White House Puts UAW Ahead of Property Rights

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Last Friday, the day after Chrysler filed for bankruptcy, I drove past the
company’s headquarters on Interstate 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 lended 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 news 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
Troubled Asset Relief Program 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.

Michael Barone is a resident fellow at AEI.