Columnists
White House Puts UAW Ahead of Property Rights
Michael Barone
Thursday, May 07, 2009
Last Friday, the day after Chrysler filed for bankruptcy, I drove past the
company’s headquarters on I-75 in Auburn Hills, Mich. As I glanced at the
pentagram logo, I felt myself tearing up a little bit. Anyone who grew up in
the Detroit area, as I did, can’t help but be sad to see a once great
company fail.
But my sadness turned to anger later when I heard what bankruptcy lawyer Tom
Lauria said on a WJR talk show that morning. “One of my clients,” Lauria
told host Frank Beckmann, “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.”
Lauria represented one of the bondholder firms, Perella Weinberg, which
initially rejected the Obama deal that would give the bondholders about 33
cents on the dollar for their secured debts while giving the United Auto
Workers retirees about 50 cents on the dollar for 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 loaned money only on the
contractual promise that if the debt was unpaid they’d get specific property
back — get paid off in full before unsecured creditors get anything.
Perella Weinberg withdrew its objection to the settlement, but other
bondholders did not, which triggered the bankruptcy filing.
After that came a denunciation of the objecting bondholders as “speculators”
by Barack Obama in his press conference last Thursday. And then death
threats to bondholders from parties unknown.
The White House denied that it strong-armed Perella Weinberg. The firm
issued a statement saying it decided to accept the settlement, but it
pointedly did not deny that it had been threatened by the White House. Which
is to say, the threat worked.
The same goes for big banks that have received billions in government TARP
money. Many of them want to give back the money, but the government won’t
let them. They also voted to accept the Chrysler settlement. Nice little
bank ya got there, wouldn’t want anything to happen to it.
Left-wing bloggers have been saying that the White House’s denial of making
threats should be taken at face value and that Lauria’s statement is not
evidence to the contrary. But that’s ridiculous. Lauria is a reputable
lawyer and a contributor to Democratic candidates. He has no motive to lie.
The White House does.
Think carefully about what’s happening here. The White House, presumably car
czar Steven Rattner and deputy Ron Bloom, 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
Democratic Party. The only possible limit on the White House’s power is the
bankruptcy judge, who might not go along.
Michigan politicians of both parties joined Obama in denouncing the holdout
bondholders. They point to the sad plight of UAW retirees not getting full
payment of the health-care benefits the union negotiated with Chrysler. But
the plight of the beneficiaries of the pension funds represented by the
bondholders is sad, too. Ordinarily you would expect these claims to be
weighed and determined by the rule of law. But not apparently in this
administration.
Obama’s attitude toward the rule of law is apparent in the words he used to
describe what he is looking for in a nominee to replace Justice David
Souter. He wants “someone who understands justice is not just about some
abstract legal theory,” he said, but someone who has “empathy.” In other
words, judges should decide cases so that the right people win, not
according to the rule of law.
The Chrysler negotiations will not be the last occasion for this
administration to engage in bailout favoritism and crony capitalism. There’s
a May 31 deadline to come up with a settlement for General Motors. And there
will be others. In the meantime, 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? We have just seen an episode of Gangster Government. It is likely
to be part of a continuing series.
