American Elephants

The Rule of Law, Abusive Bankruptcies and Consequences. by The Elephant's Child
June 1, 2009, 8:05 pm
Filed under: Economy, The Constitution | Tags: ,

Today’s news is full of automobile company bankruptcy. The  Judge approved the Chrysler Bankruptcy proposal and General Motors filed for bankruptcy.  This is not ordinary Chapter 11 bankruptcy, which normally takes as long as 18 months, but a quickie version that abuses bankruptcy law to benefit a favored constituency, the United Auto Workers union.

The new agreement simplifies some work rules and job descriptions, but nothing changes about hourly pay, health care or pensions for workers who are retained.  Another 20,000 workers or so lose their jobs.  The union also got the administration to bar small-car imports from overseas.  The administration has gone to great lengths to see that retired workers pensions and health care are protected, but  retirees from other companies who had secured G.M. bonds in their retirement plans get something like 29¢ on the dollar. This is not empathy, but politics, and illegal as well.

The Obama administration has been telling the press that it could start selling its stake in GM within a year to 18 months, and expects to be out of the car business entirely in five years. The consequences of this slipshod, hasty government intrusion will be around for years.

The administration did an end run around U.S. bankruptcy laws by selling Chrysler to a shell corporation (the new Chrysler)  for the purpose of denying lenders their legal rights, with aggressive lawyering, coercion,and intimidation.  The administration’s favoritism towards auto unions may encourage other unions to make more aggressive demands in their dealings with faltering corporations.  After the way that lenders have been treated in this case, who will loan money to auto companies and what rates will they have to pay?

Andrew M. Grossman, Senior Legal Policy Analyst for the Heritage Foundation, explained in his testimony before the House Judiciary Committee the serious consequences threatened by this bankruptcy.

When the rule of law is cast aside, for whatever seemingly pragmatic reason, it impairs the machinery of private ordering, such as contractual rights, that are at the core of our economic freedom and prosperity.  The broad enforceability of contracts…makes it possible to conduct economic affairs with strong assurance that other parties will keep their promises or be held liable for failing to do so.

Rasmussen found that by a 67 to 21 percent margin, voters “oppose a plan for the federal government to give General Motors an additional $50 billion to buy 70% of the company.”  Only 18 percent thought the government would do a good job of running GM.  These are brutal numbers. Voters may like Obama, but they don’t think much of his policies.

It is amazing how many bad policies are being driven by fraudulent concerns about carbon and global warming, and the support environmental organizations have provided for Obama’s election.  As a little thought experiment, count up the policies that are based on the fallacy that anthropogenic CO2 is causing an alarming warming of the planet. Scary, and all for nothing.

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