January 2012

Cheers for Indiana Treasurer’s halt to Chrysler Bankruptcy

by John Berlau on June 4, 2009

in Bailout Watch, Features, Zeitgeist

Kudos to the judges on the Second Circuit U.S. Court of Appeals for putting a stay on the Obama administration’s nationalization scheme for the bankruptcy sale of Chrysler LLC. Kudos also to Indiana state Treasurer Richard Mourdock for standing up for the middle-income teachers and police officers in the state pension funds and making sure that contracts affecting their retirement savings are respected.

When President Obama announced the Supreme Court nomination of Sonia Sotomayor, who coincidentally is an appeals court judge on the Second Circuit, he praised judicial qualities that are directly relevant to the courts overseeing the bankruptcies of Chrysler and General Motors. The president said that the qualities he most respected in judges were, “a commitment to impartial justice, a respect for precedent, and a determination to faithfully apply the law to the facts at hand,” as well as “an understanding of how the world works and how ordinary people live.”

As such, President Obama and his auto task force should respect the role of the bankruptcy courts and recognize that their role is not to rubber stamp the administration’s plan to take over Chrysler and GM, but to apply bankruptcy precedents and faithfully apply the law to the facts at hand, with an understanding of how contracts work in the real world and of the “ordinary people” who own the car companies’ debt securities as individual investors or through their IRAs and 401(k)s.

The bankruptcy judges also need to look beyond the individual circumstances of Chrysler and GM to weigh how the treatment of creditor contracts in these cases will affect American credit markets in the future. If courts cave to politicians’ whims and give secured creditors and bondholders less than they would receive under traditional bankruptcy precedents, our credit markets will suffer further damage as lenders and investors will be less willing to put their capital at risk in companies whose contracts could be abrogated at politicians’ demand.

Bankruptcy is a not an executive but a judicial function, and judges in the car companies’ cases should take as much time as they need to weigh the competing interests and ensure an equitable outcome. The measure of success should not be how fast Chrysler and GM emerge from this bankruptcy, but the degree to which contracts are honored in an impartial process.

Can EPA ban gasoline? Can Obama enact Kyoto II without Senate ratification?

by Marlo Lewis on June 3, 2009

in Global Warming, Legal

A recent report by New York University school of Law’s Institute for Policy Integrity suggests as much. See my commentary on Masterresource.Org.

NYT: “Buy American” angers allies, loses jobs

by Fran Smith on June 3, 2009

in Economy, Stimulus to Nowhere, Trade

The New York Times opined today that the so-called stimulus bill’s “Buy American” provisions are having some unintended consequences – sparking anger from allies and likely leading to significant losses in American jobs.

How so? Surely that protectionist mandate was designed to increase American jobs by ensuring that only goods – including iron and steel — manufactured in the U.S. can be used in public projects financed by stimulus monies. And, of course, it wouldn’t conflict with U.S. trade agreements. Why, POTUS himself had a provision inserted to that effect.

But, as the NYT points out, states, counties, and cities aren’t parties to those agreements, so they can thumb their noses at trade partners and shut out any goods not made in the U.S. And the consequences?

Foreign and domestic companies that employ hundreds of workers in this country cannot bid for government projects because they cannot guarantee the American provenance of all the steel, iron and manufactured goods in their supply chain, as the provision requires. Others are scrambling to figure out whether American-made alternatives exist to replace their foreign inputs.

The steel company Duferco Farrell, for example, has cut about 600 jobs in Pennsylvania after it lost orders from its biggest customer because some of its goods are partly produced abroad. The Westlake Chemical Corporation of Houston has lost sales to a Canadian vinyl pipe maker that is cutting back production because it can’t bid for some American jobs.

The editorial concludes:

Indeed, whether it is from the point of view of diplomacy or of job creation, “Buy American” is a terrible idea. One that could make the global recession worse.

Wish the NYT had taken this tough stance early on, instead of the wimpy whine in an earlier editorial CEI commented on.

Feinstein Withdraws Support for EFCA (for now)

by Ivan Osorio on June 3, 2009

in Economy, Labor

California Democratic Senator Dianne Feinstein is withdrawing her support for the so-called Employee Free Choice Act (EFCA), organized labor’s top legislative priority, reports a California news station. She joins two Democratic colleagues, Blanche Lincoln (Ark.) and party switcher Arlen Specter (Penn.), in opposing the bill. (Log-in required to view KHTS news story.)

While this is a serious blow to EFCA in its current form, Democratic leaders are working on devising a “compromise” that would likely not include the current bill’s card-check provision, which would effectively do away with secret ballots in union orgaizing elections, while keeping EFCA’s other harmful features.

Chief among these is EFCA’s binding arbitration provision, which would enjoin a federally appointed arbitrator  to impose a contract on newly unionized companies if the company’s management and the union do not reach an agreement after 120 days. Needless to say, the arbitrator is unlikely to have any knowledge of the company’s operations.

Thus, a newly unionized company could find itself burdened with millions in new liabilities in the form of obligations to pay into union a pension fund, as required in the new arbitrator-imposed contract. As Diana Furchtgott-Roth of the Hudson Institute found, many such funds are severely underfunded, especially in comparison to private company funds. It is for this reason that the Teamsters are currently threatening to shut down the Minneapolis Star-Tribune.

Sen. Feinstein’s switch is very good news, but it is not the end of this fight. Card check may have receded, but binding arbitration still looms on the horizon as a threat to economic recovery.

UPDATE: Indeed, the Huffington Post’s Sam Stein quotes a “confidant of the senator” as saying: “She is looking for a compromise. And anyone who says otherwise is engaging in some wishful thinking.”

I’d call this strategic fence-sitting.

For more on EFCA, see here.

Union Keeps Special Privileges Through Taxpayer Bailout of General Motors

by Hans Bader on June 3, 2009 · 2 comments

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Energy, Environment, Global Warming, Labor, Mobility, Politics as Usual, Regulation, Stimulus to Nowhere

The federal government is spending more than $50 billion to bail out General Motors, with no end in sight. But the UAW union refused to sacrifice its privileged position to save the company, demanding excessive wages and benefits that are much higher than most Americans get. The Obama Administration caved in to its demands, saddling GM with high labor costs that may doom the company in the long run.

As the Washington Post notes today, the “concessions” that Obama obtained from the UAW were merely cosmetic: “Union concessions were ‘painful’ only by the peculiar standards of Big Three labor relations: At a time when some American workers are facing stiff pay cuts, UAW workers gave up their customary paid holiday on Easter Monday and their right to overtime pay after less than 40 hours per week. They still get health benefits that are far better than those received by many American families upon whose tax money GM jobs now depend. Ditto for UAW hourly wages . . . . Cumbersome UAW work rules have only been tweaked.” Earlier, the Post lamented the “preferential treatment of the autoworkers’ union at the expense” of other company stakeholders and creditors, noting that “the union can boast that it has been promised no loss in ‘base hourly pay, no reduction in . . . health care, and no reduction in pensions,’” even though excessive union wages and benefits helped sink the company. Small wonder that even the liberal Post, which backed Obama’s bailout of GM in March, now has soured on it.

If GM had rejected a federal bailout, and filed for bankruptcy in December, it would be recovering right now, since it could have used bankruptcy proceedings to tear up the collective bargaining agreements with the United Auto Workers that saddle it with excessive wages and benefits and rigid work rules, and it would also be benefiting from the fall in gas prices from $4 last year to $2.50 now. By avoiding a federal takeover, it would also have greater freedom to oppose costly regulations proposed by the Obama Administration, such as CAFE and global warming regulations, which will destroy tens of thousands of autoworker jobs).

The bailout is neither necessary nor likely to be successful in the long run. In its auto bailout in the 1970s, England did the same things that Obama is doing now, like propping up high union wages and promoting the production of little “green” cars consumers may not want. Its bailout failed miserably, destroying the British auto industry’s chance of survival.

Even more wasteful than the GM bailout is Obama’s wasteful $800 billion stimulus package, which has destroyed tens of thousands of jobs.

Even as it engages in costly, unauthorized auto bailouts that have no legal basis, the Administration is abdicating core federal responsibilities like enforcing the voting-rights laws. Political appointees in the Obama Justice Department recently blocked action against a racist, anti-semitic hate group (whose members included an Obama poll-watcher and city democratic official) that used nightsticks and racial epithets to drive white voters away from a polling place in Philadelphia last year. The Obama Justice Department has also rubberstamped unconstitutional legislation, failed to protect the voting rights of American servicemen, and been deafeningly silent about a liberal black political boss in Mississippi who prevented voters from casting ballots and engaged in vote fraud.

Teamsters’ Pension Fund Panic

by Ivan Osorio on June 3, 2009 · 2 comments

in Economy, Labor

The Teamsters union is threatening a strike that could cripple the Minneapolis Star-Tribune. Reports AP:

The Teamsters union is threatening a strike it says would likely shut down the Star Tribune if the newspaper, which is in bankruptcy protection, is allowed to scrap its contract with unionized drivers.

Teamsters Local 638 filed its opposition Monday to the newspaper’s proposal to reject the contract.

The newspaper wants to pull out of what it calls a “critically unfunded” multi-employer pension plan that was costing it more than $1 million a year in plan contributions.

It’s no wonder the Teamsters are desperate. The pension plan in questions, the Teamsters Central States Pension Fund, has been in critical financial condition for a long time, and cannot afford to lose any payments. Rank-and-file union members should be asking how the fund got so underfunded in the first place. Union chiefs have been using pension funds as political weapons to advance agendas that add nothing to shareholder value.

For more on the politicization of pension funds, see here.

Obama Justice Department Protects Racist, Anti-Semitic Hate Group and Anti-White Voting Rights Violators

by Hans Bader on June 2, 2009

in Legal, Personal Liberty, Politics as Usual, Sanctimony

Members of the New Black Panther Party, one of whom was an Obama campaign poll watcher and local democratic official, used nightsticks and racial epithets captured on videotape to drive voters away from the polls in a Philadelphia precinct. But the Obama Administration killed a successful lawsuit against these criminals, dismissing it after career Justice Department lawyers had already obtained victory in the case, as a former Justice Department lawyer, the Philadelphia Bulletin, and a newspaper editorial note. (The New Black Panther Party, which attacks what it refers to as “bloodsucking Jews,” is recognized as a racist, antisemitic hate group even by liberal civil-rights groups like the Southern Poverty Law Center).

“Career lawyers pursued the case for months, including obtaining an affidavit from a prominent 1960s civil rights activist who witnessed the confrontation and described it as ‘the most blatant form of voter intimidation’ that he had seen, even during the voting rights crisis in Mississippi a half-century ago.” But Obama’s political appointees at the Justice Department overruled them, dropping the case after victory was already assured because “the court had already entered a default judgment against the” Black Panthers. Thanks to that outrageous decision, the only result of the case was a meaningless injunction telling one of the three defendants not to commit such crimes again (and telling him not to commit such crimes only until 2012, and not barring him from committing such crimes in his home city, but rather barring such crimes only in Philadelphia).

As the Washington Times notes,

“The Voting Rights Act is very clear. It prohibits any ‘attempt to intimidate, threaten or coerce’ any voter or those aiding voters. The explanation for moving to dismiss the case is shocking. According to the Department of Justice: ‘These same Defendants have made no appearance and have filed no pleadings with the Court. Nor have they otherwise raised any other defenses to this action. Therefore, the United States has the right … to dismiss voluntarily this action against the Defendants.’ In other words, because the defendants haven’t tried to defend themselves, the Justice Department won’t punish them. By that logic, if a murderer doesn’t respond to the charges, he should be let free. That’s crazy. The Obama Justice Department did take one action against one of the four defendants: It forbade him from again ‘displaying a weapon within 100 feet of any open polling location’ in Philadelphia. Given that it already was illegal to display a weapon at a polling place and that he was not even enjoined from carrying a weapon at polling places outside of Philadelphia, it is hard to see what this order accomplished. We asked the Justice Department if it was unable to provide any explanation for dropping the case. Justice press aide Alejandro Miyar merely said: ‘That is correct.’ Multiple times we asked both the department and the White House to comment on charges that the dismissals represented political bias. We received no substantive response. Hans Von Spakovsky, a legal scholar at the Heritage Foundation and a former commissioner at the Federal Election Commission, tells us, ‘In my experience, I have never heard of the department refusing to take a default judgment… . If a Republican administration had done this, it would be front-page news and every civil rights group in the country would be screaming about it.’ Consider that the behavior of the defendants was so bad that witness Bartle Bull, a former Robert F. Kennedy organizer who did extensive legal work on behalf of black voters in Mississippi, testified it was “the most blatant form of voter discrimination I have encountered in my life.’ Eric Eversole, a former litigation attorney with the Voting Section of the Civil Rights Division of the Justice Department, told us: ‘It is truly unprecedented for the Voting Section to voluntarily dismiss a case of such blatant intimidation. The video speaks for itself.’ We couldn’t agree more. After the 2000 Presidential election, Democrats complained about voter intimidation in Florida by pointing to a police car that had been two miles away from a polling place. The police didn’t do anything to anyone, but their presence was deemed sufficient to vaguely intimidate people en route to the polls. In this case, the New Black Panther Party actually blocked access to a poll. Unlike the Florida incident, this case involving the New Black Panthers screams out for tough justice. Instead, the Obama administration looks the other way. This all but invites racial violence at future elections.”

In 2008, Obama disingenuously complained about the supposed “politicization” of the Justice Department under Bush. But Obama has politicized the Justice Department far more than Bush was accused of doing. Obama’s Justice Department has given a green light to unconstitutional bills pushed by liberal Congressmen that even liberal Justice Department attorneys have conceded are unconstitutional. It has been deafeningly silent about blatant voter fraud and voter intimidation committed by black officials, chronicled in a ruling by the United States Court of Appeals for the Fifth Circuit. And it did little to prevent violations of the voting rights of overseas soldiers and sailors that may have tipped election results in the Minnesota Senate race and New York special Congressional election.

Stupid Border Tricks

by Marc Scribner on June 2, 2009

in Economy, International, Personal Liberty, Trade

Beginning today, American and Canadian citizens will now be required to carry new forms of government identification in order to cross the shared border. Former Presidents Bush and Clinton were caught by surprise yesterday when asked about the measure by the former Canadian ambassador to the United States. Most Americans are probably just as surprised.

Given that we’re in the midst of a government-worsened global recession, it seems silly to raise the cost of doing business with our number one trading partner–unless you’re living in Homeland Security Secretary Janet Napolitano’s fantasy world. Excluding the increased costs that American and Canadian companies will now face in sending labor, consumer goods, raw materials, and capital across the border, Canadian tourists spend more than $13 billion annually in the United States, while American tourists spend more than $8 billion annually in Canada. Adding an additional $100-$500 government document cost per American family (well, for the approximately two-thirds currently lacking newly-proper identification) for a trip to Canada is enough to deter many potential American tourists. The same can certainly be said for their Canadian counterparts.

Some of these new IDs actually make us less secure–both personally and with respect to the border–but at least we’ll “feel safer,” right?

Obama Panders to the UAW: $30 Billion More for Wasteful Auto Bailout

by Hans Bader on June 2, 2009

in Bailout Watch, Economy, Employment, Energy, Global Warming, International, Politics as Usual, Stimulus to Nowhere, Trade

The federal government is giving another $30 billion in taxpayer money to General Motors to allow it to operate without having to cut excessive union wages. The Obama Administration is “gambling” on its ability to turn around the company under government control.

The Obama Administration has said it will now interfere not just with the “selection of the company’s board of directors,” but also in “fundamental corporate decisions,” and “major corporate events and transactions.” For example, Obama recently pressured GM to keep its headquarters in crime-ridden, economically-collapsing Detroit.

The $30 billion is excessive even if the Administration’s wildest hopes come true. Even if federal money were the only way to keep GM afloat (which it isn’t — GM could be made competitive simply by cutting its excessively high employee wages to lower levels that still exceed average American wages), and even if the bailout saved not only GM jobs but also the jobs of “related suppliers and dealers,” “the price of the U.S. government bailout comes to about $125,000 per employee, including those working for related suppliers and dealers,” according to the Washington Post.

If GM had rejected a federal bailout and takeover, and simply filed for bankruptcy in December, it would be recovering on its own right now, since it could have used bankruptcy proceedings to tear up the collective bargaining agreements with the United Auto Workers that saddle it with excessive wage and benefits and rigid work rules, and it would also be benefiting from the recent collapse of oil prices. It was record-high gas prices that forced consumers to buy smaller cars last year, battering GM’s finances, which were based around selling big cars. But gas prices have fallen from over $4 a gallon last year to $2.50 now. So the bailout is saving no jobs, it’s just allowing GM to keep union wages high at taxpayer expense, while keeping it from becoming competitive in the long run. (The recent drop in gas prices will also mask the effects of incompetent management of GM by the Obama Administration. On the other hand, the Administration’s CAFE and global warming regulations, which GM opposed before it was taken over by the Administration, will destroy tens of thousands of autoworker jobs).

The bailout is neither necessary nor likely to be successful in the long run. In its failed auto bailout in the 1970s, Britain did the same things that Obama is doing, like propping up high union wages and promoting the production of little “green” cars consumers may not want. Its bailout failed miserably, destroying the British auto industry’s chance of survival.

“‘Countries . . . protect ailing auto companies on the theory that they need to protect jobs,’ said Maryann N. Keller, an independent auto analyst. ‘But it’s not clear that protecting companies leads to the revival of those companies.’ As for the jobs, Keller said ‘a lot of that is bunk’ because Americans would buy the same number of cars no matter who the maker is. ‘Somebody would still make the parts,’ she said. ‘They would just be made for a different customer.’”

Why is the Obama Administration doing something so wasteful? Politics. The UAW is one of the biggest sources of money and manpower for the Democratic Party and Obama, and the UAW is now calling the shots. (The UAW spent millions electing Obama).

While taxpayers have spent tens of billions of dollars bailing out the Detroit automakers, the UAW has made little in the way of sacrifices, refusing to accept cuts in pay that could keep the automakers able to compete with lower-cost competitors. As even the liberal Washington Post lamented, “the union can boast that it has been promised no loss in ‘base hourly pay, no reduction in . . . health care, and no reduction in pensions,’” even though excessive union wages and benefits helped sink the company. Meanwhile, the government has ripped off pension funds and bondholders who loaned the car companies money.

The bailouts aren’t the only outrageous waste of taxpayer money taking place right now. Even bigger is the wasteful $800 billion stimulus package, which is harming the economy, both by triggering foolish trade wars that have backfired and cost at least 40,000 jobs, and by driving up interest rates for businesses that need to borrow money to expand or create jobs. (The government is keeping down interest rates on its own debt by printing vast sums of money to buy its own bonds, in order to finance the exploding national debt, which will result in massively higher taxes).

Bankruptcy judge should put breaks on “Government Motors”

by John Berlau on June 2, 2009 · 1 comment

in Bailout Watch, Features, Legal, Nanny State, Odds & Ends, Politics as Usual

Last week, in nominating Judge Sonia Sotomayor to the Supreme Court, President Obama praised judicial qualities that are directly relevant to the courts that will now oversee the bankruptcy of General Motors. The president said that the qualities he most respected in judges were, ”a commitment to impartial justice, a respect for precedent, and a determination to faithfully apply the law to the facts at hand,” as well as “an understanding of how the world works and how ordinary people live.”

As such, President Obama and his auto task force should respect the role of the bankruptcy court and recognize that its role is not to rubber stamp the administration’s plan to take over GM, but to apply bankruptcy precedents and faithfully apply the law to the facts at hand, with an understanding of how contracts work in the real world and of the “ordinary people” who own General Motors bonds as individual investors or through their IRAs and 401(k)s.

The Administration’s reorganization plan, in which the government owns more than 70 percent of the stock will not serve taxpayers, middle-class investors or ultimately the American auto industry and its workers well. There is no reason why the taxpayer money outlayed to GM – a mistake of both the Bush and Obama administrations – justifies the Obama administration’s demand for such a large ownership stake for the government and the United Auto Workers. The Chrysler bailout of the 1980s, while a troubling precedent for government rescues of industries, was resolved with taxpayers reimbursed without any government ownership stake.

The government ownership is already leading to politicization of questions ranging from dealership closings to the making of “environmentally correct” cars. Such decisions being made by politicians and bureaucrats means that restoring the company’s profitability — and paying the taxpayers back — will take a back seat to the goals of constituencies the government favors.

But bankruptcy courts also have to look beyond GM to weigh how the treatment of bondholder contracts in this case will affect American credit markets in the future. Much is made of how 54 percent of bondholders apparently approve of the revised settlement. But this is well short of the 90 percent that was originally the goal of the Obama auto task force.

And bankruptcy courts, according to the Associated Press,  traditionally only approve a Chapter 11 reorganization that has the approval of two-thirds of the claims for each class of bondholder. If courts cave to politicians’ whims and give bondholders less than they would receive under traditional bankruptcy precedents, the credit markets will suffer further damage as lenders and investors will be less willing to put their capital at risk in companies whose contracts could be abrogated at politicians’ demand.

Bankruptcy is a not an executive but a judicial function, and judges in the GM case should take as much time as they need to weigh the competing interests and ensure an equitable outcome. The measure of success should not be how fast GM emerges from this bankruptcy, but the degree to which contracts are honored in an impartial process.

Where have you gone, Judge Narragansett? (Brush up on your Atlas Shrugged!)

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