Politics plays role in bailout mania
President Obama lashed out at several Chrysler investors who refused to sign on to the administration's restructuring plan. But commentator Will Wilkinson wonders why the president is involved in bailout proceedings at all.
Commentator Will Wilkinson (The Cato Institute)
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TEXT OF COMMENTARY
Steve Chiotakis: General Motors faces a government deadline at the end of the month to complete its restructuring or face bankruptcy. Sound familiar? Chrysler just came off of the same type of deadline. For GM, part of the hurdle is getting bondholders to swap billions of dollar in debt for a 10 percent equity stake. That's part of a planned laid out by President Obama and his auto task force. The GM CEO Fritz Henderson insists the government is not running the company. But commentator Will Wilkinson says it's clear who's calling the shots.
Will Wilkinson: "I don't want to run the auto companies, and I don't want to run banks," President Obama said last week during a prime-time press conference on the fate of Detroit. He may not want to, but the Obama administration is effectively running auto companies and banks. And the president does get a bit cranky when he tells the private sector to jump and it doesn't jump.
In a rare flash of anger, Obama lashed out at several Chrysler investors who refused to sign on to the administration's restructuring plan for the automaker. The plan would have required senior investors, who are usually first in line in bankruptcy proceedings, to take big losses while more junior investors, including the UAW, were offered rather more generous terms.
The failure of the plan has left Chrysler no other option than to file for bankruptcy. But why is the president involved at all in deciding who gets what in the breakup of an auto company? Much of the American economy is in disarray, but the bankruptcy system isn't. Indeed, the U.S. bankruptcy system works really well. So why meddle when an effective, longstanding legal system can take care of it?
This is the price of bailout mania. When the government gets its finger in every pie, who gets what piece becomes a political decision. We may want to trust our leaders to be dispassionate stewards of the public interest, but politicians -- and our over-empowered executive is a politician -- will use whatever discretion is at hand to reward their constituencies.
Justice wears a blindfold for a reason. Injecting political partisans directly into economic decisions when well-functioning, time-tested rules are in place not only chills the confidence of investors, but moves us one step further from the already battered rule of law, and one step closer to the dangerous rule of men.
Chiotakis: Will Wilkinson is a research fellow at the Cato Institute.
Comments
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From Falls Church, VA, 05/06/2009
I can assure you that the Cato institute was all over Bush for lots of his mistakes.I am amazed at the people that prefer the politicians to the "wealthy." First of all, you will have a very difficult time finding a professional politician in DC that is not rolling in dough. Secondly, how would those wealthy people be able to "control" things without the force of the government behind them? Putting your faith in the elected representatives is foolhardy, well connected special interest groups will always be the politicians number one constituency.
From Dearborn, MI, 05/06/2009
There we go again with the anti union rettoric. You are a waste of an education. Look up in the US history books. When America was at it's peak of production delivering goods to the world, the unions were at their highest in members. You need to go back to school and this time stay awake! Don.
From CA, 05/06/2009
Why shouldn't corporations jump when the elected representative of the people says something? It seems to me to be a problem that the majority of the nation allows the influence of the wealthy to create laws and situations that puts them ahead of others. Why are the contracts of "senior" investors more important or more valid than the workers' contracts. You suggest that the planned restructuring is political. Wasn't the rule making that created "senior" investor and put the workers and others at the end of the bankruptcy line political? Why can corporations escape from bankruptcy and not pay out what they owe to some companies and common people, but the law for citizens going through bankruptcy still requires them to pay the corporations? Maybe its time for the corporations to jump at the voice of the people and their representatives.
From Cedar Falls, IA, 05/06/2009
Will Wilkinson perfectly articulates concerns festering within me and others - that basic contract law is being circumvented in dangerous ways, and that adverse unintended consequences will result. Creditors invested money with Chrysler in good faith, with the company as collateral. Stakeholders should negotiate for solutions, but often competing interest can not agree. Luckily, each party’s rights are clearly spelled out in the long-standing precedence of law. Changing the rules after the fact means future creditors will add additional premiums for the risk that rights to collateral can be retroactively changed. This means systemically higher costs of borrowing to all businesses indefinitely into the future. The government already forced “cram-downs” on mortgage lenders, and now plans to pull the FDIC debt guarantee from any bank that pays back TARP funds – a retro-active term of accepting the money. So the president’s demonizing of law-abiding creditors as “greedy speculators” is disturbing, at best, and disruptive to our economy, at worst. Will Wilkinson asks the right question, “Why is the president involved at all in deciding who gets what in the breakup of an auto company?”
From Westerville, OH, 05/06/2009
Where was Mr. Wilkinson's outrage about political partisanship during the eight awful years of the Bush Administration?!! Was not his libertarian (quasi-anarchist) sensibilities offended by the no-bid contracts handed out to Bechtel, Halliburton (Dick Cheney's former company), and Blackwater (Oops, now it is goes by Xe!)? Where was Mr. Wilkinson when George W. Bush was stuffing the federal regulatory agencies with cronies, sycophants, and incompetents like Michael (Heckuva job Brownie) Brown? I feel deeply insulted by commentators like Mr. Wilkinson who think the American public has such a short attention span or short term memory. Our nation's problems are still the product of Mr. Bush and the Republican Congress and the blame still rests at their door for another 1.5 or 2 years before any hard evidence will manifest itself to point to the Obama Administration.
From Tampa, FL, 05/06/2009
Justice is blind? Really? I guess no one at the Cato Institute has walked into a court room to be represented by an underpaid and overwhelmed attorney. I have a hard time taking the rest of the argument seriously.
From KS, 05/06/2009
Well-functioning, time-tested rules. Has Mr. Wilkinson been paying attention for the last couple of decades. The dangerous rule of men takes place when people are allowed to accumulate excessive wealth with few checks on their power. I prefer to rely on democratically elected representatives to make the decisions that efect all of us.
From Greenwood, MS, 05/06/2009
This is the best succinct summary I have seen of the inherent problem of the Obama Administration's over reach into the private sector. The last sentence is the best.
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