Judge Ye Not Chrysler, Lest GM Also Be Judged

Justice Judith Bader Ginsburg issued a writ today, stalling the sale of major assets by Chrysler to Fiat. This writ was issued based on a case brought before The Court by a group of pension and construction funds in Indiana who stand to lose millions of dollars from lost investment in Chrysler secured bonds (or loans).  
Normally such secured credit holders are the first to be paid off in bankruptcy proceedings, but in the case of Chrysler, these bond holders were in fact placed at the end of the line (or not in the line at all). The interesting part about the action brought on behalf of these pensions funds is the two-prong attack:  

1. Why were normal bankruptcy procedures bypassed in this situation by the lower courts, and was it do due to improper pressure brought to bear by the government?
2. The funds used by the federal government to prop up Chrysler prior to bankruptcy and the reason that the federal government has had so much to say about how reorganization would work were taken from the TARP funds.  

For those of you who can't remember all the way back to the last months of the Bush Administration, TARP funds were originally designed to buy toxic assets from banks (hence the name Toxic Asset Relief Program). While actually never used to buy any toxic assets, the funds were generally understood to be used for the bailout of the banking industry. Congress, recognized that TARP funds might not be able to be used for bailing out automobile makers however when that situation appear imminent, and tried to get a separate bailout package passed for that purpose. They were unsuccessful in doing so. 

Ignoring the legislative defeat however, the Administration at the time simply decided to take the money from TARP anyway. Since the fund had no real Congressional oversight in place, they were able to apply it where and how they saw fit. If the Supreme Court now rules that TARP funds were used improperly for one bailout, then obviously they would have been used improperly for both. 

If this turns out to be the case, how will both companies give back money that has already been spent to a government that doesn't want it? An equally interesting part of this is case is not just what happens to these bond holder pension funds and to Chrysler as a result, but what impact this could have on the bankruptcy re-emergence of General Motors, whose bond holders were likewise given short shift when asset reallocation was performed and approved. Not only could this case re-establish the rule of law where these auto bankruptcies are concerned, it could also prove a serious roadblock to the Obama Administration's continued attempts to take oversight control of operation and reorganization of private sector companies. (Can you say medical insurance?)  

We will all be waiting and watching with great interest ...  

Update:

The Court turned down hearing the petition and more's the pity. There seems to be no brakes on this runaway train of government. 

GM: Government Motors

Well, General Motors has unveiled its plan for how to move forward in the business of automobile manufacturing; and it is unique in the annals of American capitalism. As a part of this reorganization, GM will drop its Pontiac brand, eliminate an additional 21,000 jobs, and do likewise with some 2,600 dealers. It announced this plan under a government deadline of reorganization that it hopes will get it another $11.6 billion in government aid, on top of the $15.4 billion in that has already been invested by our leaders in Congress and the White House. GM likewise has a deadline of just one month to get both bondholders (who are far less than happy) and the government to sign off on the final details of this plan. It must also get the UAW to agree some kind of settlement on over $20 billion in cash obligations that GM has with the healthcare plan of its union retirees. If it fails to meet this deadline with any of the three groups in question, it faces bankruptcy. Should this perfect storm of economic events manage to occur however, the GM of the future would look something like this:

• The government would end up with at least 50% of the common stock of the company, making them the majority stockholder.
• The UAW would end up with as much as 39% of the common stock.
• Bondholders would end up with the remaining 10%+ of the stock in exchange for $27 billion of GM's current debt.
• Current shareholders of GM stock would effectively have their investment wiped out.

For those of you have somehow managed to miss the signs (Signs, more like billboards!) of a fundamental shift in capitalism in the US (and the world), this would be it. This is no longer a loan or a temporary fix, this is a company voluntarily and permanently turning over voting control of its stock to the federal government. While the taxpayer will foot the bill for this, Congress, the White House and a small group of Federal bureaucrats will determine the long term future of what was once the world's largest company. What's more, they will do this in partnership with one of the nations largest labor unions. I cannot imagine a more ill-suited group to run a business of any kind, let alone one of such size and importance.
And ask yourself this:

• If GM is owned in the majority by the government, will it change it's name to "Government Motors"?
• What level of debt, in a government which seems to treat debt as its closest ally, will this new GM be allowed to roll up?
• If this plan, boldly put forward by current management, fails to return GM to profitability, what amount of red ink in this new company will determine when it fails?
• What unsupportable contracts with its partners in the UAW will be allowed to continue regardless of a lack of profitability because the UAW controls so much of the stock and the government has the taxpayers bank account to fill any gaps?
• What new levels of expensive federal bureaucracy will be required to direct, manage, and regulate this new Government Motors?
• What impact on competition (from the standpoint of both US and foreign automakers) will a government owned auto manufacturer have?

And most importantly,

Would you buy a car from a company where the design, manufacture, sale, and long-term service of your vehicle would be ultimately performed by the federal government?

I have to tell you that I will be purchasing a new car later in the year, and that this situation has certainly given me pause over the potential selection that I will make...