Let's Beat Up George Will Instead

I once found my cat hissing and spitting at close quarters with a neighbor's cat on my porch. I favored my cat, of course, but I decided to put an end to the squabble in an faux-objective, even-handed manner and stomped precisely in-between the two cats. Instead of ceasing their fight, both cats immediately launched ferocious assaults on my leg.

George Will decided to wade into the Chrysler bankruptcy proceeding with all kinds of sniffy opinion-talk about the sanctity of contracts and Obama's corruption and lawlessness.

Bankruptcy proceedings are interesting affairs, of course, because that's when you discover whose contracts are truly sanctified and whose contracts are just glossy toilet paper. It's a lot like a barroom brawl, with some parties waving chairs in the air and the other parties making stabbing gestures with broken beer bottles. Deciding these things is an ugly business, but George Will decides, first, to take a side, and then chastise the Obama Administration for taking a side too:

Anyway, the Obama administration, judging by its cavalier disregard of contracts between Chrysler and some of the lenders it sought money from, thinks contracts are written on water. The administration proposes that Chrysler's secured creditors get 28 cents per dollar on the $7 billion owed to them but that the United Auto Workers union get 43 cents per dollar on its $11 billion in claims -- and 55 percent of the company. This, even though the secured creditors' contracts supposedly guaranteed them better standing than the union.

Among Chrysler's lenders, some servile banks that are now dependent on the administration for capital infusions tugged their forelocks and agreed. Some hedge funds among Chrysler's lenders that are not dependent were vilified by the president because they dared to resist his demand that they violate their fiduciary duties to their investors, who include individuals and institutional pension funds.

The Economist says the administration has "ridden roughshod over [creditors'] legitimate claims over the [automobile companies'] 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." Tom Lauria, a lawyer representing hedge fund people trashed by the president as the cause of Chrysler's bankruptcy, asked that his clients' names not be published for fear of violence threatened in e-mails to them.

The Troubled Assets Relief Program, which has not yet been used for its supposed purpose (to purchase such assets from banks), has been the instrument of the administration's adventure in the automobile industry. TARP's $700 billion, like much of the supposed "stimulus" money, is a slush fund the executive branch can use as it pleases. This is as lawless as it would be for Congress to say to the IRS: We need $3.5 trillion to run the government next year, so raise it however you wish -- from whomever, at whatever rates you think suitable. Don't bother us with details.

...The Obama administration's agenda of maximizing dependency involves political favoritism cloaked in the raiment of "economic planning" and "social justice" that somehow produce results superior to what markets produce when freedom allows merit to manifest itself, and incompetence to fail. The administration's central activity -- the political allocation of wealth and opportunity -- is not merely susceptible to corruption, it is corruption.

All of this high-falutin' talk ignores the fact that the hedge funds (the comically-named 'Non-TARP lenders') have apparently figured out a way to get a better deal from AIG credit default swaps, guaranteed by TARP funds, by driving Chrysler into bankruptcy:

AIG, thanks to the government bailout, has paid off swaps in the past at 100 cents on the dollar. Under the deal they would have had to accept with Chrysler, the bondholders would have received as little as 30 cents on the dollar, for example.

Why take 30 or 35 cents on the dollar from Chrysler when you can get the whole buck from the American taxpayer?

"The basic story is very simple," says economist Dean Baker of the liberal-leaning Center for Economic and Policy Research. "If they hold credit default swaps on the bonds, they're totally happy with them defaulting."

In what would rank as one of the great scams of this financial crisis, government bailouts may be colliding. Wall Street may be raking in taxpayer dollars through AIG and returning the favor by driving the auto industry into bankruptcy.

The corruption problem George Will mentions is certainly a long-term danger, but the Chrysler bankruptcy proceeding is a terrible example to make the case. It's more like walking into a barroom brawl, and getting angry at the parties waving chairs in the air and completely ignoring the other parties making stabbing gestures with the broken beer bottles. And by getting angry with Obama for choosing the chair-wavers, Will ignores the fact that he has chosen the bottle-stabbers.

So, as with the cats, in order to bring this fight to a fitting conclusion, I think the best thing for George Will to do now is, in his faux-objective, even-handed pundit manner, to stomp precisely in-between the two parties in the Chrysler bankruptcy proceeding....