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.
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!
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!
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.”
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.
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.
Patrick, Thanks. This is really good.
ReplyDeleteRalph