count on or know that the Federal Government will enforce a legal contract I enter into as an investor or business partner; do I perceive that as taking on too much risk? Stated another way – Why would investors and entrepreneurs take on the risk of investing their money in any company if the Federal Government will violate them and our trust in such a way that increases the chances they will lose their investments?

This absolutely does not create a pro-growth; pro-job creation atmosphere across our country. In fact it has created exactly the opposite!

This along with his poor policy decisions have combined to create a perfect storm of fear and uncertainty in the private sector. I have personal and professional contact with dozens and perhaps more than 100 private sector business owners and senior leaders across this nation – nearly everyone who has spoken of this in private conversations have confirmed - this is their fear and concern.

Government Spending Part 1

After hours of reading letters they published, the Federalist Papers and the writings of those they quoted as influencing them; in my opinion - the Founders would be appalled at the nature of the federal government’s transformation and the squandering of the American legacy. America for nearly 200 years had a legacy of rugged individualism and self-determination.

No longer - the federal government has become the nation’s largest creditor, debtor, lender, employer, consumer, contractor, grantor, property owner, tenant, insurer, health-care provider, and pension guarantor. Its size and reach are vast. Its interventions seem to have no limit. I would not have enough time and pages to set out an all-inclusive examination of how the size of the Federal Government has grown. However, certain examples, both general in nature and common to daily life, should help prove the point to those who remain open to examining simple facts, reason and keen on liberty. Evidence of the massive expansion of government abounds everywhere and permeates everyday existence. It is really not that hard to see.

FEDERAL TAXING, SPENDING, AND DEBT

Among the ten tenets in The Communist Manifesto, Marx and Engels include “a heavy progressive or graduated income tax”. In America, the federal government imposes a staggering burden on a small fraction of taxpayers, as reflected in data released by the Internal Revenue Service for 2008.

• The top 1% of income earners paid 38% of personal income taxes while earning 20 percent of pretax income
• The top 5% of income earners paid 58.7% of personal income taxes while earning 34.7% of pretax income.
• Meanwhile, the bottom 50% of income earners paid only 2.7% of the total tax burden while earning 12.75% of the total pretax income.

In other words, the top 5 percent of income earners paid the majority of the total tax burden and the bottom half of income earners paid almost nothing. Gross domestic product (GDP) represents the total value of all goods and services produced in the United States in a given year.

• In 1930, the federal government spent 3.4% of GDP.
• In 1937 and 1939, in the midst of the Great Depression, federal expenditures consumed 8.6% and 10.3% of the GDP, respectively.
• During 1943 and 1944, in the midst of World War II, expenditures were 43.5% and 43.6%, respectively.
• In 1948, after the war, the percentage dropped to 11.5%.
• Throughout the 1950s and 1960s, federal expenditures as a percentage of GDP hovered between 15% and 17%.
• During the 1970s and 1980s, these numbers ranged between 17% and 19%.
• In the 1990s, the percentage varied between 15% and 19%.
• By 2000 and 2001, there was a small drop to 14.8% in both years.
• Starting in 2009, the percentage reached 21.1%— the highest percentage of federal spending since 1946 in the midst of WWII.
• In 2010, federal expenditures jumped to 24% of GDP.

Moreover, at the end of 2008, the federal debt as a percentage of GDP was at 40 percent. In 2010, it jumped to over 60 percent. For 2011, the Congressional Budget Office (CBO) projects the federal debt will reach about 70 percent of GDP, the highest level since right after World War II, and it will exceed 100 percent of GDP very quickly. Shortly thereafter, “the growing imbalance between revenues and spending, combined with spiraling interest payments, would swiftly push debt to higher and higher levels.…”

Furthermore, the most recent estimate of total unfunded obligations (Social Security, Medicaid and Federal Government employee pension funds) in dollar terms— for which no money is currently available and will never be available— is $ 61.6 trillion. That is $528,000 per household. This includes $25 trillion in unfunded obligations for Medicare, $21.4 trillion for Social Security, and $9.4 trillion for servicing the debt (servicing the debt is a fancy word for interest we must pay).

The bigger government grows; the more regulations are implemented and a vast army of unelected government bureaucrats are given jobs managing the federal monster.

Congress has established a massive administrative state that serves essentially as a fourth governmental branch and exercises legislative, executive, and judicial powers. It employs an army of more than two million bureaucrats who work for an untold number of departments, agencies, bureaus, divisions, boards, etc. They are highly compensated, with average salary and benefits more than double what employees in the private sector earn.

The administrative state issues thousands of regulations and rulings every year, which have the force of law. The Competitive Enterprise Institute reported that the 2010 Federal Register, the official compendium of federal rules, totaled 81,405 pages, a record high. Since 2001, 38,700 final regulations have been promulgated. In 2010 alone, 3,573 rules were enacted by federal agencies. An evaluation by economists Nicole V. Crain and W. Mark Crain determined that private sector regulatory compliance costs amounted to $ 1.752 trillion in 2008, absorbing 11.9 percent of the total gross domestic product of the nation.  I want you to imagine that you are business owner (or if you are one); now imagine that 11.9 cents of every dollar your company earns goes to simply pay the cost of maintaining compliance with federal law. That is before you cover payroll, overhead, marketing & sales expense. Before you pay your taxes or even pay yourself. Regulations – Not Taxes – sucks $1.75 trillion dollars annually from the marketplace.

Moreover, The Heritage Foundation found that the number of criminal offenses in the United States Code increased from 3,000 in the early 1980s to 4,000 by 2000, to over 4,450 by 2008. But the total number of criminal offenses is actually unknown even to the federal government, which establishes them. “Scores of federal departments and agencies have created so many criminal offenses that the Congressional Research Service (CRS) [the research arm of Congress] … admitted that it was unable to even count all of the offenses. The Service’s best estimate? ‘Tens of thousands.’ … Congress’s own experts do not have a clear understanding of the size and scope of federal criminalization.”

Do we really need more laws and regulations – or do we need to get back to teaching our children and citizens morals, values, self-reliance and personal responsibility? (That is a subject for another post, but clearly related to this issue).

In recent months, and going back to the 2008 election; we hear time and time again our president stating “the rich folks need to pay their fair share”. Yet if we do the math – if the economy was back on a growth track of 4% GDP growth or even higher per year for the next decade – federal spending on entitlements would continue to outstrip revenues coming to the government. Put another way – we could tax the top 10% or even 15% of earners at a rate that would take 100% of their income; and we would still have a deficit. So… do we really have a problem with the rich not paying their fair share; or do we have a problem with spending?

This kind of class warfare Obama uses in his speeches and campaigns, pitting straw men against straw men, is now a routine and regular part of the American political dialogue. Yet, in practice, for the utopian it is better that all be poor than some be wealthy; that all suffocate from laws and regulations than some breathe free. But equality of this sort is not about freedom and liberty; it is really about an equality of outcomes — which is not the natural state of man. It is also not the America’s history. From the first settlers to today’s immigrants, America has rightly been considered exceptional— the land of individual opportunity, not the land of haves and have-nots. In America, the wealthy can fall and some do, and the poor can rise and some do. There is no bourgeois-versus-proletariat standoff but, instead, an immense prosperity born of an open society and economic market system that knows no class structure. However, the false sense of hope that President Obama espouses in his speeches comes from radical egalitarianism which incites jealousy (class warfare) among some if not many, divides and distracts the people, and furthers the chances of getting voters to vote for the promised hand-outs – which ends up granting greater control to certain politicians by changing the society’s psychology and national character.  The politician hooks them with financial bribes in the form of “entitlements.” And he makes incredible claims and promises for greater or even perfected health, safety, educational, and environmental policies. For these reasons and more, some become fanatics for the cause. They take to the streets and, ironically, demand their own demise as they protest against their own self-reliance and for even greater centralized planning/government and authoritarianism. When they vote, they vote to empower  more and more decisions to be made by the political elites and their experts, who substitute their self-serving and dogmatic policies — which are proclaimed righteous and compassionate— for the individual’s self-interests and best interests.

These - the politicians, judges, and bureaucrats— have become America’s version of Plato’s philosopher-kings and guardians, with obvious exceptions. As Plato wrote in the Republic,

“Philosophers because of the love of Forms [a perfect thing or being], become lovers of proper order in the sensible world as well. They wish to imitate the harmony of the Forms, and so in their relations with others they are loath to do anything that violates the proper order among people”. Moreover, only they are able to know “the Good” (the ultimate truth). They are wise and learned beyond the capabilities of the people they rule.

Does this not sound like the attitude or self-opinions held by many in elected office?

I don’t care about the party affiliation – I will vote for the candidate that will reduce the size of government, reduce taxation, and create a fiscal environment where the entrepreneurs, investors and banks will get off the sidelines and begin funding growth.

The Federal Government has become a leviathan – and it needs to be shrunk. It would be one thing if we could point to success in running the various entitlement programs or services successfully; but the track record is pitiful. There are very few programs or departments the government runs well at all.

Introduction to the Devil is in the Details

Hello friends, family and colleagues,

I have spent countless hours in the last few years investigating and fact finding to get all the details on what our government and community leaders are up to. I have uncovered details regarding the activities of the Federal Government, State Governments and in some cases my local city government. While not all of the news is bad news; I do see us reaching a critical mass or unprecedented juncture where we are forced with some nationally important decisions in the next few years.

My new blog – The Devil Is in the Details (http://knowthedetails.blogspot.com/) is designed to provide detailed information on any number of issues facing our nation. Issues such as:

·         Government Spending

·         Federal Deficits

·         Federal regulations – tax and regulatory policy

·         Constitutional issues

·         Religious Liberty

·         Personal & Economic Freedoms

·         Etc.

In each post I will be making an effort to not only engage in conversation; but to encourage people to use critical thinking in the examination of the issues; background information and in the forming of an opinion. Whenever possible; I will include links or references to the information I have researched. I will attempt to clearly emphasize which information is a formation of my opinion and when the information is simply facts or data I have accumulated to formulate my opinion.

I want the blog to also be a place where some of you who are also researching these issues, can post back additional information so that we can all make more informed decisions.

Unfortunately; most of the news we get is in the form of mere sound bites; preventing us from knowing many of the details. How can we have an intellectually sound or educated position on the issues if we do not know the details? Secondly, it has become more and more apparent that journalists in our country are more interested in sounding out their position or agenda instead of just reporting the news. This is a sad fact of journalism in our country. I have been an avid reader and watcher of the news since my childhood. I worked for the Los Angeles Times for a decade; I have witnessed the slow death of journalism.

In the spirit of full disclosure; I do feel that our nation is at a critical juncture. That the policies, issues, budgets, taxes and regulations we tackle in the next few years are more important than ever. These are important issues not merely for fiscal reasons, but for reasons of culture and the very soul of our nation.

So; yes – I am trying to change some minds in these posts. I am also however, trying to provide information to those who agree with me to empower us as citizens to talk to anyone who will listen as the November election approaches. Ultimately – I want us to dig into the details so we can better understand the issues, defend our positions with intelligent conversation, in some cases change our mind (me included) and make our nation better.

Lastly – I am not one of the true independents or anti-government dudes who want no government at all. In fact, I believe that our Federal and State governments play a crucial role in maintaining and promoting a healthy society – a United States of American that is the most attractive, freedom loving and people friendly nation in the history of the world. There is more to us that is good than bad; but we are at a critical juncture.

Stay Tuned – and I look forward to hearing from you guys.