January 2012

Supreme Court Vacates Stay Order in Chrysler Case, Refuses to Rule on Legal Challenges At This Time

by Hans Bader on June 9, 2009 · 5 comments

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

The full Supreme Court just vacated the stay that Justice Ginsburg earlier entered that had temporarily blocked the government’s plan for Chrysler. Why it did so is mysterious, since it noted that it was not ruling on the merits of the legal and constitutional challenges to the government’s actions, and cautioned that “a denial of a stay is not a decision on the merits of the underlying legal issues.”

Justice Ginsburg yesterday granted a stay temporarily blocking the government’s plan for Chrysler, which would give effectively give most of the company to the UAW union, while paving the way for a dubious merger with Fiat. The stay was sought by pension funds that were (along with taxpayers) ripped off by the government’s plan.

The government’s handling of Chrysler trampled on federal bankruptcy laws, the federal TARP bailout statute, and the Constitution.

The federal government has said that even if it is acting illegally, the courts are powerless to do anything about it, since the pension funds challenging its actions have no legal standing to complain. A federal bankruptcy judge bought this argument. But that is false, as I explained yesterday.

Now, the government may argue that once the giveaway of Chrysler to the UAW and merger with Fiat goes through, that the legal challenges have become moot, preventing the courts from reviewing any legal violations that led to that merger. (I doubt the validity of that argument, since the giveaway will have lasting adverse consequences for the pension funds, above and beyond the dangerous precedent it sets for them and other secured creditors and capital markets, and the courts could still fashion relief to address some of the pension funds’ injuries; but the government’s argument may well be accepted, just as its standing argument earlier was accepted by the bankruptcy court. There is enormous political pressure on the courts to make the whole challenge go away).

The bailouts have been economically destructive. The Washington Post today notes that as a result of being bailed out, General Motors is now even more subject to “political pressures,” and as a result plans to build a money-losing politically-correct car “even if it loses money, taxpayer money.” Obama recently pressured General Motors to keep its headquarters in high-tax, crime-ridden, racist, economically-collapsing Detroit.

General Motors and Chrysler would have been better off if they had filed for bankruptcy last year, rather than taking federal money, since the bailouts have come with costly political strings attached, such as dropping opposition to costly CAFE regulations and other federal mandates, and bowing to political meddling in fundamental corporate decisionmaking, and have left the automakers with higher labor costs than if they had just ripped up their collective bargaining agreements in a standard bankruptcy. That endangers their long-run competitiveness. Indeed, the politicized auto bailouts resemble the failed British auto bailouts of the 1970s. If the automakers had ripped up their collective bargaining agreements in a regular bankruptcy, they would now be in a position to recover without taxpayer funds, since it was rising gas prices last year that pummeled their ability to sell the big cars that are their profit center, and gas prices have fallen enormously since their peak last year.

The Obama and Bush Administrations used money from the $700 billion financial system bailout for an auto industry bailout. Legal scholars at the Heritage Foundation, Clinton Administration Labor Secretary Robert Reich and many other commentators have argued that using the bank-bailout money for auto bailouts violates the bank-bailout statute.

The federal government is effectively giving Chrysler to the UAW union, while giving the shaft to other Chrysler stakeholders, like the Indiana state pension funds that invested in loans to Chrysler. As law professors like Todd Zywicki have noted, that violates federal bankruptcy laws.

Indiana Treasurer Richard Mourdock was right to challenge it in court. Mourdock correctly notes that the unfair plan for Chrysler pushed by the Administration violates the bankruptcy laws and rips off Indiana residents by leaving state employee pension funds and construction funds with a small fraction of what they are owed by Chrysler, far less than the UAW is getting, even though the pension funds are secured lenders and the UAW is not. By cheating Chrysler’s lenders, the government’s plan discourages lending, and sets a dangerous precedent that makes it harder for companies like Chrysler to raise money to create jobs in the future, as newspapers like USA Today have noted.

Supreme Court Temporarily Blocks Illegal Chrysler Giveaway to UAW

by Hans Bader on June 9, 2009

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Labor, Legal, Mobility, Politics as Usual, Regulation

Supreme Court Justice Ruth Bader Ginsburg yesterday granted a stay temporarily blocking the government’s plan for Chrysler, which would give effectively give most of the company to the UAW union, while paving the way for a dubious merger with Fiat. The stay was sought by pension funds that were (along with taxpayers) ripped off by the government’s plan.

The pension funds deserve to win, since the government has trampled on federal bankruptcy laws, the federal TARP bailout statute, and the Constitution in forcing its plan down the pension funds’ throat.

But there’s no telling how long the stay will last, or if the Supreme Court will reach the merits of the pension funds’ claims. The federal government says that even if it is acting illegally, the courts are powerless to do anything about it, since the pension funds challenging its actions have no legal standing to complain. A federal bankruptcy judge bought this argument. But it is false, as I explained yesterday, since the funds do indeed have standing, even if the government were right in its exaggerated claims about what will happen if its plan is blocked.

The bailouts have been economically destructive, politicizing auto industry decisions. The Washington Post today notes that as a result of being bailed out, General Motors is now even more subject to “political pressures,” and as a result plans to build a money-losing politically-correct car “even if it loses money, taxpayer money.” Obama recently pressured General Motors to keep its headquarters in high-tax, crime-ridden, racist, economically-collapsing Detroit.

General Motors and Chrysler would have been better off if they had filed for bankruptcy last year, rather than taking federal money, since the bailouts have come with costly political strings attached, such as dropping opposition to costly CAFE regulations and other federal mandates, and bowing to political meddling in fundamental corporate decisionmaking, and have left the automakers with higher labor costs than if they had just ripped up their collective bargaining agreements in a standard bankruptcy. That endangers their long-run competitiveness. Indeed, the politicized auto bailouts resemble the failed British auto bailouts of the 1970s. If the automakers had ripped up their collective bargaining agreements in a regular bankruptcy, they would now be in a position to recover without taxpayer funds, since it was rising gas prices last year that pummeled their ability to sell the big cars that are their profit center, and gas prices have fallen enormously since their peak last year.

The Obama and Bush Administrations used money from the $700 billion financial system bailout for an auto industry bailout. Legal scholars at the Heritage Foundation, Clinton Administration Labor Secretary Robert Reich and many other commentators have argued that using the bank-bailout money for auto bailouts violates the bank-bailout statute.

The federal government is effectively giving Chrysler to the UAW union, while giving the shaft to other Chrysler stakeholders, like the Indiana state pension funds that invested in loans to Chrysler. As law professors like Todd Zywicki have noted, that violates federal bankruptcy laws.

Indiana Treasurer Richard Mourdock was right to challenge it in court. Mourdock correctly notes that the unfair plan for Chrysler pushed by the Administration violates the bankruptcy laws and rips off Indiana residents by leaving state employee pension funds and construction funds with a small fraction of what they are owed by Chrysler, far less than the UAW is getting, even though the pension funds are secured lenders and the UAW is not. By cheating Chrysler’s lenders, the government’s plan discourages lending, and sets a dangerous precedent that makes it harder for companies like Chrysler to raise money to create jobs in the future, as newspapers like USA Today have noted.

LibertyWeek 46: The Great Porn Wall of China

by Richard Morrison on June 9, 2009

in CEI Projects, Podcast

Your faithful host Richard Morrison welcomes back special guest co-hosts William Yeatman and Michelle Minton for Episode 46 (listen HERE!). We start with the investors that are getting worked over by the politically-distorted bankruptcy of Chrysler, the ascension of the Swedish Pirate Party to the European Parliament and the Great Porn Wall of China. We then move on to proof that beer is better for you than water, a sign that airline travel may get more expensive, and an example of how voters deal with corrupt politicians. Finally, we wind things up with some very educational Olympic News.

Sinful Proposition

by Michelle Minton on June 9, 2009 · 1 comment

in Odds & Ends

Sin taxes are often justified by claiming that the item/behavior taxes costs the taxpayer money. By applying a tax, the government claims it can pay for the public services that the behavior produces a need for as well as increasing the cost of the behavior thereby discouraging continuation. The most obvious example is the cigarette tax. Increased prices supposedly incentivize smokers to quit or at least temper their addiction, while revenues from the tax can pay for health services.

But what is more harmful and costs more taxpayer dollars than cigarettes, beer, and gambling combined? Out of control government spending! Sure, people without insurance

How many billions in bailout money have we spent in the last few months to bail out the blessed and chosen industries–$500 billion? More? Only to have those companies fail anyway? Now senate is talking about increasing the federal excise tax on beverages (covering beer, wine, and soft drinks) in order to pay for the proposed $1.5 trillion increase in health care costs for those without insurance.

While there are certainly better ways to get the uninsured insured than simply having the government dole out money, if that’s the way they want to play it, there’s a more morally acceptable way to get the cash in my mind—cut entire government programs. Hell, they could pay for the entire increase in health care costs (and then some) by simply doing away with the Drug Enforcement Agency’s $3 trillion budget. family-restaurant

But no, the logic (using the term loosely) our legislators seem to be basing their decisions on is that people are more accepting of tax increases than of cutting programs. The real “sinners” aren’t brewers, drinkers, or pub owners so why should they be punished? The real sinners are legislators that haven’t courage enough to stop promising services, stop spending, and stop increasing their already corpulent budgets. You can send this generic protest letter to your Senator.

Maybe if we started taxing senators every time they suggested a new social program or tax increase we’d able to pay for everyones’ medical care three times over.

Going on 20: The Big Dig Disaster Continues

by Marc Scribner on June 9, 2009 · 1 comment

in Economy, Legal, Politics as Usual, Sanctimony

Remember Boston’s “Big Dig?” If not, here’s a brief recap: It’s the highway project/death trap originally budgeted for $2.6 billion that ended up costing taxpayers nearly $15 billion–giving it the honor of “Most Expensive Public Works Project in U.S. History” (and let’s hope it stays that way). It took more than a decade-and-a-half to complete, and apparently it doesn’t do anything to help reduce traffic congestion.

On top of all this, a former Massachusetts attorney general has joined a class action lawsuit filed in response to the Turnpike Authority’s illegal practice of diverting turnpike tolls to fund the Big Dig construction. The only problem is that former Attorney General L. Scott Harshbarger (D) approved the state’s siphoning plan while he was in office. From the Boston Herald:

“You make the calls as you see them at the time, but you’re not wedded to them 11 years later,” Harshbarger said.

He was attorney general from 1991 to 1999. He was later president of Common Cause, a nonprofit government watchdog group. Along with attorney Jan Schlichtmann of “A Civil Action” fame, he is suing to recover up to $450 million in tolls they say was collected illegally to fund the Big Dig. About 1,700 Bay State residents have signed on to the class-action suit. But Harshbarger’s role has caught the attention of Beacon Hill lawmakers.

“I find it ironic that the former attorney general is leading the cause when it came down under his watch,” said Sen. Steven Baddour (D-Methuen), who heads the Senate Transportation Committee.

Stimulus Package Kills Jobs, Drives Up Unemployment

by Hans Bader on June 8, 2009 · 1 comment

in Bailout Watch, Economy, Employment, International, Labor, Legal, Mobility, Politics as Usual, Regulation, Sanctimony, Stimulus to Nowhere, Trade

Unemployment is now even higher than the Obama Administration said it would be if there were no stimulus package. At least 1.5 million jobs have been lost since Obama signed the $800 billion stimulus package into law.

The stimulus package is harming the economy, both by triggering trade wars that have 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).

The Congressional Budget Office, accountable to liberal Congressional leaders, admitted the stimulus package would shrink the economy “in the long run” (contrary to Obama’s claim that it would prevent “irreversible decline“), but argued that it would at least create jobs in the short run.

But the stimulus package turned out to be harmful even in the short run, because it was so badly designed. It poured money into sectors of the economy where no help is needed because unemployment is low, while siphoning money out of sectors where unemployment is high. Moreover, “states hit hardest by the recession are getting the least amount of stimulus spending.”

The stimulus package is just one example of the Obama Administration’s fiscal irresponsibility, which is driving up the national debt at a record rate. The illegal auto bailouts are another. They waste billions to keep unskilled auto workers enjoying wages and benefits that are much better than those enjoyed by the average American (while ripping off pension funds and bondholders).

The stimulus package has directly destroyed tens of thousands of jobs. A provision in the stimulus package that violated NAFTA by blocking a mere 97 Mexican truckers from U.S. roads “caused Mexico to retaliate with tariffs on 90 goods affecting $2.4 billion in U.S. trade,” destroying 40,000 American jobs. A costly trade war with Canada is also brewing.

Obama’s policies echo those of Herbert Hoover, who helped spawn the Great Depression through his protectionism and tax increases. One of Obama’s own advisers admits that “the barrage of tax increases proposed in President Barack Obama’s budget could, if enacted by Congress, kill any chance of an early and sustained recovery.”

Greider: Democrats Not Stalinist Enough

by Marc Scribner on June 8, 2009

in Culture, Odds & Ends, Sanctimony, Zeitgeist

If you’re searching for a good piece of bizarre, whacked-out political “analysis,” look no further than William Greider’s latest column in the Nation. Greider, a veteran journalist, is known for coining the term “Nader’s Raiders” in the late ’60s, and for authoring a book on globalization, One World, Ready or Not, which even the progressive economist Paul Krugman described as “a thoroughly silly book.” Greider’s column is really just another bad sales pitch for his latest train-wreck tome, Come Home, America, but it should at least be interesting to see how many more times Nation editors are able to recycle and repackage it before their readers notice. I’ll let Greider speak for himself:

The party’s ideological intentions are being defined with greater clarity in these new circumstances, and so are the President’s. It’s still early, but the implications are ominous for other issues. If Democrats are reluctant to disturb the power of other major interests, it seems improbable that fundamental change will occur on healthcare, energy conversion or the restoration of work and wages. The problem now is the Democrats, not the Republicans. The party aids and protects its free-roaming entrepreneurial politicians and does not punish those who undermine the party’s larger promises. When Republicans were in charge, they enforced party loyalty with Stalinist discipline. Democrats are the party of safe incumbents, weak convictions.

Greider holds up the poorly-named “Credit Cardholders’ Bill of Rights” as an example of where Democrats have been too easy on industry and too light on anti-commerce ideology. Moreover, his real quest, as he describes it, is “to force a moral awakening on the narrow thinking of the status quo.” Huh? But none of this should be surprising coming from someone who once described economics as “not really a science so much as a value-laden form of prophecy.”

Danson in the Dark

by Ryan Young on June 8, 2009

in Environment, Natural Resources, Private Conservation

Actor and noted intellectual Ted Danson has a piece on CNN.com entitled “World’s Biggest Fish Are Dying.”

To his credit, it is not about whales.

Unfortunately, most of his analysis is on a similar intellectual plane. As PERC’s Terry Anderson recently pointed out on 20/20, the best way to save endangered species is to eat them.  Cows, chickens, and pigs will never be threatened species as long as we need them for food.

Rising demand for buffalo meat has given entrepreneurs ample incentive to boost that endangered animal’s numbers. It works on land. Why not at sea, too?

Save a Tree Hug a Capitalist.

by Michelle Minton on June 8, 2009

in Odds & Ends

I don’t think there is anything that pisses off eco-socialists more than a free market answer to their problem of climate change. They simply don’t know how to respond. Since capitalism is their true antichrist it certainly can’t be the answer to their ostensible reason for whining.

Take for example CEI adjunct scholar Dan Sutter’s proposed plan of action which is both free market and would achieve some of the environmentalists’ stated goals. In his recently released paper, Sutter argues that allowing insurance companies to charge actuarially adequate rates (meaning people pay more for riskier decisions such as living on a beach) will encourage people to make safer choices and discourage development of environmentally sensitive areas like wetlands, riversides, and beachfronts.  It would simply cost too much money for people to build there. This would reverse the decades long policy of government “helping” people who choose to live in these areas by subsidizing them and forcing insurers to keep rates low for those people (which

ironically means that insurers have to charge everyone else more in order make sure they can pay claims when the time comes). These subsidies and low rates encouraged people to keep putting their homes and families directly in harms way and keep damaging the areas environmentalists claim should remain undeveloped.

This is a different kind of argument for CEI: we aren’t known for pandering to the environmentalist movement. But were the greens pleased? Of course not. TreeHugger.com, a website that has almost exlusively mentioned CEI with complete disdain, noted the study, but  harped on the fact that in his paper Sutter did not wholeheartedly commit to the idea that hurricane activity has increased because of manmade global warming.

Kudos TH for noting the study, but way to miss the point.

Illegal Takeover of Chrysler: Pension Funds Have Standing in Indiana State Police Pension Trust v. Chrysler, LLC

by Hans Bader on June 8, 2009 · 1 comment

in Bailout Watch, Economy, Employment, Labor, Legal, Mobility, Politics as Usual, Regulation

Earlier, I wrote about the Indiana pension funds’ challenge to the Obama Administration’s plan to effectively give Chrysler to the UAW Union, while cheating the pension funds that loaned it money (and ripping off taxpayers), and how that violates federal bankruptcy laws.

The government is now arguing that the pension funds don’t have legal standing to challenge the plan, since they can’t prove they will be worse off than if the Administration had just sat back and let Chrysler go bankrupt naturally. The government says that the pension funds might have received even less in such a bankruptcy than the pennies on the dollar they are slated to receive under the government’s plan, under which it intervened and injected billions in taxpayer money into Chrysler, and then engineered a sale of Chrysler’s valuable asserts to a new company mostly owned by the UAW that is part of planned merger with Italian carmaker Fiat. (The Administration has completely failed to do its homework before pushing for a merger with Fiat, which is alleged to have Enron-like accounting problems, and massive shady dealings that could haunt taxpayers and autoworkers alike in the future).

The government is wrong. The pension funds have standing even if their victory would leave them no better off, but would eliminate the unfair preference received by the UAW. For example, in Heckler v. Mathews (1984), the Supreme Court held that male reverse-discrimination plaintiffs had standing to challenge a federal government gender-preference that benefited women, even if the challenge would only result in benefits being taken away from the women, and would not result in men getting any additional benefits.

Moreover, the funds, as secured creditors, will be enormously adversely affected in future bankruptcies by the disturbing precedent set by the Chrysler bankruptcy, in which an unsecured creditor — the UAW — received far more than secured creditors — the Indiana state pension funds that loaned money to Chrysler under the solemn understanding that they would stand first in line in any bankruptcy. Losing this lawsuit will strip them of an enormous bargaining chip in future bankruptcies. The loss of a bargaining chip is sufficient grounds for standing, as the Supreme Court made clear in Clinton v. City of New York (1998), where it allowed farmers to challenge the line-item veto as a violation of the Constitution when it resulted in the President vetoing legislation that would have given a bargaining chip to use in potentially purchasing a potato processing plant. Bankruptcy law experts have noted the precedent set by the Chrysler bankruptcy will have a great impact on General Motors and other bankruptcies in the future. An inability to compete on fair terms in the future is grounds for standing. See Gratz v. Bollinger (2003) (student who alleged he would apply as a transfer student to a college if it would stop considering race in admissions had standing to challenge college’s race-conscious admissions policy). That is precisely what the pension funds allege.

Moreover, even if the Obama Administration’s unfair plan to give Chrysler to the UAW were blocked, it would just find alternative ways, fairer to the pension funds and less biased towards the UAW, to keep Chrysler going, through taxpayer funds if necessary. Letting Chrysler go out of existence would put UAW members out of work, and the Administration would be loath to let that happen, given that the UAW spent millions electing Obama, and made millions more in donations to the liberal lawmakers who now dominate Capitol Hill.

A federal appeals court has refused to block the Administration’s illegal auto bailout, which rips off taxpayers and pension funds to enrich the UAW union. The pension funds that challenged the bailout then appealed to the U.S. Supreme Court. The bailout violates the federal TARP statute by diverting financial-system bailout funds to a takeover of the auto industry. And the government’s reorganization plan for Chrysler violates federal bankruptcy laws by ripping off lenders to give the company to the UAW union.

(The bailouts have been counterproductive. General Motors and Chrysler would actually have been better off if they had filed for bankruptcy last year, rather than taking federal money, since the bailouts have come with costly political strings attached, such as dropping opposition to costly CAFE regulations and other federal mandates, and bowing to political meddling in fundamental corporate decisionmaking, and have left the automakers with higher labor costs than if they had just ripped up their collective bargaining agreements in a standard bankruptcy. That endangers their long-run competitiveness. Indeed, the politicized auto bailouts resemble the failed British auto bailouts of the 1970s. If the automakers had ripped up their collective bargaining agreements in a regular bankruptcy, they would now be in a position to recover without taxpayer funds, since it was rising gas prices last year that pummeled their ability to sell the big cars that are their profit center, and gas prices have fallen enormously since their peak last year.)

The Obama and Bush Administrations used money from the $700 billion financial system bailout for an auto industry bailout. To do that, they have seized on the fact that the bailout statute contains a broad definition of “financial institution,” which the Administration claims includes virtually any institution, financial or not. The bailout statute defines “financial institutions” eligible for the bailout as “including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company.” Never mind that Congress listed as examples of “financial institutions” only entities that were banks, insurance companies, or financial institutions, not automakers. (Congress rejected auto bailout legislation last year precisely because it lacked safeguards against the use of bailout money to prop up uncompetitively high UAW wages — exactly what the Obama Administration is using the money for now. During the debate over the auto bailout legislation, the Treasury Department admitted that automakers are not financial institutions covered by the bank bailout statute).

Legal scholars at the Heritage Foundation, former Labor Secretary Robert Reich and many other commentators have argued that using the money for auto bailouts violates the financial bailout statute under the principle of statutory construction known as ejusdem generis, which says that when a term’s definition includes examples that are all of a similar kind, it limits the meaning of the term to things similar in kind to such examples.

But if that’s not so, and the bailout was just a big slush fund for the Administration to dispense with as it chooses, then the bailout law itself was unconstitutional, since it conferred unbridled discretion in the hands of the President to do whatever he wanted with it. The Supreme Court ruled in the Schechter Poultry case that giving the executive uncabined discretion violates the constitutional separation of powers between different branches of government, by giving the president essentially legislative powers. (An earlier version of the bailout law was even more clearly a violation of separation of powers, since it failed to provide for judicial review of the vast discretion it gave the president, unlike past delegations of power upheld in cases like the Amalgamated Meat Cutters case). The government’s incredibly broad reading of the bank bailout statute should be rejected, since it violates the canon of constitutional doubt.

Indiana Treasurer Richard Mourdock was right to raise these important legal questions in court. Mourdock correctly notes that the unfair plan for Chrysler pushed by the Administration violates the bankruptcy laws and rips off Indiana residents by leaving state employee pension funds and construction funds with a tiny fraction of what they are owed by Chrysler, far less than the UAW is getting, even though the pension funds are secured lenders and the UAW is not. By cheating Chrysler’s lenders, the government’s plan discourages lending, and sets a dangerous precedent that makes it harder for companies like Chrysler to raise money to create jobs in the future, as newspapers like USA Today have noted.

The federal government’s poorly-conceived bailouts will also endanger Indiana jobs in the long run by leaving Chrysler and General Motors with uncompetitive work rules and compensation.

As a lawyer who has handled both constitutional cases, and bankruptcy-related cases, I think that Indiana’s position has merit, and that the Supreme Circuit should rule in favor of its appeal. The Supreme Court should grant review, since the issues are of overriding national importance, and since the Second Circuit Court of Appeal’s ruling refusing to block the government’s plan has created a circuit split by countenancing circumvention of the bankruptcy laws as long applied in circuits across the country.

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