“June 10 will be a silent anniversary, but one worth noting by those alarmed at the past year’s assault on free institutions. It was last June 10 when the federal government tossed aside the option of proven workable bankrupcty procedures in order to nationalize Chrysler on behalf of its union allies.” Mitch Daniels, ‘Hoosiers vs. Crony Capitalism’ The Wall Street Journal, June 4, 2010
The Chrysler intervention by Barack Obama breached the rule of law and categorized his administration as yet another Third World despotism that despises the rule of law and forces discriminatory practices down the throat of a weak and cowardly judiciary. It provides an almost perfect example of state (crony) capitalism at its worst in the hands of an unscrupulous would-be tyrant.
Well-established bankruptcy laws in the United States provide for a clearly articulated preference in favor of secured over unsecured creditors. Chrysler’s secured bondholders had confidently anticipated that their prior status would protect them from the worst implications of the impending bankruptcy of the Chrysler Corporation. Obama and his UAW cronies moved to cut off these law-abiding bondholders at the pass and shake them down for as much as they could carry away.
Naturally, the secured bondholders started out by defending their legal rights. Obama’s apparatchiks (notably Lawrence Summers and Timothy Geithner) attacked them mercilessly, warning of the serious consequences that would surely follow from their continued resistance. Large numbers of secured bondholders chose safety over liberty and acquiesced to federal pressure.
A number of brave souls, however, refused to buckle. The one legal effort to block the Obama cramdown was launched by three Indiana pension funds that had invested in Chrysler bonds in part as a supportive gesture for a longtime state employer. Predictably, they were swept aside by the would-be tyrant in the White House.
The bankruptcy came in a new illegal form run by a corrupt federal government. The United Auto Workers Group, who owned no interest whatsoever in Chrysler, was gifted a 55 per cent interest valued at $4.5 billion. This gift was all the more remarkable because the UAW had been largely responsible for bankrupting the corporation in the first place. When no company came forward to purchase the corporation, after a minute passage of time, the Obama administration gave a 20 per cent interest away for free to Fiat, a third-rate Italian auto producer. It then took a sizeable slice of the corporation for itself, before tossing the remnants back to the secured bondholders.
For Indiana’s retired teachers and state policemen, the remnants amounted to 29 cents on the dollar, a loss of $6 million versus the purchase price and millions more below the expected payout from a standard Chapter 11 bankrupcty proceeding. When the Hoosiers appealed the verdict, they confronted the full reality of cowardice from the appellate court.
The Second District U.S. Court of Appeals – where the appeal was heard – is a progressive socialist outpost that retains little respect for the rule of law. Predictably, that Court declined to overturn the cramdown, though its judges, no doubt for shame, refused to explicate precedential reasons for this decision. The Supreme Court of the United States, to which the Hoosiers made their final appeal, has no Horseman of the Apocalypse on its benches. In a singular act of craven cowardice, the Justice Roberts Court refused to hear the appeal.
The Hoosiers refused to cave, even in the face of this almighty rebuff. Aided by pro-bono counsel, they returned yet again to the Supreme Court. This time, the Court, now less in awe of the would-be tyrant, granted certiorari. The Court ruled from the bench to strike down the decision of the Second Circuit Court of Appeals, thus removing that decision as a potential precedent for bankrupcty proceedings.
As Mitch Daniels, Governor of the State of Indiana, notes in his column, ‘Our retirees are still out the $6 million but enjoyed the small vindication of being awarded the court clerk’s costs at Chrysler’s expense.’
I doubt that you read about that December 14, 2009 court decision in any of the left-leaning media newspapers. For it is a sharp slap in the face for a would-be tyrant, on whose Third World coat-tails most of the media are riding as long as they possibly can.