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  UAW’S SWEETHEART DEALS

  A major supporter of Obama, the United Auto Workers got sweetheart deals in both the GM and Chrysler restructurings. In the case of GM, the UAW and the bondholders were both unsecured creditors with equal rights under bankruptcy law, although GM contended that it had made a deal in 2007 that gave a preference to the UAW’s unsecured claims. The bondholders, however, reportedly never agreed that their claims would be subordinated to those of UAW. Because GM’s debt to the UAW (estimated at $20-30 billion) and to the bondholders ($27 billion) were roughly equal, it would follow they would each receive a similar percentage of shares in the new company. But Obama’s proposed restructuring contemplated UAW receiving about 39 percent of the stock while the bondholders would get just 10 percent, with the other 50 percent going to the government.9 New York attorney and financial expert Norman Kinel noted, “To say it’s unusual is an understatement. The government doesn’t ever get involved this way.” Dan Seiver, a San Diego State University finance professor, said, “We’re in a new era where the government is calling a bunch of shots.”

  Other experts pointed to the government’s conflict of interest as a shareholder on the one hand and, on the other, its interest in protecting jobs and benefits. Some also expressed concerns about the government’s heavy-handed tactics and the possible unstated consequences of disobeying its directions. Dartmouth’s Tuck School of Business professor Syd Finkelstein noted allegations by Bank of America Chief Executive Ken Lewis that the government had pressured him to complete a merger with Merrill Lynch.10

  GM Bondholder Advisers issued a statement saying they were “deeply concerned with today’s decision by GM and the auto task force to offer only a small, inequitable percentage of stock to its bondholders in exchange for their bonds.” Calling the offer “neither reasonable nor adequate,” they said it amounted to using taxpayer money “to show political favoritism” for certain creditors over others.11

  A month later, UAW’s proposed share was cut to approximately 20 percent of GM’s common stock, with 17.5 percent to be transferred immediately, along with a warrant for an additional 2.5 percent. The bondholders’ share was to remain at 10 percent. When GM was asked whether the bondholders’ deal would be “sweetened,” it responded that the government was preventing it from offering them more than 10 percent. 12 As it happened, a deal could not be consummated, and GM filed for bankruptcy on June 2, 2009.13 Within a month of the filing, the government was trying to sell the company to a “New GM,” the majority share of which would be owned by the government. The bondholders were still objecting, however. Their attorney, Michael Richman, accused the government of being “overbearing” and of circumventing the law. Richman contended that the sale had not been negotiated as an arms-length sale to an independent party because the government, essentially, was dealing with itself and otherwise dictating—not negotiating—the terms of the deal.

  The government was allegedly manipulating the deal and determining the price not through good faith negotiations, but by first determining how much its “favored parties” needed from the deal and then backing into the price. The sale, if approved, would result in the union initially owning a 17.5 percent interest, Canadian governmental entities 12 percent, the bondholders 10 percent, and the government 60 percent. 14 Obama, of course, said the government needed such a large stake because the financial health of the auto industry affected the financial health of the nation—the “too big to fail” argument. He insisted he really didn’t want to nationalize the companies. “We could have simply offered the company more loans,” he said. “But . . . piling on irresponsibly large debt on top of the new GM would mean simply repeating the mistakes of the past.”15 Ultimately the sale proceeded—much to the chagrin of the bondholders, who had made the mistake of lending their money to a private company in the age of Obama. 16

  THE MADMAN THEORY OF THE PRESIDENCY: OBAMA WANTED TO BE FEARED

  The Chrysler case was even worse. The creditors competing against the UAW were secured creditors, presumably entitled to priority over the unsecured union workers. But the secured creditors were being heavily pressured to accept just a fraction of the amount of their claims: $2.25 billion of the $6.9 billion they were owed (29 cents on the dollar), while the unsecured UAW was offered some 50 cents on the dollar. The UAW agreed to concessions to freeze wages, cut retiree health benefits, and not to strike for at least six years. Chrysler executives still hoped to avoid bankruptcy and possibly merge with GM. But Obama’s inside man, Steven Rattner, the head of Obama’s Auto Industry Task Force, had virtually pre-ordained the outcome—bankruptcy—while publicly claiming he was studiously seeking to avoid that result. Chrysler’s CFO Ron Kolka said Rattner told him how it would go: bankruptcy, followed by a restructuring with the creditors, the union, and Fiat—not GM, even though Robert Manzo, a financial consultant for Chrysler, said he believed “the valuations of an alliance with GM were higher than those of a deal with Fiat.” It didn’t matter to Rattner, who had already decided as of March 30 that his task force would only authorize taxpayer money to be used for a deal with Fiat.

  In an e-mail to Chairman Bob Nardelli, Vice Chairman Tom LaSorda, and Robert Manzo, Kolka wrote, “We need a deal with Fiat today. We were told to pretty much take it.” Nardelli said that Rattner and his politically radical colleague Ron Bloom—Obama’s manufacturing czar—“will call the union and tell them what will happen. Then they’ll tell the banks, ‘Here’s the deal: take it or liquidate it.’”17 In other words, Don’t bother us with valiant efforts to save your sorry company when we have plans to take it over and do with it as we please. And don’t try to negotiate better terms—or any different terms—any of you. We are the government and we’re calling the shots.

  The four primary creditors, J. P. Morgan Chase, Citigroup, Goldman Sachs, and Morgan Stanley, agreed to the Treasury’s plan, but other lenders—mostly hedge funds—weren’t on board. Obama maneuvered himself into position to call these shots, because a condition of the TARP loans to GM and Chrysler was that the government would have the right to convert its claim to debtor-in-possession status, which has first priority under bankruptcy law.18 Reportedly, one of the lawyers on Rattner’s team, Matthew Feldman, got his nose out of joint in negotiations with Chrysler and refused to allow Manzo to sweeten the offer to the reluctant investors in a final attempt to avert bankruptcy. Feldman reportedly told Manzo, “I am not talking to you. You went where you shouldn’t.” Even after Manzo apologized—who knows what for—Feldman highhandedly replied, “It’s over. The president doesn’t negotiate second rounds. We’ve given and lent billions of dollars to your team, so your team could manage this properly. I’ve protected your management and board, and now you’re going to put me in a position to have to bend to a terrorist like Lauria. That’s B.S.”19 “Lauria” was Tom Lauria, an attorney representing Perella Weinberg Partners, one of Chrysler’s secured creditors unhappy with the proposed deal. He offered an unflattering account of the administration’s capricious actions in the process. Lauria, Global Practice Head of the Financial Restructuring and Insolvency Group at White & Case, a highly reputed international law firm, told ABC News that Steven Rattner informed an official of Perella Weinberg that the administration would embarrass the firm if it opposed Obama’s plan .20 In an interview with FOX News’ Megyn Kelly and Neil Cavuto, Lauria said, “One of my clients was directly threatened by the White House and, in essence, compelled to withdraw its opposition to the deal under the threat that the full force of the White House press corps would destroy its reputation if it continued to fight.”

  The plot thickened when Perella officials curiously denied Lauria’s account, without elaboration. But unnamed witnesses corroborated Lauria’s version of events. John Carney, writing for Business Insider, reported that the sources, who insisted on anonymity for fear of political reprisals, said they represented creditors of Chrysler and were taken aback by the hardball tactics the Obama administration employed to compel
their acceptance of the restructuring plans. One described the White House as the most shocking “end justifies the means” group they had ever encountered. Another source claimed Obama was “the most dangerous smooth talker on the planet—and I knew Kissinger.” Both had voted for Obama. Another participant in the negotiations described Obama’s tactics as employing a “madman theory of the presidency,” where Obama wanted to be feared as someone who was “willing to do anything to get his way.” This witness said his firm took the strategy very seriously.21

  “SHAKING DOWN LENDERS FOR THE BENEFIT OF POLITICAL DONORS”

  As had become his practice, Obama attacked his critics personally as well as ungraciously and unpresidentially. Although he didn’t name Perella specifically, those following the negotiations knew exactly who he was talking about when he released a statement saying, “While many stakeholders made sacrifices and worked constructively, I have to tell you some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices, and they would have to make none.”22 Here was the president of the United States, again, attacking the reputation and integrity of a private firm merely for asserting its rights in a negotiation.

  The statement also outraged hedge funds which, after all, weren’t the ones being bailed out. Hedge fund executive Cliff Asness passionately denounced Obama’s bullying in Business Insider:The president screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large. Find me a hedge fund that has been bailed out. Find me a hedge fund, even a failed one, that has asked for one. In fact, it was only because hedge funds have not taken government funds that they could stand up to this bullying. The hedge funds were singled out only because they are unpopular, not because they behaved any differently from any other ethical manager of other people’s money. The president’s comments here are backwards and libelous. . . . This is America. We have a free enterprise system that has worked spectacularly for us two hundred plus years. When it fails it fixes itself. Most importantly, it is not an owned lackey of the oval office to be scolded for disobedience by the President.23

  In his statement, Obama took another thinly veiled swing at Perella and at hedge funds: I don’t stand with them. I stand with Chrysler’s employees and their families and communities. I stand with Chrysler’s management, its dealers, and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars. I don’t stand with those who held out when everyone else is making sacrifices.... But it was unsustainable to let enormous liabilities remain on Chrysler’s books, and it was unacceptable to let a small group of speculators endanger Chrysler’s future by refusing to sacrifice like everyone else.24

  Investment bankers are “speculators?” This was stunningly distorted and abusive language. Obama’s use of the first person indicated this was very personal to him. What we were witnessing was a public temper tantrum from an egomaniac who enjoys a reputation for being cool, calm, and unflappable. Cliff Asness weighed in on Obama’s lecturing hedge funds about “sacrifice,” noting that it’s the job of all investment managers to maximize their clients’ return. They may choose to be charitable with their own money, but they have no right to give away their clients’ money in the name of “sacrifice.” That, said Asness, is “stealing.” He continued, “The managers have a fiduciary obligation to look after their clients’ money as best they can, not to support the president, nor to oppose him, nor otherwise advance their personal political views.” Obama, said Asness, took money from bondholders and gave it to labor, which “delivers money and votes for him. Why is he not calling on his party to ‘sacrifice’ some campaign contributions, and votes, for the greater good . . . [S]haking down lenders for the benefit of political donors . . . is recycled corruption and abuse of power.”25

  The Economist had similarly harsh language for the administration. “America’s government, keen to protect workers, is providing taxpayer’s cash to keep the lights on at both firms. But in its haste, it has vilified creditors and ridden roughshod over their legitimate claims over the carmakers’ assets.... Bankruptcies involve dividing a shrunken pie. But not all claims are equal: some lenders provide cheaper funds to firms in return for a more secure claim over the assets should things go wrong. They rank above other stakeholders, including shareholders and employees. This principle is now being trashed.”26 Even self-described left-leaning author Douglas Rushkoff condemned the administration’s “misguided” tactics. “The people who bought GM bonds over the past few years,” he said, “were bailing out GM’s health plan for very low returns—but a high level of security,” he said. “Now, as government continues to bail out the auto giant, those consumer-grade debtors are being pushed to the back of the line. They’ll not only pay for GM’s bailout through their bond investments, but through their taxes as well.”27

  Tom Lauria said Obama’s assertion that “I don’t stand with you” sounded like “You’re fair game.” People, said Lauria, “are scared. They have gotten death threats. Some have been told people are going to come to their houses. God forbid if some nut did something, I’m just wondering how the president would feel.” Query: Was Obama’s language the type of speech the Left has in mind when it so often accuses conservatives of inciting violence just by registering their dissent with this administration?

  Lauria is almost certainly telling the truth. What motive would a widely respected attorney like Lauria have to lie, and especially in a way that would misrepresent what his clients had experienced? And Lauria was not some rock-ribbed Republican. A self-described independent, he donated $10,000 to the Democratic Senatorial Campaign Committee in 2008 and $1,000 to then-Senator Hillary Clinton in 2006.28 Moreover, given the undisputed facts, the White House acted capriciously by skewing the deal in favor of Obama’s labor union allies with utterly no legal justification.

  GANGSTER GOVERNEMNT

  Washington Examiner writer Michael Barone commented on the plausibility of Lauria’s claim that the White House threatened to savage Perella in the press unless it cooperated. Barone said that while the threat “sounds just a tad bit bizarre,” Rattner’s involvement raised the possibility that the principals understood Rattner was a former New York Times reporter who was “reputed to be one of the best friends” of the paper’s publisher, Arthur Sulzberger, Jr. Barone cites blogger Mickey Kaus’s observation that hedge funds (such as Perella) are squeamish about negative publicity or any publicity at all, because it could lead to investors withdrawing their funds. Additionally, investors read the New York Times every day.29

  Rattner abruptly resigned as head of the auto task force after leading GM and Chrysler into and out of bankruptcy. Not unbeknownst to the Obama administration when it appointed him for this position, Quadrangle Group, the investment firm Rattner had founded, had been under a two-year investigation by the Securities and Exchange Commission.30

  Obama’s claim that Perella was unwilling to make any sacrifice was absurd on its face. Lauria said his clients, in fact, were willing to take 50 cents on the dollar from Chrysler. Obama was offering to give his UAW buddies 50 cents on the dollar for their unsecured debts while only offering Perella 33 or fewer cents for its secured debts, which was both outrageously unfair and contrary to fundamental bankruptcy law. Under the plan, the UAW would eventually own 55 percent of the stock in a restructured Chrysler LLC, Fiat SpA would own 35 percent, and the federal government and Chrylser’s secured creditors, together, would own the remaining 10 percent.31 This was an especially hard pill to swallow when a compelling argument can be made that one of the major factors contributing to the auto dealers’ financial difficulties was over-priced labor that put the Big Three at a competitive disadvantage with foreign auto makers.

  Perella denied it was being unreasonable; it would have received as much, and probably more, under bankruptcy proceedings. And while Obama accused
the firm of helping to bankrupt Chrysler, even the New York Times said this “boutique investment bank, a latecomer to Chrysler, played only a small role in the slow-motion wreck of the Detroit carmaker.” Indeed, the Times quoted certain industry executives who contended that Obama needed “political cover” for the “mess in Detroit”—and “Wall Street provided a handy scapegoat.”32

  Obama picks the winners and losers based on political allegiance and abject cronyism—the rule of law be damned. This is the danger of the government being involved as both a party and an arbiter, in effect, of the final outcome—a flagrant conflict of interest that worked strongly against its ability to be fair and objective. The entire episode was aptly described by Michael Barone as “Gangster Government.”33

  “I HAVE NO INTEREST IN RUNNING GM”

  Obama’s dealings with General Motors and Chrysler opened some previously skeptical eyes about his statist tendencies. At the end of May 2009, Rasmussen Reports showed only 21 percent of voters nationwide supported a plan for the federal government to bail out GM as part of a bankruptcy reorganization, while 67 percent opposed. The proposal involved the government loaning GM $50 billion in exchange for a whopping 70 percent ownership interest in the business. Poll participants had clearly thought through the consequences of their responses. When asked whether they would still oppose the bailout if it meant GM going out of business, it only brought the support up to 32 percent, with 56 percent opposing. An earlier survey showed 76 percent of voters did not believe the “too-big-to-fail” hype of the political class—that economic recovery depended on GM’s survival.34 Other polls revealed a majority of Americans still distrusted the government. One survey discovered only 18 percent believed the government would do a good job running GM,35 and another found 57 percent expected the government would use its power to give unfair advantage to companies it owned.36 Only 12 percent said they would prefer a car from a bailed-out automaker .37