Un-American Government Intervention 47 comments
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“Crony capitalism” is a term often applied to foreign nations where government interference circumvents market forces. The practice is widely associated with tin-pot dictators and second-rate economies. In such a system, support for the ruling regime is the best and only path to economic success. Who you know supersedes what you know, and favoritism trumps the rule of law.
Unfortunately, this past week's events demonstrate that the phrase now more aptly describes our own country.
On Monday, the Supreme Court refused to hear an appeal from Chrysler's secured creditors based on the government's argument that the needs of other stakeholders outweighed those of a few creditors. In this case, the Administration concluded the interests of the United Auto Workers outweighed the interests of the Indiana teachers and firemen whose pension fund sued to block the restructuring. Given the enormous financial support that the UAW poured into the Obama campaign, such partiality is hardly surprising.
When making their investment in Chrysler just a few months ago, the Indiana pension fund agreed to commit capital because of the specific assurances received from the company. In allowing this sham bankruptcy to be crammed through the courts, we have shredded the vital principal of the rule of law, and have become a nation of men, rather than one of laws.
The risk that legal contracts can now be arbitrarily set aside will make investors think twice before committing capital to distressed corporations. Oftentimes enforcing contracts imposes hardships. That's precisely why we have contracts.
Without absolute faith that deals will be honored, it will be extremely difficult for U.S. companies to borrow money. This will be particularly true for those companies already struggling with too much debt. Without the ability to issue secured debt, how will such companies access the necessary capital to turn around? If secured creditors cannot count on the courts to enforce their claims, they will not put their capital at risk. What good is being a secured creditor if courts can allow the assets securing your claim to be sold for the benefit of others?
Another problem with the government imposing losses on secured Chrysler creditors is that in its bailouts of financial companies (like Citigroup and AIG), the government took steps to specifically pay back creditors, even when those creditors should have been wiped out. This inconsistency and lack of equal protection further undermines faith in our economy.
The message here is clear: loan money to financial entities with friends in Washington and no matter how risky the loan, taxpayers will bail you out if it goes bad. However, loan money to a unionized manufacturer, even if prudently secured by real assets, and you have as much chance of getting your money back as finding Jimmy Hoffa's body.
As if this wasn't bad enough, testimony on Thursday from former Bank of America (BAC) CEO Ken Lewis revealed a concerted effort on the part of Fed Chairman Ben Bernanke and former Treasury Secretary Henry Paulson to pressure Lewis into hiding relevant financial information regarding Merrill Lynch losses from BofA shareholders. Recently released e-mails make it clear that the government threatened to remove corporate leaders if they failed to go through with the merger and keep quiet about the losses.
Again, the justification for the interference seemed to be the “greater economic good” the merger would serve. The right of BofA shareholders to be informed that their company was about to buy a financial black hole was clearly considered to be an acceptable sacrifice.
More importantly, the fact that two of the highest-ranking government officials can conspire to violate both securities laws and private property rights is abhorrent to everything America supposedly stands for. If they get away with it, which I believe they will, the precedent and the message will be chilling.
As a broker who specializes in foreign investments, I am always wary of political risk. I must consider how the threat of arbitrary government action could undermine the value of my investments.
However, recent events show that political risk is now greater here than abroad, and U.S. assets, which have historically traded at premium valuations based on faith in our legal system, will soon trade at discounts to reflect this new threat.
The fear of having contracts abrogated or property rights violated when doing so serves some contrived greater good will substantially raise our cost of capital and further reduce our competitiveness.
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as long as i am able i will resist peacefully. the pressure against the bill of rights increases on every front.
the usual state of man through history is tyranny. the constitutional republic is worth saving.
If you read the Bankruptcy Court's decision you will see that
s/Arthur J. Gonzalez
UNITED STATES BANKRUPTCY COURT,
ruling that the secured creditors are entitled to the satisfaction of their claims "out of the bankruptcy estate", which is/are what is left of the assets of the Debtor.
So it came down to liquidating the whole thing with a likely max valuation of $800M, or sell the Chrysler assets to New Chrysler (Fiat, US, Canada, UAW) and get about $2B for the creditors.
And you want to call this a "sham bankruptcy"?
I believe the "sham" is the campaign that tries to imply the creditors are being short changed. The fact that the creditors wanted the Feds to inject more taxpayer capital so their secured claim would be larger is the second part of the sham.
Fortunately, the bankruptcy court was the appropriate place to make the necessary decisions. Using the very rule of law and contracts you preach about the creditors received more than liquidation would have provided...but obviously less than if the secured creditors were able to suck out more from the taxpayers.
Why do I get the impression you did NOT read the Gonzalez opinion? And how does a bankruptcy court that provides more than double the valuation of a bankrupt entity to creditors get labeled a sham by you?
….So it came down to liquidating the whole thing with a likely max valuation of $800M, or sell the Chrysler assets to New Chrysler (Fiat, US, Canada, UAW) and get about $2B for the creditors. And you want to call this a "sham bankruptcy"? Why do I get the impression you did NOT read the Gonzalez opinion? And how does a bankruptcy court that provides more than double the valuation of a bankrupt entity to creditors get labeled a sham by you?...
Arthur J. Gonzalez
UNITED STATES BANKRUPTCY COURT,
09-50002-ajg Doc 3073 Filed 05/31/09 Entered 05/31/09 23:15:29 Main Document
Pg 22 of 47
…In every bankruptcy case involving the sale of substantially all of a debtor’s assets, a purchaser may decide to assume certain contracts but not others.18 Moreover, the purchaser is not accorded any less right because the purchase is funded by the government…
18New Chrysler has determined that, to effectively carry on its business, it should take over certain other of
the Debtors’ obligations. Any such assumption of liability reflects the purchaser’s business judgment, the effect of which does not constitute a sub rosa plan because the obligation is negotiated directly with the counterparty. Thus, any of the obligations under those agreements are satisfied by New Chrysler and do not constitute a distribution of proceeds from the Debtors’ estates.
I think what is being referred to here as a “sham” is a scenario where a class of investor that stood in first position to benefit as owner of the assets, regardless of their “valuation” in terms of Federal Reserve Notes, saw their rightful receipt of same circumvented by a government entity with a printing press and backroom debts being repaid to special interest groups.
America is lost. It is no longer a democracy. Choosing Party A or Party B every four years isn't democracy. Sorry, it just isn't. You get an incredible choice of ... two men. And when an elected official does something that EVERYONE is outraged with, what do we do? We write letters and make phone calls. Wow. "I'm so angry, I'm going to... write a letter!" What a threat.
And then if we remember, years later we vote them out, and the next guy with almost the exact same views gets in... and things continue down the wrong path, down the dangerous path.
And what is with the MSM! What a total failure it has been to us. It's nothing more than a propaganda machine controlled by an oligarchy. And with only their point of view hitting the main stream, they are able to control the mob and put candidates of their choosing onto the fast track. When we vote, we get a choice to vote for a variety of men that are all picked by the powers that be and fast tracked by the MSM. That's not choice.
There's something to be said for education. Too bad education reform can't happen. They'll just throw more at the school system without actually fixing the design of the school system. Then they'll make sure every student is reading the government mantra and politically correct propaganda that the school system is stuffed with.
Bush and Obama have both been disasters. Most likely anyone that becomes party leader for either the Democrats or the Republicans will continue to be a disaster for the country. We need a viable third party that cares more about this country than power, corruption, greed and petty politics. If Americans would stop voting for the Democrats and Republicans in mass, perhaps a viable third or fourth (or more) parties would be born and men that are independent given a chance to do the country right. Sadly, I doubt the average MSM watching American is smart enough to know any better. We've turned the once independent hardworking America into a nation of babies that cry for government to help them or bail them out and take care of everything. And that's what we're getting. We voted for it. Not that we had much choice.
Is anyone else out there allarmed by the govts use of the word "czar"?
Also, Pete I had a thought. Given Obama regime's propencity to honor contracts how long before that great hoard of dollars held in private IRA's becomes irresistable to thems in WA? Indeed there have already been several reps hinting about that very thing. How long before our Gov't decides "for the good of the many" to confiscate the wealth held in these accounts??? Or as some have already ascerted, remove the tax exemption available to some investments. I believe it will simply be too tempting for our politicians to pass up. How else will they fund Obama care or prop up the SS, Medicare or Medicaid?
-Marc
Why should the average citizen not max out their credit card, HELOC, then default on those and other obligations?
Is this not the example that is being set by the government and the bailouts and the shredding of contracts and law for expediency?
Cannot they not see that they are setting the stage for a great tragedy for all of us?
"Regardless of their valuation"??
So, as a preferred holder, I get to put any valuation on the assets of one step away from liquidation entity that Gonzalez and the BK court has determined is worth only $800 million? My preferred rights allows me to petition the federal government to inject billions more of taxpayer money so my investment can be returned in full??
It's bankruptcy court folks, the debtor's get what's left in the entity...and that's exactly why investor's purchase preferred investments, to be protected in BK court. Now if you want to discuss "bad investments" in poorly run companies, that's another, different, column.
The state will stop at nothing in order to preserve the state. Invest accordingly.
The USA is a wounded animal and a wounded animal is not safe.
"Regardless of their valuation"??
So, as a preferred holder, I get to put any valuation on the assets of one step away from liquidation entity that Gonzalez and the BK court has determined is worth only $800 million? My preferred rights allows me to petition the federal government to inject billions more of taxpayer money so my investment can be returned in full??
It's bankruptcy court folks, the debtor's get what's left in the entity...and that's exactly why investor's purchase preferred investments, to be protected in BK court. Now if you want to discuss "bad investments" in poorly run companies, that's another, different, column.
Jun 16 08:01 AM |Report abuse| Link | Reply
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Correct me if I’m wrong, but the preferred status allows that class of investor the rights the “purchaser” bought when they ponied up the $2B to pay them off. I would have thought they would liquidate some assets, install some better management, wipe the slate clean of all the contracts from the old entity and start over with new agreements, something the government was bound and determined to prevent, thus the term “crony capitalism”. What compounds the insult is the ruling is made by a government employee that receives compensation from the same purchaser of these assets. See again the Honourable Arthur J. Gonzalez’s own ruling / opinion below. I think the operable word “may” illustrates the point. Like Jim Rome says... “Scoreboard”.
Arthur J. Gonzalez
UNITED STATES BANKRUPTCY COURT,
09-50002-ajg Doc 3073 Filed 05/31/09 Entered 05/31/09 23:15:29 Main Document
Pg 22 of 47
…In every bankruptcy case involving the sale of substantially all of a debtor’s assets, a purchaser may decide to assume certain contracts but not others. [18] Moreover, the purchaser is not accorded any less right because the purchase is funded by the government…
[18] New Chrysler has determined that, to effectively carry on its business, it should take over certain other of the Debtors’ obligations. Any such assumption of liability reflects the purchaser’s business judgment, the effect of which does not constitute a sub rosa plan because the obligation is negotiated directly with the counterparty. Thus, any of the obligations under those agreements are satisfied by New Chrysler and do not constitute a distribution of proceeds from the Debtors’ estates.
On Jun 14 06:35 PM bklyn wrote:
> LOL! Someone talking about the rule of law and confidence in our
> integrity as a nation of laws....NOW??? I take it you read the Drudge Report for your information on foreign views of our legal system and its integrity. Try Handlesblatt...
Wednesday, 15 April 2009 --- Handlesblatt:
2. "Other fiscal measures should impart an increasing degree of stimulus to the German economy as 2009 unfolds for example, the reductions to income taxes, to social security contributions, child benefit … spending."
Pretty interesting that your source believes reductions to these sacred cows will "impart an increasing degree of stimulus" to an economy. If you believe this, please forward the notion to our current CEO in chief.
Rules change.
On Jun 14 09:56 AM ebschor wrote:
> "Without absolute faith that deals will be honored, it will be extremely
> difficult for U.S. companies to borrow money."
>
> We know that for a marketplace, economy, environment, institution,
> etc. to function properly the "rules of the game" must be clearly
> stated at the beginning and those rules cannot be arbitrarily changed
> once the market mechanism is set into motion.
>
> Our current administration is changing the rules of the game as they
> see fit. Just like your statement above, without full faith that
> the rules of the game will be followed and protected "players" will
> no longer want to participate.
"The fear of having contracts abrogated or property rights violated when doing so serves some contrived greater good will substantially raise our cost of capital and further reduce our competitiveness."
Friedrich Hayek, from The Road to Surfdom:
Economic security is often represented as an indispensable condition of real liberty. In a sense this is both true and important.
Independence of mind or strength of character is rarely found among those who cannot be confident that they will make their way by their own effort.
But there are two kinds of security:
1) the certainty of a given minimum of sustenance for all and
2) the security of a given standard of life, of the relative position which one person or group enjoys compared with others.
There is no reason why, in a society which has reached the general level of wealth ours has, the first kind of security should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health.
Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision.
It is planning for security of the second kind which has such an insidious effect on liberty.
It is planning designed to protect individuals or groups against the diminutions of their incomes."
The medical, dental, legal, financial and political professions are all closed shop union based professions.
Well?
Your article was good until the last statement. "Raise Our Cost" !
If no one buys the junk the cost goes down. Do you really think there are that many fools now, knowing how the game is rigged, that would set themselves up for losses, wipe outs or law suits? Anyone buying bonds now deserves what they get. Sorry Peter you ruined a good article.