Is the Obama Administration playing fast and loose with the free market?

[Viking Prince]

So much for the concept of senior and subordinated debt. Under the Obama administration it looks like the union held unsecured obligations are now more senior than senior bond debt. And if you do not play ball, well there are rules that can be changed with the TARP funds...

I especially like the government deal for GM where private investors get to trade there $27b for a 10% stake while the union gets a 39% stake for their $20b plus they get to take $10b off the table in cash!

DealBook: White House Denies Chrysler Threat

Update | 10:04 p.m. Recent comments by a lawyer representing Chrysler’s dissident debtholders alleging that Steven Rattner, the White House’s auto task force chief, “directly threatened” to wreck the reputation of the investment firm Perella Weinberg Partners if it continued to oppose the Obama administration’s reorganization plan have been picking up steam in the blogosphere.

Any firm taking on the Obama administration in its plan to restructure Chrysler, which would divvy up equity stakes in the company to the United Auto Workers union, the Italian carmaker Fiat and the American and Canadian governments, naturally risked public excoriation. The four major banks among Chrysler’s secured debtholders, who hold about 70 percent of Chrysler’s secured debt, agreed to the auto task force’s proposal last week.

But the dissident debtholders claim that they were compelled to do so because they have received government bailout money, a charge people close to the banks deny.

General Motors Bankruptcy Probable as Obama Favors UAW Union Over Lenders

GM bondholders proposed April 30 they get a 58 percent ownership stake in the Detroit-based automaker in exchange for their $27 billion in unsecured claims. Bondholders are objecting to GM’s proposal they get a 10 percent share of GM equity while a union health fund would get $10 billion in cash and as much as a 39 percent stake for their $20 billion in unsecured claims.

[Boer]

Of course the Obama administration is interfering in the free-market, just like every other president. One need only look at trust busting under Teddy Roosevelt and McKinley or the many examples of strike breaking by the government to realize that free-market is (and always has been) much more of a slogan than a reality. [I'm not saying that I disagree with all of the actions I mentioned, just pointing out they are not free market actions].

[Viking Prince]

Of course the Obama administration is interfering in the free-market, just like every other president. One need only look at trust busting under Teddy Roosevelt and McKinley or the many examples of strike breaking by the government to realize that free-market is (and always has been) much more of a slogan than a reality. [I'm not saying that I disagree with all of the actions I mentioned, just pointing out they are not free market actions].

I think this is differant if indeed the administration is using the TARPfunds to force banks to agree to protecting union interests in the auto makers. I think the line may also be crossed if other creditors are being threatened by administration appointees. I think this is also more serious if the rule of law is being twisted to not treat all citizens equally before the law.

[danzig]

I think this is differant if indeed the administration is using the TARPfunds to force banks to agree to protecting union interests in the auto makers. I think the line may also be crossed if other creditors are being threatened by administration appointees. I think this is also more serious if the rule of law is being twisted to not treat all citizens equally before the law.

Well this should be obvious given Obama admin has refused repayment from two banks on the TARP funding under the guise of "economic security"....which is pretty much another way of saying so they can keep the level of influence/power they have over the finance system currently. No real shock here...vote for change indeed.

[JayHawk357]

Obama should rightfully interfere with these companies. They asked for the money, they couldn't keep their own house together and now they fall on their sword. Tough luck I say.

[Roman Rapper]

"Is the Obama admininistration playing fast and loose"

Viking prince the 1980's called, they said they want you to give back their favorite turn of phase.

[Viking Prince]

"Is the Obama admininistration playing fast and loose"

Viking prince the 1980's called, they said they want you to give back their favorite turn of phase.

You of course realize that I was using that phrase long before the 1980's.

But where do you stand on this?

Obama should rightfully interfere with these companies. They asked for the money, they couldn't keep their own house together and now they fall on their sword. Tough luck I say.

The key to the rule of law is to make the rules and then hold people to account. The Obama admnistration seems to think it is to make the rules to hold prior behavior to account and this is not only wrong, but dangerous. Add to this that all players are not playing by the same rules or judged by the same standards and this whole mess will come back to haunt us all with future rsks factored into all captal and debt issues from this time forward. This has the potential to be a huge disaster.

[Boer]

Wasn't Truman making his own laws when he took over mines and forced them to agree to union demands or prevented railway strikes by threatening to draft strikers into the army? Or what about when Commodore Perry forced Japan to sign trade negotiations with us under threat of naval bombardment? Were the twenty thousand federal troops used to crush the Pullman Strike treating all citizens equally before the law? Or (since I think I've read you saying you are also from Colorado) what about the use of the National Guard to effectively enforce martial law against strikers in Colorado's Labor Wars?

I'll admit that Obama probably should not be taking these actions, but this is hardly the first time the government has made questionable (and possibly illegal) interventions into the economy.

[Viking Prince]

So do the prior examples have anything to do with whether the Obama Administration is right or wrong on this. I thought claiming to mommy that the other presidents did it too -- was a guarantee to a paddling by dad and no supper?

[I Am Herenow]

It's taking me a while to get into this one, so you'll have to bear with me. Are you saying that Obama is now taking unfair advantage of the companies he had previously given government bailouts to?

I Am Herenow

[Boer]

So do the prior examples have anything to do with whether the Obama Administration is right or wrong on this. I thought claiming to mommy that the other presidents did it too -- was a guarantee to a paddling by dad and no supper?

Topics like this have a tendency to turn in to "Obama's going to make us communist by interfering in the economy." My point is that many other administrations have interfered in the economy, even in what many seem to see as the golden age of free-market economy, yet we never went communist. We should certainly keep an eye on Obama's actions, but its not accurate to single him out as if he is the first to take similar actions. Looking back, few people even remember the government intervention in the economy that I've mentioned. Although they do remember the New Deal in a general sense, who really remembers the Square Deal? In 50 or 100 years, I doubt many people will really remember this actions specifically, but just the economic mess in general like the great depression.

[IrishHitman]

Wouldn't be surprised.
However, I wouldn't really care.

Why?
The climate is that you can't trust a banker with a penny, never mind a large company.
That climate came to us for a reason.
Mainly because you can't trust a banker with a penny.

So do the prior examples have anything to do with whether the Obama Administration is right or wrong on this. I thought claiming to mommy that the other presidents did it too -- was a guarantee to a paddling by dad and no supper?

Crying to mommy if you got raped and robbed blind in broad daylight would be acceptable though, right?

[Viking Prince]

Yes, I am serious. Government needs to write the rules and enforce them in the future. Ex post facto laws are expressly forbidden in article One section 9 of the USA constitution. Also in the same section Congress is prohibited from favoring one state in commerce over another. The effects of giving preference to the union for unsecured debt over the other creditors is violating that clause as well if included in a law passed by Congress. Obama is trying to do an end around with adminstative orders. If Congrass cannot legally pass a law to do so, then the President cannot by executive order based on prior laws of Congress have such authority either.

[I Am Herenow]

Ex post facto laws are expressly forbidden in article One section 9 of the USA constitution.

Interesting - could you give an example of the Obama administration applying new legislation ex post facto?

I Am Herenow

[Viking Prince]

Interesting - could you give an example of the Obama administration applying new legislation ex post facto?

I Am Herenow

I thought that is what I did with the original post.

As an addition: TARP funds disbursed with no strings. Administrativley apply the strings after disbursement. Banks now wish to say no thank you to the funds. Administration refuses to allow repayment under the rules in effect at the time the dispursements were made and changes the rules again.

Now move to the auto maker mess. Uses position with TARP funds to demand the lenders bend over and take it and give preference to union unsecured debt which is contrary to the established rules of debt payment in bankruptcy proceedings.

The regulatory process is being used in just the way the US Senate views lawmaking. If something does not work politically, just regroup and do it again pretending the first attempt never happened Business cannot operate under this uncertainty. The rules in place must be followed or only changed for the future.

[The Devil's Sergeant]

This is economic fascism.

[IrishHitman]

This is economic fascism.

No, it's called control.
The government bailed them out, of course they're going to expect to have a certain level of control.

Unless you're in favour of giving cash away and never seeing it again?

[The Devil's Sergeant]

No, it's called control.
The government bailed them out, of course they're going to expect to have a certain level of control.

Unless you're in favour of giving cash away and never seeing it again?

No, it is not control in the sense of carrying out the law and enforcing contracts. Obama is bypassing normal legal backruptcy proceedure in order to get extraordinary treatment for political allies. By the time this is all over GM and Chrysler will be elaborate welfare programs. THe government will be running the companies at a loss nut the union employees will keep their jobs making cars no one wants.

[JP226]

I'm really surprised that no lawsuits have been brought forth against the government over this kind of intervention.

[Boer]

The problem with lawsuits it that they would take a very long time. The government would stall and keep appealing while the issue worked its way up. By the time the Supreme Court could rule, it would likely be too late to reverse/prevent these types of actions, especially if the courts were only issuing ruling on specific/individual actions.