Life and Death Under Capitalism

One of the most important court cases in U.S. history will be heard  tomorrow, June 5th. It pits Indiana State Treasurer Richard Mourdock against the United States government. While the case is nominally brought against Chrysler in the Chrysler bankruptcy, the reorganization plan was put together by the Obama Administration’s Auto Task Force.

You can read the Bloomberg story here. The crux of the case is this: Can the U.S. government take assets that are pledged as security for debts due to existing creditors and give those assets to someone else?  The Auto Task Force plans to give creditors twenty-nine cents on the dollar from the TARP funds and to give the pledged assets to Italian auto maker Fiat.

If this is permitted, then over 150 years of well established law will have been tossed into the dustbin of history. Not to mention that this is clearly an extra-legal use of TARP funds. You can listen to a good interview of Richard Mourdock that took place on WOWO radio by clicking here. (Note, the interview is in two parts and the link has Mourdock’s name misspelled as Maurdoch.)

This is why this case is so important. Secured creditors accept a pledge of specific assets in return for loaning money to a borrower. The creditor has the ultimate right to take possession of those assets and sell them to satisfy the debt. That is how it is with the mortgage on your house, for example.

In the words of Mourdock, “this is far bigger than Chrysler or the State of Indiana,” it is “important to our capital market system.” If secured creditors are not truly secured, then lenders and investors will demand higher rates of interest and may not lend at all to some industries. The government’s position in this case is penny wise and pound foolish.

Who is benefiting? Primarily the UAW and the U.S. Government. Part of the irony of this case is that the Indiana Treasurer is suing on behalf of two union pension funds (Indiana Police and Indiana Teachers) and one other state fund. He is totally alone in this fight. Every other creditor caved in under threats, and pressure from the White House. The California state retirement fund walked away,for example, because the state is asking for a federal bailout.

This case represents a blatant misuse of federal power to abrogate private property rights. It is totalitarian in its nature and represents a major threat to capitalism itself. If we the people lose this one, then who will lend to auto companies, to other unionized industries, or to the government itself? Those who do so run the risk of being labeled as greedy, unpatriotic, speculators who will be publicly excoriated by the White House press office and may look forward to threats of physical violence and death, all of which occurred in the case of Chrysler’s creditors.

The case, In re Chrysler LLC, will be heard in the Second Circuit Court of Appeals and could move quickly to the U.S. Supreme Court regardless of the outcome because Bankruptcy Judge Arthur Gonzalez as scheduled the transfer of Chryslers assets to Fiat for June 15th.

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