First, in the face of a duplicitous government prosecution and a draconian trial penalty, Kevin Howard was forced to plead guilty to a crime that he did not commit.
Then, the executive branch of the federal government, unchecked by feckless legislative and judicial branches, undermined the U.S. Bankruptcy Code by preferring certain Chrysler creditors over others while improperly using the TARP legislation (see also here) — which was expressly limited to financial institutions — as a basis to loan billions to Chrysler. Moreover, the government’s shots in regard to such matters are being called by a rank rookie.
Finally, the federal government seized $34 million of American citizens’ funds without notice or judicial process simply because those citizens enjoy playing poker.
One of the clearest lessons of the 20th century is that large governments have the capacity to cause unspeakable evil. As these injustices unfold with nary a protest from our leaders, is that important lesson already forgotten?
The freezing of bank accounts for on-line poker players is quite galling. There is nothing illegal about playing poker on-line for money. The firms operating the sites are violating US laws and if los federales want to go after someone – go after the sites themselves.
Another example of “if we can’t tax it, then you can’t do it.”
As I understand the Chrysler deal, there were no other bids for the assets other than the one from Fed/Fiat/UAW. Is that not correct?
Also, the definition in TARP of “financial institution” is so broad that it essentially means “any institution”. Given that the use of TARP does comply with the (admittedly deceptively written and characterized) law, if there were really no other bidders in the auction, it’s hard for me to say that this one is an affront to liberty.
But yeah the rest is awful.
Kevin, you are correct that another bidder theoretically could have outbid the government-subsidized offer from the new Chrysler. So, that gives the deal a colorable defense to an allegation of illegality under applicable bankruptcy law.
However, the government’s preference of one class of Chrysler unsecured creditors (i.e., the UAW) over others is unprecedented and a serious affront to the rule of law relating to property rights. For example, had the government simply provided takeout financing for a new Chrysler reorganized through a fair debt to equity conversion (a far fairer approach than the one it took), the UAW’s ownership interest in the new Chrysler would be far less.
I’m not sure I agree with your interpretation of the financial institution definition under TARP. Why have the word “financial” before “institution” if the term is supposed to apply to all institutions and not simply financial institutions?
Tom the government didn’t show preference to junior creditors. There was an auction whose proceeds went entirely to the secured creditors. I have no problem with this.
The proceeds came from the taxpayers, and the equity of the buyer is owned by Fiat/USA/UAW. But the key point is that there was not a higher third party bid that would have paid the secured creditors more. Incidentally, if this fact pattern is correct (I haven’t heard that it isn’t), the auction results were actually a handout to the secured bondholders. You can call the provision of an even larger handout to the UAW an elevation of junior creditors over senior, but the money being divvied up here is political pork, not the estate of a bankrupt firm. If there had been a third party bid that would have paid the secured creditors more than the government did, I would agree with you. But that just doesn’t appear to be the case.
I don’t think you’ve read the TARP definition. Have a look and see if you still don’t agree with me:
The term ìfinancial institutionî means any institution, including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or any State, territory, or possession of the United States, the District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Mariana Islands, Guam, American Samoa, or the United States Virgin Islands, and having significant operations in the United States, but excluding any central bank of, or institution owned by, a foreign government.
Kevin, I agree that new Chrysler probably overpaid for the assets (as evidenced by the lack of biddign for them) and that secured creditors of Chrysler are beneficiaries of the government’s sloppy underwriting of the takeout financing.
However, I’m not sure that your characterization of the government’s favoritism of the UAW as “political pork” rather than outright illegality makes that preferential treatment any more tolerable.
For a variety of reasons, I don’t agree with your intepretation of what constitutes a financial institution under TARP. Putting aside for a moment that TARP was enacted as a bailout of financial institutions and not any company that the government chose, the new Chrysler did not exist at the time of TARP, so it could not have been “established or regulated” as of the time of the legislation (that is, the legislation appears to apply only to entities existing as of the date of enactment, which makes sense). Similarly, new Chrysler had no “significant operations” in the U.S., so that requirement was not fulfilled, either.
Now, of course, feckless judges who do not want to apply the law contrary to popular political sentiment can always rationalize expansive statutory language to justify their acquiesence. We certainly have seen the same thing with regard to judges standing idly by while prosecutors prosecuted unpopular businesspeople by expanding honest services wire fraud far beyond what Congress ever intended. But it certainly gives one pause as to how commonly it is now occurring.
I didn’t mean to (and don’t think I did) endorse the huge government handout to the UAW. I was just saying that the way the auction went down is not, to me, an affront to freedom or the rule of law. As far as I can tell, the law requires that the proceeds from the liquidation of the estate of a bankrupt firm be paid first to secured creditors. This has happened. The law also allows the distribution of public funds to anyone the government wants to get them. This has also happened.
What part of TARP limited the the investments to companies that existed at the time TARP was enacted? If that provision appears anywhere in the act, I would agree that the government’s investment in New Chrysler is in violation of the act. The definition of “financial institution” seems not to exclude firms not in existence at the time the law was enacted.
I get your larger point about aggressive executive interpretation of law and legislative and judicial fecklessness. I do think that the government’s handling of Chrysler is far less offensive than the aggressive prosecutions, though. In those cases, prosecutors had a duty to seek justice, and they did not fulfill it. I don’t think the bureaucrats administering the various bailouts have a comparable duty. I could be wrong about that.
Kevin, although I question whether “the law . . . allows the distribution of public funds to anyone the government wants to get them,” I agree that the prosecutions are much worse than the misapplication of TARP funds. The former badly damaged lives, families and careers. The latter is only money.