When President Obama announced on April 30 that Chrysler’s bankruptcy would be over in two months, industry analysts scoffed. What they didn’t count on was that the Obama administration would not play by the rules.
In an outrageous abuse of bankruptcy law, the Treasury department has trampled the rights of secured investors in order to hand the automaker over to a major Democratic Party contributor, the UAW, and an Italian company, Fiat, to assure a quick restructuring on Washington terms.
The administration’s power play followed a script laid out by Ron Bloom, a financial whiz with the United Steelworkers Union currently on loan to Obama’s auto task force. It began to take shape in April, with Treasury twisting the arms of big debt-holders (JPMorgan, Citicorp, et al) on federal TARP drip to take a mere 29 cents on their investment dollar (“an offer they couldn’t refuse,” as Don Corleone might have observed). Then the administration declared that the UAW had made significant sacrifices (though they have not been disclosed, despite the fact that Chrysler is currently surviving on taxpayer dollars).
These “agreements” thus isolated a handful of investment funds that had offered their own compromise at 50 cents on the dollar — but had refused Treasury’s draconian deal.
At which point Obama, as reported here, called in his goon — more precisely auto czar Steve Rattner, according to the lenders’ lawyer, Tom Lauria — to remind the holdouts how difficult life can be for anyone who messes with the feds. One investment fund, Perella Weinberg, immediately buckled, said Lauria, “under threat that the full force of the White House press corps would destroy its reputation if it continued to fight.” (It’s worth noting that Rattner, a former New York Times reporter, is a close friend of Times publisher Arthur Sulzberger.)
Michael Barone called these tactics “gangster government.” Financial analyst Glenn Reynolds called it “waterboarding bondholders.” “We might expect this behavior from Hugo Chavez,” said George Mason law professor, Todd Zywicki.
Whatever your preferred analogy, it was only reported on opinion pages. The mainstream press seemed utterly uninterested in a lawyer’s claims that the U.S. government was threatening a party in a major corporate Chapter 11 filing. This is the same media that has been obsessed with the rights of a few terrorists in the wake of 9/11. The MSM’s silence was all the more remarkable given Rattner’s threat required using the media as a tool in the Obama administration smear-scheme — they were the bullets in Rocoo’s gun, as it were. Yet, even this did not shame the press into covering the White House intimidation.
Last Friday, the remaining bondholders caved. “They just concluded that the political cost to their institutions was too high to bear,” said lawyer Lauria in a chilling coda.
It is chilling not just for the raw thuggery on display, but for what it means for bondholders in GM’s pending bankruptcy, and for the future of bankruptcy law.
“Expect the fight at GM to be cast in similarly expedient terms of ‘working man vs. evil money people,’” writes Bloomberg’s David Reilly. “And those who raise objections to the government’s plans “will be dubbed Wall Street holdouts and obstructionists.”
Is this really happening in America? Welcome to the Age of Gangster Government.