Wednesday, June 10, 2009
The Deadly Sins Of The Chrysler Bankruptcy
This article by an objective Libertarian thinker, Richard Epstein, a distinguished professor of Law at University of Chicago illustrates in the Chrysler bankruptcy the blatant fundamental legal and constitutional issues the government's version of controlled bankruptcy causes. This is textbook protection of Labor and the "average American" at the cost of secured creditors and investors in the company...who the government likes to call "Speculators". Ouch!
What we truly have here is total distortion of the country's financial and bankruptcy laws for the good cause of "saving jobs". Not only that, but we are selling off the assets in one fell swoop to Fiat, a foreign company (Italian) that as far as I know hasn't produced a competitive, American standards running car for decades. While I understand how USA companies can be attractive with a devaluing dollar currency, I don't really understand how this supports the concept of keeping jobs in the USA and "buying American" like so many are calling for. And all of this brokered by our own federal government over the objections of secured creditors like the Indiana pension fund and other larges stock holders. There is a new "Chrysler Group LLC" replacing the old corporation before the current bankruptcy has come anywhere near to running its course. What legal precedence is this based on? All the assets and good will of the brand get transferred to a new company before a final bankruptcy settlement? Huh?
And what is the morality behind the federal court with a flash of a pen destroying the 789 Chrysler dealership franchises? Were those contracts, businesses and jobs worth no more than the paper those franchise contracts were written on? I can think of many analogies to this action...it is like McDonalds foods filing bankruptcy, then opening up a new LLC that annuls all the thousands of McDonalds franchises worldwide. Would that be legal or ethical?
Bottom line of what we have here in my interpretation is a rushed, illegal takeover of Chrysler by the employees union, the Federal government and foreign company Fiat. The new board "will consist of three Fiat directors, four representing the U.S. government, one from the UAW and one from the Canadian government". From where I sit, Chrysler has just become a global company on the backs of the formerly secured stock holders of the "old Chrysler". It is as if somehow these "speculators"/stockholders were to blame for management MIS-management and unrealistically high wages from decades of non-competitive union labor contracts.
I'm sure the masses in the USA will applaud the saving of jobs and the "good" Chrysler name IF this works. But, how could any conscientious investor ever again invest in an American automotive company? Is anyone going to cry for the well intentioned, honest investor(s) who kept Chrysler afloat all these decades? I was looking at Lee Iacocca's blog for his opinion on this...but he is strangely quiet on this subject. Even this octogenarian will lose a significant part of his pension and lifelong free car use in this bankruptcy. I would bet he NEVER would have considered this latest move of bankrupting the old and immediately launching the "new" company. It sounds both "genius"...and illegal.