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"Banana Republic Capitalism
Published:
Updated:
Quoted directly from:
Power Line Blog: John Hinderaker, Scott Johnson, Paul Mirengoff
http://www.powerlineblog.com
"Banana Republic Capitalism
April 30, 2009 Posted by John at 10:28 PM
"The Chrysler reorganization is shaping up as another milestone in the decline of the rule of law under Barack Obama. We've said for quite a while that bankruptcy is the only viable option for Chrysler and General Motors, not--as Obama claims--because they don't know how to make the right kinds of vehicles, but because their unsustainable union contracts make it impossible for them to be profitable. That reality has now been turned on its head, as the administration has tried to bully Chrysler's secured creditors into going away, while the United Auto Workers Union, solely on the basis of political clout, would be paid at an implied rate of 50 percent and would emerge owning 55 percent of the company, with the government also holding a stake.
This is banana republic capitalism at its worst. Political influence, rather than the law, dictates the rights of the parties. When some of the secured creditors refused to be intimidated, Obama libeled them in the press, saying, outrageously, "I don't stand with those who held out when everyone else is making sacrifices." Actually, under Obama's plan the politically favored parties, principally the UAW, will benefit--will steal money, to put it crudely--from the parties who held out. Those parties call themselves the "non-TARP lenders."
This highlights the government's conflict of interest in this transaction, as in so many others now underway. Some of Chrysler's secured creditors are banks who received TARP money. As the New York Times put it, those lenders are "beholden to Washington" and "defying the administration was never a serious option."
It remains to be seen what will happen in bankruptcy court. Already one key player, Perella Weinberg Partners, "under intense pressure from the White House," has caved in and agreed to accept Obama's terms. Whatever the ultimate result, this episode will have consequences. The Wall Street Journal notes:
If the current plan is pushed through, then good luck to any unionized firm trying to raise secured debt on decent terms in the future.
For Chrysler, the administration's plan spells disaster. It is inconceivable that the UAW, the principal source of Chrysler's problems, will manage the company back to profitability. More likely, Chrysler will become a vehicle through which the federal government provides uneconomic subsidies to unionized auto workers and retirees.
Barack Obama's conduct in this affair has been disgraceful. Our bankruptcy laws are well developed and are fairly implemented by experienced bankruptcy judges. Priority among creditors is established according to legal rules and precedents. The process is transparent and subject to appellate review. But in this case, the law did not favor the parties who have the most influence with the White House--notably, the United Auto Workers--so Obama substituted political threats and bullying for due process. Il Duce would have approved.
UPDATE: Michael Barone has similar thoughts:
The bondholders made a good point. They are secured creditors, and in our bankruptcy law secured creditors get paid off in full before unsecured creditors get anything. That's a sound legal principle: why would secured creditors lend anyone anything unless they can get their security back if the loan isn't paid off? In this case, the small bondholders were willing to settle for only 60% of what they were owed. But, they complain, the government wouldn't negotiate directly with them, but only through JPMorganChase, which (unwillingly) took TARP money on October 13 and thus is under pressure to do what the government wants.
Translation into politispeak: The government squeezed the small bondholders too hard in order to protect the United Auto Workers, which of course has over the years been a bounteous source of money (and manpower) for the Democratic party."
http://www.powerlineblog.com/archives/2009/04/023460.php
Comments
In order for the union autos to be competitive with non union shops there needs to be a price comparison between the auto makers. Obviously non union shops can sell autos for less on a comparable product.
The point I am making is with the thinking of this administration they may decide to impose a non union tax on vehicles made by non union shops. This will bring the cost of non union vehicles to the level of union shops.
Basicaly the same as a tax on foriegn imports to bring foriegn imports to the cost level of products made in this country.
Socialism at its best.
I was thinking of that to Jarasan.
If any people are getting upset about this gov't involvement in these deals they will bycott the product. As well as other segments where the gov,t is involved.
We've seen this before; remember back in the late 1970's when our government initially relaxed the tarriffs on Japanese imports? In just a few short months, the UAW began to cry that Americans were buying too many Japanese cars and putting them out of business. An earnest campaign was launched, in which those who drove Japanese cars were considered to be anti-American. Conversely, you were called a patriot if you bought a Ford, Chrysler or Chevy, which might last two or three years before the paint on the roof and hood oxidized overnight, and certain critical parts began falling off as we drove to work in the morning. It didn't take long before we were subjected to a nationwide effort to boycott Japanese cars and products, and our government raised their import tarriff by three percent to show their support. The result? Americans bought so many Japanese cars that, by 1980, Chrysler teetered on the edge of bankruptcy.
Enter Lee Iacocca, who engineered a taxpayer-sponsored bailout of one billion dollars, and brought us the K-car. Mr. Iacocca became a familiar face in American households as he boldly told us, "If you can find a car that's built better than a Chrysler, buy it." And we did - in droves. We bought Japanese cars, German cars, Swedish cars and, yes, even Yugoslavian cars (remember the Yugo?). Americans didn't care then if their own auto industry collapsed, and we still don't care. We feel NO responsibility to those union workers who have essentially priced themselves out of the market, even though we created thriving communities around geographically-restricted industries.
Now, here we are again, just thirty years later, and no one saw it coming. What a surprise! How could this have happened?
Boycotts don't work here because Americans believe in their rights and entitlements. We want no part of exercising the responsibility which secures those rights, because, after all, we're Americans, and we're entitled. As long as there's food on my table, it's not my fault if my neighbor starves to death on my doorstep; I owe him nothing.
Fiat won't be able to save Chrysler, just as Daimler was unable to save it, and their union workers will soon find themselves the proud owners of 55% of Chrysler stock certificates suitable for framing or wrapping fish.
The answer to our problems can't be found by boycotting any company or product, because we know from experience that boycotts don't work. We need to regain control of our government, bring their salaries more in line with those of mainstream America, and allow free trade in the marketplace to decide which companies survive.
Jim
Unions have long believed they were entitled to ownership of companies their members WORKED FOR. Such arrogance will rapidly drive them into the ground.
They worked something out for the good of both companies, Japanese and American BUSINESS working together to get er' done, paid the federalistas back and got back on track. Smoke gets in your eyes thinkin' about the good ol' dayz.
Have those Jokers on Wall Street and the CEO's cut THEIR wages, what do they produce anyway but a lot of hot air and lies. The men and women that makes the products on the line should do without? I don't think so. The Regan Era is over that the two Bushes continued. Big Business will not continue to rape the working man and woman, rape the enviroment, and test drive dangerous drugs and products on the general public without being noticed. The days when Big Business ruled our Government is over, the Lobby People who paid the elected officials to vote against the best interests of American Public is over. We the People have a Watchman in the White House and he's too young to take naps, doesn't have drinking and drug problem, and knows the faults of our Government.
Having one parent at home while the other works to support the family will cut down on crime of the future, will give the next generation what they need in their formative years, and cut down on a lot of stress in the household. That is what a decent wage will do, that is what Unions are for. Working under a Union Contract protects you if you are a woman, they can't pay you less because you are a woman, you can hold your
head proud.
Chrysler huge office building? Did they really need a building like that? Could the money be spent or not spent in a more productive fashion??
The middle class is disapearing, without your middle class what kind of country would we have? Rich and Poor, no middle class. Read history and find out what happens when a country only has the rich and the poor.
Big Business was paid tax dollars to send our jobs overseas and left America workers abandoned. How much did that CEO's paid for his trash can on company's money? 18,000.???
I did all I'm going to do in this rat race, I'm toast working unless I reopen my business again. And I'm too lazy now to even want to. Work 40 years and you should understand exactly how I feel.
Toyota I understand has happy well paid non union workers and right now is turning out a superior product to the US three major auto plants. That in itself speaks volumes of an employer who's learned to work with workers.
Happy you have such confidence in the current administration which lets you rest well at night.
Are you living in a world no one has ever gone before? What I mean is that I respect your answer, but the unions and this government are the ones that have gotten us here. There is no more middle class because politics have taken it away, and the more the Government get involved they'll also be taking the American way along with it. Look at the big picture instead of the portrait.
We're all a lot more powerful and knowledgeable than in the past which is what politicians seem to fear the most. That's why they're working overtime to legislate our rights away, been happening since the late 60's currently accelerated past the speed of light.
Again thank you both for your comments!!!!!
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