Tuesday, May 05, 2009
Why the Chrysler Bankruptcy Deal is Dangerous
I have never owned a Chrysler vehicle. Actually, I am not sure I have ever been in one. Maybe a Jeep Wagoneer, but it was not owned by Chrysler when my friend had one. I am also not particularly pro-union, though from a historical view, I think they played an important role. But whatever your view of unions, the Chrysler name, or President Obama, you should be very worried about the deal worked out between the Obama administration and Chrylser last week that has now gone to the bankruptcy judge.
We in this country have something called the rule of law. That rule of law protects us when we face someone who has more political clout. If the law is on our side, we should feel secure that even if we are unpopular and powerless, that we are safe in the hands of the judicial system. But last week we saw the Obama administration work out a deal whereby the unions got 55% of the company, despite owning on 10% of the debt and otherwise not being a scured creditor.
In our bankruptcy rules the secured creditors are to be paid in a bankruptcy situation before all else are paid. That means those evil “speculators” as Obama called them (hedge funds, pension funds and the like) have a legal right to all of the assets of Chrylser. But instead the Obama administration worked out a deal that gave the power to the UAW and Fiat, leaving those who invested in the company by buying their debt were told they would get betweeen 20 and 30 cents on the dollar. In the end enough of the creditors refused the deal and Chrysler had to go into bankruptcy.
Obama has intimated that the deal he and his team worked out should be accepted, period. So now we have the test of our democracy. Will the rule of law win out, creating an environment where businesses and their partners - equity stakeholders, debtors and the like - know the rules and can plan for them to be kept? Or will the rules be changed artbitrarily and where political power is the greatest asset that one can have?
If the rule of law is thrown out and the Obama deal is accepted by the bankruptcy judge, then the future relations between companies and their bond holders will forever be changed. This is not good for anyone. We need to see the rule of law upheld. If you dont like the law, then you need to have it changed. But no President or political ruler should be allowed to over-ride the laws he does not like.
Many people argue about whether or not America was founded as a “Christian nation.” It was not, let us be honest. But the Founders understood many of the deep truths found in both Judaism and Christianity. They seperated the powers of each brank of government, made them accountable to the others, and sought to protect even good men from the dangers of power. The old line that power corrupts and that absolute power corrupts absolutely certainly underlies the system of government we have.
No President is a king, and no President is God. We must remember that, even when the President is “our guy” as much as when he is not. Only when everyone plays by the same rules, even if they are “friends of the President,” can we feel the freedom to engage in relationships of commerce. In the Old Testament the prophets sent by Yahweh God hammer on the people constantly about “dishonest scales” and corrupt judges. That warning needs to be heart today as well. Pray that the judge in the Chrylser bankruptcy will obey the rule of law for the sake of honest scales.