The White House: Now Fomenting Financial Chaos And Disrespect For The Law

by Pejman Yousefzadeh on May 18, 2009

There is something deeply disturbing about the Obama Administration’s willingness to abrogate contracts, agreements, and the legal rights of others as it continues to expand government’s role and crowds out private sector rights in the process. The Washington Post properly calls shenanigans on this latest manifestation of the Imperial Presidency Barack Obama swore he would bring to an end:

DESPITE a massive infusion of government cash, General Motors is slowly and almost assuredly limping toward bankruptcy. The company’s stock has been hovering just above the $1 mark for the past few days, and chief executive Fritz Henderson has signaled that bankruptcy court may be the best — or perhaps only — venue in which the company can come to terms with its creditors. GM — and its partner, the U.S. government, which could get as much as a 50 percent equity stake in the company — have set themselves a deadline at the end of this month to decide what to do.

And therein lies the potential danger. The government’s intervention in GM’s financial affairs tilts the scales so dramatically in the company’s (read: government’s) favor that it risks shutting out the legitimate interests of some creditors in favor of politically connected players who are owed much less and have less of a claim to the company’s money. GM bondholders, for example, are being pushed to accept a 10 percent equity stake in repayment of their $27 billion in loans to the company. The United Auto Workers, on the other hand, is being offered a 35 percent equity stake in exchange for its claim of roughly $10 billion — a claim that would typically be wiped out in bankruptcy. It is hard to blame bondholders for refusing to cave in to the government’s pressure, especially because some of them bought insurance against a possible GM bankruptcy; that insurance would pay them more than $2 billion in cold, hard cash — instead of in potentially worthless stock should the company file for Chapter 11 protection.

Not to forget: The rights of creditors and hedge funds were violated so that a Democratic Administration could reward a union by giving it greater ownership rights. There is no way that this would have happened under existing bankruptcy laws, as the Post points out, but for the Obama Administration, following the law, respecting limits on the power of the Presidency, and implementing responsible policies in the wake of Chrysler’s bankruptcy–and the likely bankruptcy of GM–is less important than unilaterally abrogating the bankruptcy laws in order to repay the political paymasters of the Democratic party. Just out of curiosity, has anyone asked how people are supposed to do business in this environment with any semblance of confidence in the proposition that at some point, the government won’t swoop down, change the terms of any legal or business relationship to suit its own political purposes, and leave the private parties high and dry in the process?

All of the criticism to the contrary notwithstanding, the Bush Administration was not nearly as much in the pockets of the oil industry as the Obama Administration is in the pocket of the unions. And in the non-surprise of the year, in the wake of report after report detailing the degree to which the Administration asks “how high?” when unions demand that it jumps, we don’t even hear cricket-like chirping from those who claimed and complained that oil companies set policy during the Bush years. There are two scandals going on here. The first is perpetrated by the Obama Administration, in its wholesale rewriting of the bankruptcy laws to further its own interests. The other is perpetrated by the supposed advocates of ethics in government, who always seem to lose their voices when a Democrat becomes President.

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