The U.S. Supreme Court on Tuesday may have cleared the way for the federal government to conclude Chrysler’s sale to Italian auto giant Fiat, but nagging questions remain about how President Obama handled what amounts to the nationalization of two of America’s Big Three automakers.
President Obama has said he has no interest in running General Motors and lambasted bondholders who opposed Chrysler’s sale to a foreign company. But the fates of both automakers has favored the president’s political allies and alienated Wall Street. The United Auto Workers union emerges with ownership stakes in GM and Chrysler. And the federal courts rebuffed bondholders who argued the government was violating their contract rights.
Is the administration overreaching with the auto bailouts? Is Obama abusing executive power much as President Bush’s critics claimed he did during his two terms? Ben Boychuk and Joel Mathis, the RedBlueAmerica columnists, wade into the fray.
Barack Obama’s word is no longer Chrysler’s or GM’s bond. The president doesn’t just risk destroying investors’ confidence in American markets for years to come. By "saving" the automakers from going out of business, the administration has dealt a body blow to constitutional government itself.
Forget the canards about bringing "speculators" to heel. The president of the United States used his executive power to void longstanding legal agreements between two private companies and thousands of investors who agreed to hold the automakers’ debt.
The small group of bondholders who resisted the government’s effort to dragoon them into taking pennies on the dollar summed up the injustice best: "The government has risked overturning the rule of law and practices that have governed our world-leading bankruptcy code for decades."
Put another way, the rule of law isn’t just for terrorist detainees in Guantanamo Bay. Democrats have never tired of lecturing that the president’s power to defend the country against terrorist threats is not limitless. Well, neither is the president’s power to address an "economic emergency." In fact, the president’s constitutional prerogatives for securing the nation’s defense are much clearer than his power to throw out the contracts of companies the government deems "too big to fail."
The only reason people buy bonds is because they offer a safe, guaranteed return on investment. They’re secure. That’s why they’re called bonds.
So Obama has set a terrible precedent by taking the security out of securities and doling out favors to his political friends. In doing so, Obama has set the country’s economy on a perilous course that will be difficult — if not impossible — to correct.
If Republicans want to use War on Terror analogies to criticize President Obama’s handling of Chrysler’s bankruptcy, Democrats have a ready-made response: The president means well. He would do anything to prevent another financial disaster on his watch. Isn’t it time we all moved on and stopped pointing fingers?
Sarcasm aside, it’s tough to swallow the latest attempts to paint the president as a secret socialist. Obama didn’t seek to take over large swaths of the auto industry; Chrysler and General Motors asked federal assistance and intervention. And far from basking in "favors" done by the Obama Administration, the United Auto Workers union has agreed to accept lower pay, plant closures and massive job losses in order to keep Chrysler alive. In most years, that would be a development cheered by union-hating conservatives. These are strange times.
As for the bondholders: They’re probably quite lucky. In the Wall Street Journal, Scott Sperling recently pointed out that many will still make a profit under the government plan; they will certainly make out better than if Chrysler had been allowed to fail. "While these creditors were hopeful that the Obama administration might bless them with an enormous windfall — a reasonable thought given the actions of the last administration — they certainly knew that these loans were incredibly risky and that Chrysler survived only by the grace of taxpayer financing," wrote Sperling, co-president of a private equity firm.
Nobody really likes to see the government entwined so tightly in private enterprise. But President Obama’s actions have helped a major industry — and a major American city, Detroit — live to fight another day. The courts, which repeatedly pushed back against President Bush’s national security claims, have allowed Obama’s plan to go forward. If the president is overreaching, it is modest by recent standards.
(Ben Boychuk blogs at blog.infinitemonkeysblog.com. Joel Mathis blogs at politics.pwblogs.com.)