Chrysler: "Badges?! We don't need no stinkin' badges."

U.S. Judge Rejects Chrysler Pension Bid to Move Case

2009-05-26 By Christopher Scinta - Bloomberg

“'There needs to be a resolution,' to the legal issues around Treasury’s involvement in Chrysler, [U.S. District Judge Thomas] Griesa said. 'I’m learning a lot this morning that’s important to me, both as a judge and a citizen.'”’

Wow! I'm in better & better company wondering what happened to the principles & precedents of economics, finance, and law in this country during the past 14 months.

“'Put simply, it is nothing more than a last-ditch, eleventh-hour effort by a dissident faction of the debtors’ senior secured lenders to obstruct and impede core matters in Chrysler’s chapter 11 cases from being heard in bankruptcy court, which is the proper forum' the U.S. Treasury Department said in a statement"

After their AIG fiasco, the Treasury is talking about "proper forums" for resolving bankrupt companies?! If the Federal Reserve were running it, in their new extra-legal "industrial policy" capacity, then the pensions wouldn't have objected!?

"Badges?! We don't need no stinkin' badges."

JRB

5/26/09

WSJ: Chrysler and the Rule of Law

Chrysler and the Rule of Law

The Founders put the contracts clause in the Constitution for a reason.

The Wall Street Journal

By TODD J. ZYWICKI -- 5/13/09

http://online.wsj.com/article/SB124217356836613091.html

This is too powerful and important to cut & paste. But, in deference to copyright I'll just excerpt. Please use the URL above to read the entire article. It's worth it. -- JRB

"The rule of law, not of men -- an ideal tracing back to the ancient Greeks and well-known to our Founding Fathers -- is the animating principle of the American experiment. While the rest of the world in 1787 was governed by the whims of kings and dukes, the U.S. Constitution was established to circumscribe arbitrary government power. It would do so by establishing clear rules, equally applied to the powerful and the weak. Fleecing lenders to pay off politically powerful interests, or governmental threats to reputation and business from a failure to toe a political line? We might expect this behavior from a Hugo Chávez. But it would never happen here, right? Until Chrysler.

...

The Obama administration's behavior in the Chrysler bankruptcy is a profound challenge to the rule of law. Secured creditors -- entitled to first priority payment under the "absolute priority rule" -- have been brow beaten by an American president into accepting only 30 cents on the dollar of their claims. Meanwhile, the United Auto Workers union, holding junior creditor claims, will get about 50 cents on the dollar. The absolute priority rule is a linchpin of bankruptcy law.

...

By stepping over the bright line between the rule of law and the arbitrary behavior of men, President Obama may have created a thousand new failing businesses."

We have, indeed, 'crossed the Rubicon'. All hail King Hussein!

JRB

5/13/09

The Emperor's New Clothes

Lawmakers Seek Geithner Help in Saving Obama Tailor
2009-05-15 Bloomberg News, By Nicholas Johnston

"U.S. lawmakers are seeking Treasury Secretary Tim Geithner’s help in persuading Wells Fargo & Co. not to liquidate Hartmarx Corp., the 122-year-old clothing company that has made suits for President Barack Obama. Representative Phil Hare said yesterday that more than 30 members of Congress, including House Financial Services Committee Chairman Barney Frank, will join him in asking Geithner to pressure Wells Fargo to entertain bids for the bankrupt company instead of closing it down. The lawmakers are drafting a letter with the request."

Well, why not? Once we 'crossed the Rubicon' into 'industrial policy' or economic 'national socialism' things like this became inevitable. Paulson tells Lewis to violate federal securities laws (Rule 10b-5), then we have the nationalization of the banking sector, AIG, GM, Chrylser, ... and now a tailor.

Perhaps this was not instigated by the White House but rather an act of fealty by his liegemen. After all, the courtier who anticipates, rather than simple responds to, his monarch's whims is the one who rises to the top. Wells probably won't need to foreclose as HartMarx will sell-out their inventory -- because no one will be seen 'at Court' wearing anything but. Buy stock, too, in his cobbler & haberdasher. And God help the foolish banker who forecloses on Michelle's favorite couturier!

As I said in 2006, 'the Republicans have failed to govern, but the Democrats will not fail to rule.' The last election probably was The Last Election. Let's hope not, but "the barbarians are inside the gates". Has the Republic fallen? We are certainly in it's decline.

JRB

5/15/09

P.S. OK, so I slightly conflated Caesar (Rubicon) and Hannibal (barbarians). Call it a "volitional solecism".

Federal Follies: OTC derivative regulation

U.S. Regulators Seek Trace-like Reporting for OTC Derivatives
May 14 (Bloomberg)

There are so many reasons why this won't work, or work well. Simply put, every derivative trade is unique whereas every bond (CUSIP) is the same.

"'It is simply unacceptable in today’s environment that the design and structure of the OTC derivatives market can be controlled by a handful of large dealers," Lubke said."

Unbelievable! First, it was the Fed who pushed banks to merge, and thus over-concentrate the market into "a handful of large dealers" and thereby created the 'systemic risk' they now purport to be able to regulate. Second, do they really think the Microsofts and World Banks will take Crazy Woman Creek Bcp as a ctpy just because they got TARPed? Third, the "handful" was also the result of the Darwinian "natural selection" -- aka "invisible hand".

"Can't anyone here play this game?"

JRB

Chrysler's death-rattles

U.S. May Be Preparing Filing for Chrysler Bankruptcy: NYT Link
2009-04-23 19:30:30.339 GMT
http://www.nytimes.com/2009/04/24/business/24chrysler.html?_r=1&partner=rss&emc=rss

Whazzamatter, can't the Barracudas at Cerberus fill out their own docts? In 1978-79 it took a Caravan of lawyers and an act of Congress -- the Vipers, literally, to have the U.S. govt perform such meddling. Today? Well, who needs law when you can rule by FIAT! (pun very much intended). As a rookie commercial lending officer "back in the day" I had to give the Chrysler Loan Gty Act and the then-new Chapter 11 (replacing Ch. XI) a side-by-side reading as my territory was the auto-belt, now rust-belt, of MI, OH, and IN.

The PBGC picks up only $2 bln of the $9.3 bln pension shortfall. That's assuming the $9.3b is fully valued. While ERISA plans are more accurate than GASBs, there are still some holes in the PPA of 2006 reforms, letting them Dodge their responsibilities. Pensioners and those soon-to-be, will find this Challenger-ing as the $7.3b gap is for their account.

While the UAW is hardly a sympathetic entity, why must the bricks fall on the poor slobs who spent 30 years on the assembly line. They did their jobs, so why can't management and the PBGC? It was the loss of Studebaker employees' pensions in ~1967 that led to ERISA and PBGC. Through (hyper-) active political mismanagement of ERISA, at the behest of corporate plan sponsors and with the full connivance of FASB, we're back to where we started. It was all so entirely unnecessary and avoidable. J'accuse! (It's so depressing, I've even lost interest in making more puns.)

JRB

4/23/09

Crisis Post-Mortem w/Volcker, Levitt

Congress Weighs O’Connor, Volcker, Levitt to Investigate Crisis

Bloomberg News 2009-05-08 19:49

One big question for them to ask & answer is, How bad would it have been if mortgage underwriting standards hadn't been abandoned? After that, Cont'l Illinois and the "TBTF" (too big to fail) doctrine: why was the Bear Stearns warning shot not heard (as everything & everyone was collateralized why was Bear 'systemic'?); as Bear was TBTF why wasn't Lehman? And why AIG, for Pete's sake? Collateral was their contagion, not CDS, and they're not an intermediary, so why not step into their CSAs instead of lending $182+ bln. The grand-daddy of all questions from this crisis is how to put the 'moral hazard' genie back in the bottle after bailing out everyone -- AIG, Citi, BSC, MMkt Funds, CP, TARP, TALF, ad nauseam, right down to Crazy Woman Creek Bancorp. of Wyoming and 604 other 'systemic' (?!) banks.

JRB

5/8/09

Paulson's deception

Lewis Testifies U.S. Urged Silence on Deal:

Bank of America Chief Says Bernanke, Paulson Barred Disclosure

of Merrill Woes Because of Fears for Financial System

(4/23/09) http://online.wsj.com/article/SB124045610029046349.html

Paulson hasn't the authority to instruct anyone to commit securities fraud. No one does. Geithner lied on his taxes, like half his fellow nominees, and now we learn Paulson strong-armed fraud & deception at BofA regarding Merrill. Markets were already skeptical about the federales forthcoming(?) bank stress-test results. You can imagine what they'll believe now.

We'll need to replace the entire regulatory edifice to expunge all the moral hazards created since 1984's Continental Illinois fiasco. But we're more likely to end up with something even worse.

JRB

4/23/09