Chicago-Style Politics, Chrysler, and the Rule of Law

Finem Respice has a great post on the Administration's bare-knuckle tactics in trying to enforce its will (against the dictates of bankruptcy law) on Chrysler:

It should be obvious to most observers that, recent allegations of strong-arm tactics in negotiations with Chrysler creditors notwithstanding, given the current situation the White House shouldn't need to resort to anything so openly thuggish as naked threats issued by the likes of Steven Rattner. Assuming for a moment, and for the purposes of conversation, that the allegations are substantially true (and I believe they are), the fact that a bit of Chicago-style thuggery seems to have been required- and seems to have failed- says a lot about this White House. It also says quite a bit about the wild overconfidence intrinsic in the administration and how entirely unused to being denied their will are the senior members thereof. A more deft executive need not have pushed so hard, or rattled the saber of class warfare so loudly, but then a more deft executive would not have expected so much....

There are three things that are scarier than the actual resort to common thuggery. The ease with which it comes to this administration. The ubiquitous and rank ineptitude that makes a resort to thuggery necessary in the first place- and promises it will become a common tactic in the days to come. And the forgiveness the population regularly affords the administration after one or another of these episodes is, yet again, made public.

The tantrums that follow missed targets sketch an interesting family portrait of a class of politically spoiled children, think Hillary Clinton meets Paris Hilton- totally devoid of real executive experience but somehow still used to getting their way no matter what some silly law book says. I believe I'll take my chances with the "speculators" over these alternatives any day, particularly when the spoiled children have the 82nd Airborne Division in their toy chest.

When Obama, who has no real experience with bankruptcy or really with any business enterprise, attempts to substitute for a bankruptcy judge, we have to ask ourselves why.  He certainly does not have as much experience or expertise.  He has no particular unique knowledge of the business.  The only unique "quality" Obama has that a bankruptcy judge does not is that Obama does not feel bound by bankruptcy law.   The only possible reason for his involvement is to substitute his desired outcome for the one that would result from the normal application of contract law and bankruptcy precedents.  Since this is an inherently political process, it should not be surprising that at its core, Obama's actions are meant to promote the interests of a politically important Democratic constituency at the expense of a group of bondholders he is confident he can portray to the public as unsympathetic.

Megan McArdle said it quite well:

For the record, I have no problem with whatever cramdown those debtholders--or any others--get in bankruptcy court.  If the judge thinks that the reorganization can't be done without making the UAW basically whole, fine.  I just think that the reorganization should be done under the well-established procedures of the bankruptcy court, not at the behest of an administration trying to reward its supporters.

It's all very well to say that most of the senior lenders are going along, but of course, the leading senior lenders are doing this because the administration has them over a barrel.  I think most of the people enthusing about this actually recognize that in other countries, when the government uses the banking system as a slush fund to reward its constituencies, this generally turns out badly--and makes the banking system a lot more frail.

Nor will it fly to claim that the administration's threats--and note that Perella Weinberg has most carefully not denied that they were threatened--are just standard jawboning.  Standard jawboning does not involve the White House bloody press corps.  It is true that DIP financiers often get to demand serious concessions from creditors, but those creditors are limited by what those creditors would get out of a recession, and are aimed at either maximizing enterprise value, or maximizing the likelihood that the loan will be repaid.  This deal does neither.

Perhaps it's idealistic of me, but the American bankruptcy system actually works very, very well.  I think we should be very cautious about mucking with it, particularly when there's no reason to.  The administration didn't need to beat up the creditors in order to reorganize the company--or at least, they wouldn't have needed to do so, if they weren't trying to make the creditors take less than they'd get in a liquidation.  Nor did it need to do so to keep the UAW at the table--unlike capital, the UAW isn't going anywhere.  The administration is beating up the creditors because a) it wants to give the UAW a much better deal than they'd get in liquidation and b) they'd like someone else to pay for it.

Update: More of the same coming out (as I predicted here):

Although the focus has so been on allegations that the White House threatened Perella Weinberg, sources familiar with the matter say that other firms felt they were threatened as well. None of the sources would agree to speak except on the condition of anonymity, citing fear of political repercussions.

The sources, who represent creditors to Chrysler, say they were taken aback by the hardball tactics that the Obama administration employed to cajole them into acquiescing to plans to restructure Chrysler. One person described the administration as the most shocking "end justifies the means" group they have ever encountered. Another characterized Obama was "the most dangerous smooth talker on the planet- and I knew Kissinger." Both were voters for Obama in the last election.

One participant in negotiations said that the administration's tactic was to present what one described as a "madman theory of the presidency" in which the President is someone to be feared because he was willing to do anything to get his way. The person said this threat was taken very seriously by his firm.

The White House has denied the allegation that it threatened Perella Weinberg.

  • http://reaganiterepublicanresistance.blogspot.com Reaganite Republican

    Obama thinks he's Tony Soprano now-

    The White House says there’s “no evidence”- note that Hitler was careful to only give verbal orders, too... and Obama's not new to this sort of thing.

    It’s plenty clear what really happened- Obama knows he owns the press corps… and he now even treats them with arrogant contempt, like children- hectoring reporters to “not waste their question”, telling them when they’ve “got enough pictures”, and even to “get back on the bus” in - ouch.

    He wouldn’t call on Fox News after the TEA parties, and skipped the NYT at his presser a couple days after a reporter asked Obama if he was a “socialist”. Since when is a refusal to answer legitimate questions and explain your actions to the American people acceptable in a US president?

    Like most narcissists, Obama has no use for The Contstitution, law, religion, ethics, or anything else that gets in his way-

    The idea that he’d sic his MSM sycophants on some bank that isn’t willing to do as he says doesn’t surprise me one iota.

    Obama's completely out-of-control. But what did anyone expect with a neutered press, compliant congress, and cabinet full of sycophants?

    As far as "farcical negotiations" go... just ask Eric Cantor, he can tell you how it works with this White House.

  • Dan

    So much hypocrisy.

    I'll leave it to others to debate the merits of Obama's actions vis a vis Chrysler, as I'm not expert enough to have an opinion. But where were these same critics the last 8 years when another president was abusing his power? I didn't hear many people in the right wing decrying such tactics at the time. I guess it depends on the president.

  • Mesa Econoguy

    The non-denial denial by Perella Weinberg was very carefully worded, and if you parsed it Clinton-style, it clearly reveals there were threats. This is most alarming, because not only does the WH know they can get away with this criminal behavior, they know that any protracted legal proceeding is likely to costly and resource-consuming for the parties holding out, and most of them will fold like cheap suits.

    Plus, they’re virtually untouchable.

    Time for what Wall Street money is left to do the smoke-filled room thing and get some rabid lawyers out there and go after these fools.

  • Scott Wiggins

    Dan,

    Riddle me this...Obama has no problem firing missles at al Qaeda operatives from Predator drones without due process of law while he, you and legions of liberals in this country continue to recoil at GWB's decision to waterboard a few mass murderers in the hopes of saving lives...Help me out with the logic here.

  • Scott Wiggins

    Calling Obama's actions vis a vis Chrysler bondholders Chicago style politics is too kind. Let's not give theft, intimidation, and conspiracy any new description. It takes away from what this adminstration is doing.

  • Daran

    One thing I haven't seen discussed yet: isn't UAW supposed to sell its part of Chrysler to fund their liabilities (pension/healthcare). With a Chrysler that is basically unreformed and an UAW not making any concessions who will buy that stake, given the likelyhood of another bankruptcy in a couple of years? Perhaps CalPers, where politically correct investments seem to be the order of the day, but anyone else?

  • Link

    Star Trek is out this week, so I thought the following worth repeating -- it goes to Obama-Axelrod's history of thuggery in Chicago. I wrote what follows back in June, after I did my own internet digging ... after figuring out that Obama had been a target of Prosecutor Fitzgerald's Rezko investigation ... a story no major media organization would cover.

    *****
    I used to think Obama was just passive aggressive conniving. Now I know he's a devious scumbag. He shouldn't get elected ... he's dangerous. The following is revealing about Obama's character and Axelrod's methods.

    There was an open fight for the Illinois Senate seat in 2004 because the incumbent Republican had dropped out. An unknown guy named Barack Obama got the Democratic nomination after the Chicago Tribune published ugly details about the leading Democrat's divorce. David Axelrod -- Obama's campaign manager then and now -- had been the head political reporter for the Tribune.

    Obama's Republican opponent was Jack Ryan, a golden boy who had left Goldman Sachs to teach in the inner city. His ex-wife was Jeri Ryan -- the hot chick on Star Trek with the big knockers who played ex-Borg Seven of Nine. She was Miss Illinois and a National Merit Scholar -- quite a package. The couple had grown apart and divorced years before -- it didn't help that she was strapping the producer of Star Trek. They were both from Illinois, but the divorce was in Hollywood.

    Axelrod stirred up the Jeri Ryan divorce story with Chicago reporters. You can see the angle for the reporters -- putting pictures of Jeri on the front page sells papers. Her pictures even made the front page of the New York Post, all the way from fly-over Illinois. Axelrod got the Tribune to send a reporter to Hollywood to unseal the child custody proceedings ... and a friendly Democratic judge accommodated them, over the objections of both Jack and Jeri.

    In their 1999 custody battle, Jeri had claimed that Jack took her to sex clubs so he could show her off and pressed her to have sex with him in front of these strangers. She said this in response to her admitting affairs, including with her Star Trek producer.

    Jeri Ryan made the following statement at the time:

    "We maintain a good relationship and I consider Jack a friend. In response to the rumors that have been circulating, there was never any physical abuse in our marriage--either to myself or to our son--nor, to my knowledge, was he ever unfaithful to me. Jack is a good man, a loving father, and he shares a strong bond with our son. I wish him all the best, both in his life and career. I have no doubt that he will make an excellent senator."

    The month before, Obama had said "This is going to be a contest of ideas."

    As it came out: "On April 2, 2004, Barack Obama changed his position about the Ryans' soon-to-be-released divorce records, and called on Democrats to not inject them into the campaign. The Ryan campaign characterized Obama's shift as hypocritical, because Obama's backers had been emailing reports about the divorce records prior to Judge Schnider's decision."

    Ryan dropped out ... he was vulnerable because he had developed a squeaky clean image ... which didn't fit with claims that he had asked his wife to perform fellatio on him in front of strangers ... and Obama got to run against a last-minute lame Republican replacement. The rest is history.

    After Ryan dropped out, Obama said: "What happened to him over the last three days was unfortunate," Obama said. "It's not something I certainly would wish on anybody. And having said that, from this point forward, I think we will be continuing to talk about the issues."

    So much for a new kind of politics.

  • Dan

    Scott,

    I'm no expert on international law or the rules of war, but I don't think your argument holds water.

    Fighting the Taliban in Pakistan/Afghanistan is war - the idea is to kill the enemy. I've never heard a president criticized for doing that. Though certainly one could question the original idea to go to war in some cases, like Iraq, once the war begins, I and other "liberals" have never criticized a president for using the military to kill enemy soldiers as the war is fought.

    However, once we capture prisoners on the battlefield, we're supposed to follow the rules set out by the Geneva Conventions, or else we risk descending into the same trough as our enemies. I'm all for being tough on dangerous prisoners to get information, but from what I can tell (and I've read articles by experienced interrogators at the CIA who support this), torture such as water-boarding was never needed. In fact, most of the information we got from the prisoners was achieved before such methods took effect.

  • perlhaqr

    Dan: You realize, I hope, that as un-uniformed fighters in an established warzone, these prisoners taken by US forces were subject to summary execution. Do you think they'd have preferred that option?

  • Dan

    Perlhaqr:

    Not to draw this out, but who wrote the rules you're referring to? Heinrich Himmler?

  • http://www.rashynullplanet.com/blog/ Matt

    "One person described the administration as the most shocking “end justifies the means” group they have ever encountered."

    No one should be surprised by that. The Big O told everyone, right up front, within minutes of taking office that he is a pragmatist:

    "The question we ask today is not whether our government is too big or too small, but whether it works"
    http://www.whitehouse.gov/blog/inaugural-address/

  • Sendarius

    Dan:
    If you care to look, you'll find that the rules perlhaqr referred to were established as part of the very same Geneva Convention of 1927 that people are claiming has been violated by the treatment of the inmates of Guantanamo.

    From Wikipedia (http://en.wikipedia.org/wiki/Prisoners_of_war)

    Quote 1:
    Specifically, Chapter II of the Annex to the 1907 Hague Convention covered the treatment of prisoners of war in detail. These were further expanded in the Third Geneva Convention of 1929, and its revision of 1949. Article 4 of the Third Geneva Convention protects captured military personnel, some guerrilla fighters and certain civilians. It applies from the moment a prisoner is captured until he or she is released or repatriated. One of the main provisions of the convention makes it illegal to torture prisoners and states that a prisoner can only be required to give their name, date of birth, rank and service number (if applicable).

    and quote 2:
    To be entitled to prisoner-of-war status, captured service members must be lawful combatants entitled to combatant's privilege—which gives them immunity from punishment for crimes constituting lawful acts of war, e.g., killing enemy troops. To qualify under the Third Geneva Convention, a combatant must have conducted military operations according to the laws and customs of war, be part of a chain of command, wear a "fixed distinctive marking, visible from a distance" and bear arms openly. Thus, uniforms and/or badges are important in determining prisoner-of-war status; and francs-tireurs, "terrorists", saboteurs, mercenaries and spies do not qualify.

    perlhaqr is absolutely correct.