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June 10, 2009

Obamamobile hits a bump

Kevin E. Dayhoff

With the checkered flag in sight, late last Monday afternoon, with only minutes to spare before the 4 o’clock deadline set by Bankruptcy Court for the Southern District of New York, Supreme Court Justice Ruth Bader Ginsburg caused the fast-tracked Obama economic recovery plan for Chrysler – and GM - to hit a speed bump.


According to the authoritative web publication, “SCOTUSBLOG,” Justice Ginsburg “put a temporary hold Monday on the deal to sell Chrysler to save it from collapse”


Although there is great irony in that the liberal Justice Ginsburg issued the stay, the fact of the matter is that she merely acted in her capacity as the associate justice who oversees the Second Circuit. 


Her administrative action allows her colleagues on the bench time to review the documents filed with her over the weekend “after the United States Court of Appeals for the Second Circuit upheld the sale Friday afternoon,” according to Michael J. de la Merced, writing for the New York Times.


As Marc Ambinder aptly noted in The Atlantic: “Did the Supreme Court just overturn the administration-brokered deal between Chrysler and Fiat?  No – it just stayed a district court's order allowing it to proceed.…


“Justice Ginsburg is probably being cautious here...she doesn't want to preemptively dismiss a case that might be constitutionally suspect – and one that might set a precedent for future executive-legislative branch disputes.”


For economic historians, this hopefully signals the beginnings of a much-anticipated clash between the Obama Administration and the Supreme Court, not unlike that of the conflict of court with the New Dealers of the 1930s.


At issue is the squaring the Obama Administration’s bailout of Chrysler, which abrogates the credit-contracts of the secured bondholders and rewards the unsecured UAW union position – with Article One, Section Eight: “To establish …uniform Laws on the subject of Bankruptcies throughout the United States.”


And, in the words of Todd J. Zywicki, in the Wall Street Journal: “The close relationship between the rule of law and the enforceability of contracts, especially credit contracts, was well understood by the Framers of the U.S. Constitution.


“A primary reason they wanted it was the desire to escape the economic chaos spawned by debtor-friendly state laws during the period of the Articles of Confederation. Hence the Contracts Clause of Article V of the Constitution, which prohibited states from interfering with the obligation to pay debts.”


The crux of the matter goes straight to the heart of the basic foundation of how our economic system works – and how the Obama Administration wants so desperately to overthrow it and create a workers’ paradise.


Meanwhile, in an uncanny re-enactment of the famous presidential contest of President Herbert Hoover versus Franklin Delano Roosevelt in 1932 – as much as the Obama Administration would want you to believe – just as presidential candidate FDR explained – that it is the moneychangers, the speculators, and the fat cats, who caused this crisis.


As one peels away the layers of this onion, you realize nothing could be farther from the truth.


If you will recall, as the New York Times reported on April 30, “… with a hint of anger, (President Obama) railed against the holdout lenders… whom he called ‘speculators.’”


“‘They were hoping that everybody else would make sacrifices, and they would have to make none,’ Mr. Obama said of the creditors... “I don’t stand with them.’”


Well, for the moment, President Barack Obama is indeed, standing by the way-left-hand side of the road.


The action by Justice Ginsburg was precipitated by, as Mr. de la Merced reported, “three Indiana funds, which represent teachers and police officers, (seeking) greater compensation for their portion of Chrysler’s $6.9 billion in secured debt.


“They have also argued that the Obama Administration illegally used federal bailout money earmarked for financial institutions to help Chrysler.”


The funds said in their brief: “The negative economic consequences of permitting an unlawful sale to proceed may well over time dramatically outweigh Chrysler’s short-term harm.”


Incredibly, President Obama’s position, argued by U.S. Solicitor General Elena Kagan, is that “no court, including the Supreme Court, has the authority to hear a challenge by Indiana benefit plans to the role the U.S. Treasury played in the Chrysler rescue, including the use of ‘bailout’ (TARP) funds,” according to SCOTUSBLOG.


Didn’t Mr. Obama insist during the 2008 presidential campaign that President George W. Bush has made decisions in office that candidate Obama characterized as attempting to behave above the law? Hmmm.


What the Obama Administration suggests are the “greedy speculators” are in reality, the teacher next door, the firefighter or police officer down the street. Or it could be your neighbor’s elderly Mom or the middle-aged, middle class couple who were saving for their children’s college.


It is people like these who invested their hard-earned savings into a secured (guaranteed) interest-bearing investment like a pension fund or a mutual fund, which in turn, invested in Chrysler, so that the automaker could survive up to this point.


Essentially, at present, under the now-challenged Obama Administration plan, the secured investors were to be indemnified at a rate of 30 percent of their investment, while the UAW’s unsecured position would be given 50 cents on the dollar.


For more background, please re-read “Planned obedience…or else,” published in The Tentacle, on May 6.


As the Guardian noted, peering from across the pond: “The holdouts do have a point. They hold a form of secured debt that, under normal circumstances, would give them priority in Chapter 11 proceedings.


“But these aren't normal circumstances, and the hedge funds are finding that priorities shift significantly when the White House is holding most of the chips at the table.


“A belated PR push complaining about fairness didn't have much effect. It's hard to find much sympathy in Washington for hedge fund managers.”


Actually, matters of “fairness” are immaterial in the new world of Obama-economics. 


However, in the long run, hopefully the concept of “constitutionality” may be our great nation’s saving grace.


Kevin Dayhoff writes from Westminster.  E-mail him at

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