Tuesday, May 5, 2009

Actions do have Consequences

Why the rule of law is mportant. Glen Reynolds writes.
If I were the Chinese, or other big buyers of Treasury bonds, I’d look at how the Obama Administration is treating corporate bondholders, and wonder why the Obama Administration would treat Treasury bondholders better than it has treated corporate bondholders. And then I’d get out of Treasuries, the way a lot of Chrysler bondholders wish they’d done already. Certainly I wouldn’t want to rely on their belief in the sanctity of contracts, or even their pragmatic understanding of credit markets . . . .

If you start showing that contracts and obligations can be tossed aside when politically convenient, you make potential investors and business-people much less likely to form contracts, take risks, and invest. But hey, at least it's not like we're in a recession and could really use some economic growth.

Who cares about Bankruptcy Code and the Constitution, there's constituents to pay off!
Some background (and this isn't my area of expertise, so this is just general stuff; DWL). Bankruptcy is set up to determine in what order individuals involved with a failed enterprise get paid out of what remains. This is called the "estate" and is usually real property, capital improvements, left over stuff like that. And the Bankruptcy Code is essentially a method of sorting the parties and determining who gets to stand at the front of the line. Secured creditors--like the creditors I've been referring to above--stand at the very front of the line.
That's where the Obama-directed, Chavez-inspired sale motion comes in. They want to move the secured creditors behind certain unsecured creditors (the unions) and thus deprive the creditors of their property. Because if there's one certainty here, it's that there isn't enough money left in Chrysler to pay everyone who's standing in line.


In the words of Justice Brandeis:

"[T]he Fifth Amendment commands that, however great the Nation's need, private property shall not be thus taken even for a wholly public use without just compensation. If the public interest requires, and permits, the taking of property of individual mortgagees in order to relieve the necessities of individual mortgagors, resort must be had to proceedings by eminent domain; so that, through taxation, the burden of the relief afforded in the public interest may be borne by the public."

As interesting as it would be to have it on the record that the President ignored the constitution in order to attempt a robbery, the Bankruptcy Court doesn't have to go that far. The creditor's motion describes statutory reasons for disapproving the sale: it doesn't comply with the Bankruptcy Code. Unless Congress wants to try and make this thuggery legal by altering the Code, the Court has ample opportunity to stop it without discussing the constitutional problem.

Why many investors are turning away from the US economy

This administration has made it quite clear that they can't be relied upon to honor contracts or legal precedents and if I can't know what the rules are before the game starts then I'm not going to play.

Ed Driscoll has his own little roundup.

Starting with:
Jennifer Rubin writes, “Riding roughshod over the law of the land seems to be the price Obama is willing to pay for ‘change.’”

And more on erroding the rule of law for political gain. This time with judges

When legal scholars talk about a pragmatic justice, they’re talking about someone who isn’t bound by the law as written. In rendering a decision, he or she considers the context of the case and outside factors, like the greater social good.

Perhaps you’ve heard me mention this before, but it matters when some literary theorist or lawyer argues that context, rather than intent, grounds meaning. Context is ever shifting — giving interpreters license to argue that meaning, too, shifts with context, and that it is therefore their job to determine meaning rather than to interpret what was intended and apply that interpretation as a matter of law.

Am I alone in finding it very frightening when someone thinks that not being bound by the law is a GOOD thing in government?

And again, why would someone want to take a financial risk in an environment when the rules can change at the whim, in this case, of a judge taht is looking at "the greater social good"?

More on this concept of "Empathy" vs Law

Would you want to go into court to appear before a judge with “empathy” for groups A, B, and C, if you were a member of groups X, Y, or Z? Nothing could be farther from the rule of law. That would be bad news, even in a traffic court, much less in a court that has the last word on your rights under the Constitution of the United States.

Appoint enough Supreme Court justices with “empathy” for particular groups and you would have, for all practical purposes, repealed the 14th Amendment, which guarantees “equal protection of the laws” for all Americans.

We would have entered a strange new world, where everybody is equal but some are more equal than others. The very idea of the rule of law becomes meaningless when it is replaced by the empathies of judges.


The biggest danger in appointing the wrong people to the Supreme Court is not just in how they might vote on some particular issues — whether private property, abortion, or whatever. The biggest danger is that they will undermine or destroy the very concept of the rule of law — what has been called “a government of laws and not of men.”

Of course if you don't play along, you may simply get threatened
One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight,” lawyer Tom Lauria told Detroit radio host Frank Beckmann Friday. Lauria later said the brass knuckles belonged to White House Auto Task Force leader Steve Rattner.
In short, take da deal or we break your legs.

Lauria’s account raises more than a few troubling questions. The White House naturally denied the threat, but the extraordinary intervention of the President of the United States in bankruptcy negotiations is intimidation enough. Obama unloaded on these creditors last week, accusing them of being “speculators” out to destroy an American industrial icon. Those bullying words come from a man who has the power of the IRS and the SEC at his disposal, not to mention the bully pulpit.


The Chrysler episode is a disturbing sign of how far this president is wiling the bend the law — and the truth — to satiate the demands of a major Democratic special interest, the UAW, which makes out like a bandit in the Chrysler deal, winning 55 percent of the company (the expected investment return, apparently, of committing $25 million to Democratic candidates over the last 20 years).

When asked by Beckmann to counter Obama’s claim that the bondholders refused to make “sacrifices and worked constructively,” Lauria responded that “contrary to what the president said in his news conference,” the bondholders agreed to take a haircut of 50 cents of their investment dollar.

In other words, the president lied.

And here's more of those consequences to actions:

"Speaking personally, I can't help wondering why the Left are so ready to believe that everyone who gets a tax bill for £50,000 will just grit their teeth and pay it, but putting 20p on a pint of beer will force average Joes like us to quit drinking. Either incentives matter, or they don't."
- a throwaway thought in brackets in a long Britblog roundup from Mr Eugenides

And here's some more on Obama wanting to crush "Tax Havens":
So, just to clarify, when U.S. corporations use their own funds to open subsidiaries and factories and create jobs in other countries, it's a bad thing, but when the U.S. government uses taxpayer funds for "economic development" to create jobs in other countries, it's a good thing?

The difference is government control. Moving money internationally is fine, as long as the proper people (read Obama et al) are the ones doing it.

Said "Tax Havens" are not happy

Remember when Barack Obama ran on the promise to restore our diplomatic relations with out allies in the West? The Dutch and the Irish just discovered its expiration date. In rolling out his plan to close supposed loopholes for multinational corporations, the Obama administration attacked Ireland, the Netherlands, and Bermuda as “tax havens” specifically and explicitly acting to deny the US government its due from tax collections.

Smooth... so it's not just domestic companies and investors that Obama's pissing off. It's not like the US nees money or has a bad economy...

A "Speculator" Speaks Up Against Obama
Here's the "speculator's words" Clifford S. Asness
Here's a shock. When hedge funds, pension funds, mutual funds, and individuals, including very sweet grandmothers, lend their money they expect to get it back. However, they know, or should know, they take the risk of not being paid back. But if such a bad event happens it usually does not result in a complete loss. A firm in bankruptcy still has assets. It’s not always a pretty process. Bankruptcy court is about figuring out how to most fairly divvy up the remaining assets based on who is owed what and whose contracts come first. The process already has built-in partial protections for employees and pensions, and can set lenders' contracts aside in order to help the company survive, all of which are the rules of the game lenders know before they lend. But, without this recovery process nobody would lend to risky borrowers. Essentially, lenders accept less than shareholders (means bonds return less than stocks) in good times only because they get more than shareholders in bad times.

The above is how it works in America, or how it’s supposed to work. The President and his team sought to avoid having Chrysler go through this process, proposing their own plan for re-organizing the company and partially paying off Chrysler’s creditors. Some bond holders thought this plan unfair. Specifically, they thought it unfairly favored the United Auto Workers, and unfairly paid bondholders less than they would get in bankruptcy court. So, they said no to the plan and decided, as is their right, to take their chances in the bankruptcy process. But, as his quotes above show, the President thought they were being unpatriotic or worse.


The President's attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to "sacrifice" some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power.

Let’s also mention only in passing the irony of this same President begging hedge funds to borrow more to purchase other troubled securities. That he expects them to do so when he has already shown what happens if they ask for their money to be repaid fairly would be amusing if not so dangerous. That hedge funds might not participate in these programs because of fear of getting sucked into some toxic demagoguery that ends in arbitrary punishment for trying to work with the Treasury is distressing. Some useful programs, like those designed to help finance consumer loans, won't work because of this irresponsible hectoring.

And some thoughts on it from Ace of Spaces

The media scoffed at the idea that Obama was a leftist more intent on wealth distribution than sound economic policy. How much harm could he do?, they seemed to think.

Well, here's the harm. Obama is so far to the left he needs to relearn South America banana-republics' unhappy lessons regarding nationalization.

Oh, it's fun to nationalize things at first. You get to seize money and assets from big, unpopular "speculators" and give them to your voters.

And then what? What do you do five years down the road, when you desperately need capital but no one wants to loan it to you, because they have the quite-reasonable suspicion you'll just end up taking their money again?

Actions have consequences. Showing people that you don't respect contracts and don't respect the rule of law (instead preferring mass graft to supporters) really, really destroys economies.

And now more people are coming out agreeing with Thomas Lauria's allegations of threats and thuggery. Hope and change!

Why is the rule of law so important?

Strategypage hits the nail right on the head.

But getting a real democracy going turns out to be more difficult than believed just two decades ago. Turns out that you need more fundamental changes, like widespread education and economic freedom, to make democracy work.


But economic freedom, which requires a reliable judicial system, has to overcome centuries of privilege and corrupt methods that the rich use to cripple completion and maintain the wealth of a relatively few families. In the West, the economic freedom and rule of law is called "civil society." Turns out that, on examining the historical record, one realizes how long it takes for the old customs to be transformed.

Now consider what the Whitehouse is doing. Well, he did promise change.

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