FRONT PAGE CONTRIBUTOR
The Gerrymandered Bankruptcy at Chrysler.
Bankruptcies, like divorces and contested wills, are traumatic, controversial and angst-ridden events for all participates. Fans of civil societies, under the parlance of laws; not the individual whims of men, prefer these unpleasant events get settled by rules. This is preferable to how <a href=http://originofnations.org/history_of_europe_and_the_church.htm> Theodoric handled his differences of opinion with Odoacer.
…on March 5, 493 Theodoric invites Odoacer to a banquet. Odoacer accepts—with disastrous consequences. As Odoacer enters the banquet hail, two of Theodoric’s men suddenly grasp his arms. Others hidden in ambush rush forward with drawn swords. Apparently they had not been told the identity of their intended victim, for when they see Odoacer standing helpless before them they are panic-stricken!
The soldiers hesitate. Theodoric himself rushes forward to do the job for them. With one powerful blow of his broadsword, Theodoric splits Odoacer in two from his collarbone to his hip!
While <a href=http://streetwiseprofessor.com/?p=1837> Chrysler’s secured creditors have thus far done better off the current proposal than Odoacer, they still have to wonder what sort of negotiations they walked into when the administration of Barack Obama became an active party to the Chrysler bankruptcy.
It seems that the Obama Administration has a different view of how proceeds from the asset sale accompanying a Chapter 11 bankruptcy get distributed than what is currently written into the USC. The legal statutes favor senior creditors first. Bondholders and lien holders eat first; junior creditors, stock holders and unsecured lenders get the left-over proceeds.
Chrysler’s current plan, backed to Theodoric’s bloody hilt by the administration, does not follow that accepted and codified template. Thus, the current administration has resorted to considerable jaw-boning to get statute-empowered lenders to lay aside legally valid claims on behalf of parties favored by the current administration.
Lenders reliant on TARP had no trouble obeying the One. Un-TARP-ed firms in the flyover country have proven more unruly. Rather than accepting an involuntary haircut than would fit in well at Paris Island, they predictably lawyered-up athwart financial shakedown.
“We’re just standing on the law,” said Tom Lauria, a bankruptcy attorney at White & Case, representing a group of about 20 Chrysler first lien senior secured lenders.
“They (Chrysler) say they are going to allocate out and distribute the proceeds of the sale in a way that they couldn’t do if they were going to do it under a Chapter 11 plan,” he added.
To make sure Chrysler got bankrupted the Chicago way, President Obama and Michigan Governor Jennifer Granholm <a href=http://www.reuters.com/article/newsOne/idUSTRE54009420090501?pageNumber=2&virtualBrandChannel=0&sp=true> put the thumb-screws to non-compliant creditors.</a>
In a televised appearance from the White House, Obama termed the dissenting Chrysler debtholders “speculators” who had endangered the automaker’s future by holding out.
“I don’t stand with those who held out when everybody else is making sacrifices. That’s why I’m supporting Chrysler’s plan to use our bankruptcy laws to clear away its remaining obligations,” Obama said.
Michigan Governor Jennifer Granholm vowed the three fund management firms whose opposition to the Chrysler deal was made public — Oppenheimer Funds, Perrella Weinberg Partners and Stairway Capital — would not get any state business.
Whether driven by principal, or by the potential pain of writing off over $1Bn in capital investments, financial firms are still not defering to the President. Attorney Lauria states the gravaman of their objections
“The sale is an attempt to end-run the procedural protections that are provided to stakeholders by Chapter 11,” he said.
“What’s happening is the senior secured creditors are going to get 29 cents on the dollar and the unsecured creditors are going to get $10 billion dollars.”
Lauria further decrys the ham-handed nature of the supossedly nuetral governmental activities.
Based on the pressure the administration has put on a number of my clients who have received no TARP funds in the last 24 hours, I cannot imagine the pressure that it brought to bear on the lenders in our group who received TARP funding,” Lauria said.
“I’ve never seen the President of the United States personally thrust himself into a bankruptcy case. The executive branch is going to be present in the court and it will really put pressure on the court to demonstrate to the people of this country that it’s watching what’s going on in an independent and unbiased way.”
While President Obama was certainly more honest and forthright than usual in describing people who willingly lend money to US auto manufacturers as speculators, his actions are the initial mile on a road to barbarism. The short-term, acute suffering that a legally executed bankruptcy would inflict on The President’s political allies would hurt.
However, it measures a pittance in comparison to what we all will suffer as American rule of law degenerates to the level of 5th Century European Pre-Feudalism. The rule of law gets increasingly abrogated on behalf of an <a href=http://www.cliffsnotes.com/WileyCDA/LitNote/Atlas-Shrugged-Study-and-Homework-Help-Full-Glossary-for-Atlas-Shrugged.id-7,pageNum-150.html> Aristocracy of Pull.
The disregard of legislated precedent on behalf of personal allegiance in settling complex legal issues leads to tears. The consequent hardening of both allegiances and hatreds drives divisions throughout the civil society. Instead of making a sober and intelligent decision in our political allegiances based on personal belief and philosophy, we are for or against someone based on who gives us the spoils.
As the political factions strafe one another to loot the Chryslers of our burned out industrial economy, we all forget the drive, the teamwork, the ethics and the loyalty that made Chrysler’s corporate cadaver such a feast for the jackals. We consume our seed corn before someone else can and forget about next year’s crop.
Quietly, without pomp or fanfare, China stops investing in US Treasury bonds. As the civilized men get replaced by cannibals, the world watches and acts in self-interested accordance to what they see. Standing outside the US political sphere, China sees something we all are not. They do not invest in fools and will not speculate on the personal piques of future American Presidents. We fight more and more ferociously over what spoiled remains are left as we deliberately walk away from the rule of law.
Unlike modern America, China still reads, comprehends and learns from history. They won’t be investing in America anymore because they, unlike Chysler’s secured lenders, are too wise to accept Theodoric’s invitation for dinner.