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Written by Jack Kelly |
| Thursday, 07 May
2009 |
President Hussein Obama's "car czar"
has no experience in the automobile industry, and is under
investigation by the Securities and Exchange Commission for
allegedly paying kickbacks to obtain New York state pension
business.
A former journalist turned investment
banker and Democrat party fund-raiser, Steven Rattner also was
involved in a deal with Cerebrus Capital Management, the hedge
fund which owns most of Chrysler, which made other Chrysler
investors wonder if Mr. Rattner could decide without bias how
the government should aid the auto firm.
They need wonder no longer. Mr.
Rattner proposed a deal that would reward the United Auto
Workers at the expense of the people who loaned Chrysler money,
and attempted to bully bondholders into accepting it. The deal
would have given bondholders about 30 cents on the dollar for
their secured debts while giving UAW retirees about 50 cents on
their unsecured debts.
"This of course is a violation of one
of the basic principles of bankruptcy law, which is that secured
creditors -- those who have lent money only on the contractual
promise that if the debt was unpaid they'd get specific property
back -- get paid off before unsecured creditors get anything,"
noted columnist Michael Barone.
In a radio interview, Tom Lauria, an
attorney for several of the bondholders said: "One of my clients
was directly threatened by the White House, and in essence
compelled to withdraw its opposition to the deal under threat
that the full force of the White House press corps would destroy
its reputation if it continued to fight."
The White House denied it had made
threats, but two other participants in the negotiations told the
Business Insider that "conversations with administration
officials left them expecting that they would be politically
targeted."
Both told the Business Insider they'd
voted for Mr. Obama. The client of Mr. Lauria's that was
bullied into submission was Perella Weinberg, the firm that made
White House Chief of Staff Rahm Emanuel rich.
All of Chrysler's creditors who'd
accepted TARP funds accepted the deal, but several firms which
hadn't taken government money rejected it, forcing Chrysler to
file for bankruptcy protection April 30. President Obama and
other Democrats ascribed the rejection to "greed." But they
have that exactly backward.
"Think carefully about what's
happening here," Mr. Barone said. "The White House...is seeking
to transfer the property of one group of people to another group
that is politically favored. In the process, it is setting
aside basic property rights in favor of rewarding the United
Auto Workers for the support the union has given the Democrat
Party."
Why should the UAW, which shares
responsibility with Chrysler's management for running the
company into the ground, be rewarded at the expense of the
bondholders, without whose funds the doors at Chrysler would
have been shut long ago? The bondholders represent pension
funds on which workers who are not responsible for bankrupting
Chrysler depend for their retirement.
Bailing out the UAW at the expense of
the law may not be such a good deal for unions in the long run.
Businesses need to borrow money. But, Mr. Barone asked, "Who is
going to buy bonds from unionized companies if the government is
going to take their money away and give it to the union?"
The shakedown of Chrysler bonholders
is "an episode of Gangster Government," says Mr. Barone.
It isn't just unionized companies
that could suffer from the Obama administration's cavalier
attitude toward the rights of bondholders. The Treasury
department has to sell several trillion dollars worth of bonds
to fund the president's massive spending.
"Will the White House treat Treasury
bondholders better than they've treated Chrysler bondholders?"
asks law professor Glenn Reynolds.
The Chinese government, the largest
foreign purchaser of Treasury securities, evidently doesn't
think so. Treasury data for January and February indicate the
Chinese have cut back substantially on their purchase of bonds.
If those bonds go unsold, it isn't only Chrysler and General
Motors who face bankruptcy.
Jack Kelly is a former Marine and Green Beret and a former
deputy assistant secretary of the Air Force in the Reagan
administration. He is national security writer for the
Pittsburgh Post-Gazette.
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