Crimes Against Liberty (37 page)

Obama’s furious attacks on Wall Street were a natural outgrowth of his anti-corporate ideology, but they were also a cynical ploy to whip up public support for his policies by stoking outrage at “fat-cat bankers” and other evil capitalists who seemed to come straight out of a comic book. Amidst all the heated rhetoric, the fact was largely ignored that his signature financial reform bill would benefit the very bankers and other Wall Street veterans who have deep connections to his administration. Denying that government policies and regulations helped spark the financial meltdown in the first place, Obama sought to solve the problems of big government with the only approach he knows: creating more big government. That these policies will depress competition and institutionalize the damaging practices of the past is apparently of little concern to this administration. They don’t necessarily want a successful America; they want a
transformed
America—and with the financial reform bill, that is what they’re trying to deliver.

Chapter Ten

THE COMMISSAR

CRIMES AGAINST AMERICAN INDUSTRY

O
bama has exerted power beyond that of any previous U.S. president. On March 29, 2009, his Treasury secretary Tim Geithner made the Sunday talk show circuit to explain that some banks would have to take new TARP monies against their wishes—which was consistent with Obama preventing J. P. Morgan executives from repaying their TARP funds. Later that same Sunday, Obama made another extraordinary move, firing General Motors CEO Rick Wagoner. As an indication of widespread opposition to federal control over the auto industry, GM’s stock fell 25 percent the next day upon news of Wagoner’s firing. But Obama and Geithner were unchastened. Geithner told
CBS News
’ Katie Couric that “of course” he was open to the option of pressuring CEOs of “troubled banks” to resign as well. The government, he said, “has had to do exceptional things.”
¹

Republican senator Bob Corker called the Wagoner firing “a major power-grab by the White House on the heels of another power-grab from Secretary Geithner, who asked last week for the freedom to decide on his own which companies are ‘systemically’ important to our country and worthy of taxpayer investment, and which are not.” He said it was “a marked departure from the past,” “truly breathtaking,” and “should send a chill through all Americans who believe in free enterprise.”
²
CNBC economist Larry Kudlow noted that this was the proper domain of bankruptcy courts, not the executive branch. Corker agreed, telling Kudlow that “today, a bright line was crossed.... Now, in essence, they have taken over these companies.” He accurately predicted that soon the executive branch would be deciding which GM plants would stay open and which would close.
³

A few days after the firing, Obama and Treasury secretary Giethner were reportedly weighing a plan to divide the “good” and “bad” assets of GM and Chrysler before putting them into bankruptcy. This would effectively nationalize a major portion of the auto industry—an action unprecedented in American history and, in the words of the
Wall Street Journal
, one which would “represent one of the biggest-ever government incursions into private enterprise.” Obama and his henchmen were deeply immersed in micromanaging a wholesale restructuring of the companies, planning on allowing Chevrolet and Cadillac to remain independent while selling the equity in Chrysler to Fiat SpA. Obama played both ends against the middle, warning the automakers they had only brief windows to formulate plans to justify government support, then saying he would do all he could to salvage the industry. “We cannot, we must not, and we will not let our auto industry simply vanish,” he vowed.
⁴

Just as Obama would later duplicitously claim his healthcare plan would not interfere with patients’ choice of their doctors as he signed into law a bill contradicting his assertion, he insisted he had no intentions of taking over GM at the very same time he was cementing plans to do just that. Obama had another motive to subsume the auto industry beyond his claim that automakers were “too big to fail” and jobs had to be preserved. As with his redirection of the space program, he aimed to push his environmental agenda from the inside—to force automakers into producing more energy efficient vehicles.
⁵
As Peter Kaufman, president and head of restructuring at investment bank Gordian Group LLC, said, “The big question is whether the government, as a shareholder, will be focused on GM making money, or it making clean and green cars, or whatever other political agenda they have for the auto space.”
⁶

That question was answered when Brent Dewar, Chevrolet vice president, told dealers they should learn to sell small cars, based on projections that smaller cars will overtake trucks and SUVs as GM’s best sellers.
⁷
On the other hand, we saw an interesting glimpse of liberal hypocrisy at work as the “New GM” conspicuously withdrew from an environmental partnership called the End of Life Vehicle Solutions (ELVS). ELVS was created to collect toxic parts from scrapped cars to prevent the release of mercury emissions into the environment when vehicles are crushed and shredded. But the new government managers weren’t so concerned about the environment when their own credibility was at stake in making the new company a financially viable entity. New GM basically said the mercury in the old vehicles wasn’t its problem, as those vehicles remained with Old GM.

New GM’s environmental callousness was rather untimely, as Obama’s “cash-for-clunkers” program was expected to lead to the trade-in and recycling of an estimated 750,000 vehicles, some of which contain mercury switches whose destruction could cause mercury pollution. Clearly, it’s always easier to preach environmentalism to the other guy than to abide by the rules yourself. ELVS executive director Mary Bills commented, “We’re surprised that GM, who wants to have this great green image, would do this.” New GM’s spokesperson dismissed the company’s culpability, claiming the responsibility for participating in the partnership remained with Old GM. But that was small comfort to other partners, as Old GM was but a composite of GM’s liabilities and under-performing assets.
⁸

Without any semblance of constitutional authority, Obama announced he would unilaterally guarantee federal warranties for all new GM and Chrysler vehicles. Why should taxpayer dollars guarantee—retroactively, no less—the quality of a car? Why should the federal government offer to make such a guarantee without any inquiry into whether it was a prudent decision? But being a politician with no business experience, Obama unilaterally declared
carte blanche
responsibility on behalf of the federal government, as if he had an endless supply of money. Obama also expressed support for a congressional bid to offer large tax incentives for new-car purchases from stimulus monies, without bothering to justify that expenditure either. At least he was being consistent: since he didn’t have to justify his use of bank bailout money to keep Chrysler afloat with emergency loans, why should he have to justify using “stimulus” funds for a purpose not contemplated by the law?

UAW’S SWEETHEART DEALS

A major supporter of Obama, the United Auto Workers got sweetheart deals in both the GM and Chrysler restructurings. In the case of GM, the UAW and the bondholders were both unsecured creditors with equal rights under bankruptcy law, although GM contended that it had made a deal in 2007 that gave a preference to the UAW’s unsecured claims. The bondholders, however, reportedly never agreed that their claims would be subordinated to those of UAW. Because GM’s debt to the UAW (estimated at $20-30 billion) and to the bondholders ($27 billion) were roughly equal, it would follow they would each receive a similar percentage of shares in the new company. But Obama’s proposed restructuring contemplated UAW receiving about 39 percent of the stock while the bondholders would get just 10 percent, with the other 50 percent going to the government.
⁹
New York attorney and financial expert Norman Kinel noted, “To say it’s unusual is an understatement. The government doesn’t ever get involved this way.” Dan Seiver, a San Diego State University finance professor, said, “We’re in a new era where the government is calling a bunch of shots.”

Other experts pointed to the government’s conflict of interest as a shareholder on the one hand and, on the other, its interest in protecting jobs and benefits. Some also expressed concerns about the government’s heavy-handed tactics and the possible unstated consequences of disobeying its directions. Dartmouth’s Tuck School of Business professor Syd Finkelstein noted allegations by Bank of America Chief Executive Ken Lewis that the government had pressured him to complete a merger with Merrill Lynch.
¹⁰

GM Bondholder Advisers issued a statement saying they were “deeply concerned with today’s decision by GM and the auto task force to offer only a small, inequitable percentage of stock to its bondholders in exchange for their bonds.” Calling the offer “neither reasonable nor adequate,” they said it amounted to using taxpayer money “to show political favoritism” for certain creditors over others.
¹¹

A month later, UAW’s proposed share was cut to approximately 20 percent of GM’s common stock, with 17.5 percent to be transferred immediately, along with a warrant for an additional 2.5 percent. The bondholders’ share was to remain at 10 percent. When GM was asked whether the bondholders’ deal would be “sweetened,” it responded that the government was preventing it from offering them more than 10 percent.
¹²
As it happened, a deal could not be consummated, and GM filed for bankruptcy on June 2, 2009.
¹³
Within a month of the filing, the government was trying to sell the company to a “New GM,” the majority share of which would be owned by the government. The bondholders were still objecting, however. Their attorney, Michael Richman, accused the government of being “overbearing” and of circumventing the law. Richman contended that the sale had not been negotiated as an arms-length sale to an independent party because the government, essentially, was dealing with itself and otherwise dictating—not negotiating—the terms of the deal.

The government was allegedly manipulating the deal and determining the price not through good faith negotiations, but by first determining how much its “favored parties” needed from the deal and then backing into the price. The sale, if approved, would result in the union initially owning a 17.5 percent interest, Canadian governmental entities 12 percent, the bondholders 10 percent, and the government 60 percent.
¹⁴
Obama, of course, said the government needed such a large stake because the financial health of the auto industry affected the financial health of the nation—the “too big to fail” argument. He insisted he really didn’t want to nationalize the companies. “We could have simply offered the company more loans,” he said. “But . . . piling on irresponsibly large debt on top of the new GM would mean simply repeating the mistakes of the past.”
¹⁵
Ultimately the sale proceeded—much to the chagrin of the bondholders, who had made the mistake of lending their money to a private company in the age of Obama.
¹⁶

THE MADMAN THEORY OF THE PRESIDENCY: OBAMA WANTED TO BE FEARED

The Chrysler case was even worse. The creditors competing against the UAW were secured creditors, presumably entitled to priority over the unsecured union workers. But the secured creditors were being heavily pressured to accept just a fraction of the amount of their claims: $2.25 billion of the $6.9 billion they were owed (29 cents on the dollar), while the unsecured UAW was offered some 50 cents on the dollar. The UAW agreed to concessions to freeze wages, cut retiree health benefits, and not to strike for at least six years. Chrysler executives still hoped to avoid bankruptcy and possibly merge with GM. But Obama’s inside man, Steven Rattner, the head of Obama’s Auto Industry Task Force, had virtually pre-ordained the outcome—bankruptcy—while publicly claiming he was studiously seeking to avoid that result. Chrysler’s CFO Ron Kolka said Rattner told him how it would go: bankruptcy, followed by a restructuring with the creditors, the union, and Fiat—not GM, even though Robert Manzo, a financial consultant for Chrysler, said he believed “the valuations of an alliance with GM were higher than those of a deal with Fiat.” It didn’t matter to Rattner, who had already decided as of March 30 that his task force would only authorize taxpayer money to be used for a deal with Fiat.