“Gangster government gave Chrysler to the UAW”

by Hans Bader on May 8, 2009 · 11 comments

in Bailout Watch, Economy, Legal, Mobility, Politics as Usual

So reads the Washington Examiner’s editorial today about how Obama effectively gave ownership of Chrysler to the United Auto Workers Union (which spent millions electing Obama), rather than taxpayers (who have spent billions to bail out Chrysler) or the institutions that lent money to Chrysler based on the legal right and expectation that they would receive its assets before the UAW union would. Veteran political commentator Michael Barone also calls it “gangster government.” The UAW will also retain “lucrative” pension and health benefits, courtesy of the taxpayer.

The liberal USA Today put it more gently, but it, too, criticized the Obama Administration. Obama demonized the institutional creditors, like hedge funds, that helped Chrysler when it needed funds, and then were given the shaft in his sweetheart deal benefiting the UAW. He branded them as “speculators” when they objected to it, and then arranged a collusive sale of the company in all but name (giving up all its valuable assets) to circumvent their legal rights (a sale rubberstamped by a liberal bankruptcy judge). As a result of Obama’s attacks, these creditors have received death threats. Administration officials also threatened to smear the creditors in the press (which might violate the First Amendment).

But as USA Today notes, “those creditors have every right to balk. By doing so they are not only defending their own interests, they are standing up for the principles vital to functioning credit markets. Secured lenders get first dibs at recovering their losses if a company cannot meet its obligations. They will be less willing to lend if they fear they’ll be forced to surrender their position.”

While Chrysler’s lenders have lost almost all of their assets, the union has given up little. Indeed, USA Today notes, the UAW has “continued to press for retiree health benefits more generous than those available to taxpayers funding the bailout.” (Moderate Democrat Mickey Kaus describes UAW pension and health benefits under the deal as continuing to be “lucrative“).

As reporter and columnist Tim Carney notes, car czar (and Democratic fundraiser) Steven

“Rattner and Obama have decided that the United Auto Workers union should get 55 percent of Chrysler. At the same time, they’ve attacked many of Chrysler’s secured creditors — who, in a regular, nonpoliticized bankruptcy, would be repaid in full — for resisting this deal. In a federal complaint, these administration targets alleged: ‘The government exerted extreme pressure to coerce all of [Chrysler’s] constituencies into accepting a deal which is being done largely for the benefit of unsecured creditors at the expense of senior creditors.’

For the foreseeable future, Chrysler will be on the federal dole, both directly and indirectly. The Obama-Rattner plan puts UAW in charge of Chrysler, which is good news for the Democratic Party.

UAW’s political action committee spent $13.1 million last election cycle, a slow year for the union’s political arm. Of the PAC’s $2.3 million in direct contributions to candidates and candidate PACs, more than 99 percent went to Democrats. Of 42 Senate candidates to get UAW money, only one was Republican, and that was Arlen Specter.

The union’s PAC also reported $4.5 million in independent expenditures supporting Obama, plus an additional $423,000 opposing John McCain.

So, here’s the arrangement: You pay your taxes, the Obama administration funnels some of the money to Chrysler, whose profits enrich the UAW, which in turn funds Obama’s re-election.

Predictability, precedent and the rule of law have been replaced with the fiat of politicians. Chrysler could become a pass-through entity from taxpayers to the Democratic Party. And in charge of it all is a Democratic fundraiser. Boss Tweed would be proud.”

John McCain, by the way, opposed the auto bailout. I earlier explained why the auto bailout was illegal and economically destructive.

Hans Bader May 8, 2009 at 9:16 am

When a government official smears someone in retaliation for their exercising their rights, that can violate the Constitution. See, e.g., Barrett v. Harrington, 130 F.3d 246 (6th Cir. 1997) (judge's false allegation that reporter stalked her, in retaliation for his reporting, was First Amendment violation); Bloch v. Ribar, 156 F.3d 673 (6th Cir. 1998) (police's disclosing true but embarrassing private details of plaintiff's rape in order to retaliate against her for criticizing their handling of her rape violated First Amendment).

Such rights can include a creditor's petitioning government officials to preserve its claims, and refusing to drop legal claims (since litigation and related activities are protected by the First Amendment's freedom of petition). See White v. Lee, 227 F.3d 1214 (9th Cir. 2000) (federal officials violated First Amendment by pressuring neighbors to give up their colorable state-court lawsuit over a housing development).

Sal May 21, 2009 at 4:54 pm

Obama is now doing the same thing to GM.

And it's public-employee pension funds that lost their shirt in the government's giveaway of Chrysler to the UAW.

We might as well be living in a banana republic.

Frank May 22, 2009 at 5:36 am

It's government of the unions, by the unions, for the unions.

We're becoming the United States of Vallejo (Vallejo is the California city that went bankrupt because of all the high salaries it promised to pay union employees — six figure salaries for cops and other employees, not counting fringe benefits or overtime).

Hans May 22, 2009 at 5:53 am

Yeah, the UAW union made out like a bandit in the Chrysler deal. Not only did they get ownership of the company at taxpayer expense, they didn't even have to cut their excessive wages much at all, even though their excessive wages and compensation caused the company to go bankrupt.

As moderate Democrat Mickey Kaus notes today at Kausfiles,

"The cuts current union members were forced to accept were not impressive. Before the deal, Chrysler's UAW workers made $28 an hour. After they deal, they'll make $28 an hour. They gave up a scheduled increase in wages, plus a couple of scheduled bonuses. That explains why Chrysler's Belvidere, Illinois workers told TV station WIFR that 'the plan is not nearly as drastic as they expected.' …

As for Chrysler's 'chance for long-term success,' it appears vanishingly small. Italian manufacturer FIAT is supposed to save Chrysler with new products, but according to a recent Automotive News article, 'four of the six new vehicles from Fiat will enter the small-car segment,' which is highly competitive but 'covers only 14 percent of the entire U.S. light-vehicle market.'

'The volumes need to be big for Chrysler to survive," [market analyst Tracy Handler] said. "Will they be? I have doubts about that.'

See also this BBC article ('it's madness'). Pathetically, Chrysler hopes that even if they don't save the company the new small cars will '[b]urnish the environmental image of Chrysler brands,' says Automotive News. Unfortunately, the pipeline for those brands' other, larger, products–burnished or not–is pretty much empty.

If Chrysler workers were paid, say, not $28 an hour instead of $24–still not bad–the firm might actually have a "chance for long term success" through charging lower prices. But that wasn't a sacrifice Obama was ready to ask (even if Belvidere workers were apparently willing). … "

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