Thugocracy
The big news over the weekend didn't make the major network newscasts. Instead, it was left to the blogs and less prominent news sources. For those unaware, bankruptcy lawyer Tom Lauria reported Friday that Auto czar Steve Rattner had threatened Chrysler investors who are not TARP recipients with the ire of the White House Press Corps if they didn't go along with President Obama's restructuring plan for Chrysler. One of them caved under the threats.
These investors are bondholders -- typically the first in line for assets when bankruptcies occur. However, under Obama's plan, the government (which loaned TARP funds to Chrysler) and the UAW would get a better deal on what they are owed, even though according to the law they should be behind the bondholders.
John Carney over at Business Insider summarizes:
- White & Case partner fingers Rattner. Tom Lauria, the head of White & Case's bankruptcy practice, says that Obama's Car Czar Steve Rattner threatened to turn the White House press corps loose against Perella Weinberg if the firm continued to oppose the administration's plan. White & Case represented PW until the firm caved to White House demands. Now he continues to represent the remaining hold-out firms.
- Perella Weinberg doesn't deny the threats. The firm at the center of this controversy switched from opposing the administration's plans to supporting them. It hasn't said it wasn't threatened by Rattner. Instead, it says that some kind of new appreciation of the economics of the deal are what made it change its position. It's remained silent about the alleged threats, which may be a way of signalling that the threats really were made.
- The White House has issued a blanket denial. The stakes got far higher yesterday when the spokesman for the White House issued a complete denial, calling Lauria's story "completely untrue." This puts the credibility of the president on the line in a dramatic way. If any part of Lauria's story holds up, Obama's reputation for honesty will be tarnished.
And it's not just the bullying, it's the insanity of this whole project. As Mickey Kaus notes, the planned Chrysler-Fiat merger will likely do nothing more than delay the inevitable.
And "real viability? Has Chrysler really achieved "viability"? This is at best an open question. Here are Chrysler's new sale figures. They're grim. Chrysler sold 1,320 Sebrings this month, for example--compared with almost 7,000 a year ago. The Sebring is is the mid-sized car that's supposed to compete with the Accord and Camry. How about the lower-end Jeep Compass? 712 sold. "These are the stats of a dead car company." Why the poor sales? Maybe this: Of fifteen manufacturers rated for 2009 on reliability and performance by Consumer Reports, Chrysler came in fifteenth. ("No Chrysler, Dodge, or Jeep vehicles are recommended.") And it's not like Chrysler has lots of appealing new models in the pipeline.
That appears to be the part left out of the Obama administration's self-aggrandizing deal spin: Who is going to buy the New Chrysler's cars? Consumers "in new markets around the world," say Sanger and Vlasic, with a straight face. Is Steve Rattner going to call and bully each and every one of them? At best Chrysler won't have new products to sell for 18 months, when in theory (and only in theory) Americans will be lining up to buy tiny FIATs.
If Chrysler fails in the marketplace again two or three years from now, after billions more in government subisidies, won't that reflect badly on Obama and his "economic team"? WIll it then appear to have been better to let Chrysler go into an actual, non-prearranged, non-jawboned bankruptcy, in which it would likely have been liquidated or in which the UAW would have had to make far more substantial concessions, like workers in other bankruptcies? The government could have assumed some of the U.A.W.s pension and health care liabilities (which it will probably end up doing, in part, in any case). But Chrysler's demise would have been a real cautionary example that gave the administration leverage in the GM negotiations (which may be what the U.A.W. was really scared of). Chrysler's rapid departure would also have opened up market share for GM--and for Ford, which is not wildly healthy itself.
I wonder how the press corps will spin a Chrysler failure in 2011 or 2012. Will Obama still have the political capital to come up with the cash for yet another bailout?
Once again, Bush's last mistake going out the door was stepping in to save Chrysler and GM short term so that Obama could step in and reward the unions that helped get him elected. Why else would Obama try to do an end-run around bankruptcy law by cutting a deal that puts the unions ahead of other stakeholders? This is hardball, corrupt Chicago politics in Washington, D.C.
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[...] I noted before that the Obama administration had threatened to use its trained poodle — the White House press corps — as an attack dog against Chrysler investors who were balking at the pre-packaged bankruptcy. [...]