Presidential Extortion

Steve Stanek at Capitalism Magazine writes about how Obama is throwing out the rule of law in the United States. Remember that it is the job of lenders to extract maximum value for it's shareholder. This has been made impossible by Obama's demand that banks play the tune he calls or else. Is this extortion or not!

Until earlier this month, this was a nation of laws, not of men, a nation where justice was blind, meaning we are all equal under the law.

That changed when President Barack Obama's extortionate threats against the "holdout" Chrysler lenders caused them to accept the government’s 29 cents on the dollar offer for the money Chrysler owes them.

Obama publicly vilified these lenders, who had every legal, contractual, and moral right to hold out for a better return on the money they gave Chrysler. Behind the scenes, administration officials allegedly threatened to destroy the lenders by "unleashing the White House press corps" on them, according to Tom Lauria, an attorney representing the lenders.

If true—and there is little reason to doubt it, given the president's public conduct—the president or his agents should face criminal charges. Nothing in the Constitution authorizes extortion by the president. (READ HERE)

Obama Throws The Rule of Law Out The Window

Over at the Wall Street Journal Todd J. Zywicki explains Obama's strong arming of Chrysler. It's stench is horrible and America is the worse for this sad disregard for the inviolability of contracts.

The rule of law, not of men -- an ideal tracing back to the ancient Greeks and well-known to our Founding Fathers -- is the animating principle of the American experiment. While the rest of the world in 1787 was governed by the whims of kings and dukes, the U.S. Constitution was established to circumscribe arbitrary government power. It would do so by establishing clear rules, equally applied to the powerful and the weak.

Fleecing lenders to pay off politically powerful interests, or governmental threats to reputation and business from a failure to toe a political line? We might expect this behavior from a Hugo Chávez. But it would never happen here, right?

Until Chrysler.

The close relationship between the rule of law and the enforceability of contracts, especially credit contracts, was well understood by the Framers of the U.S. Constitution. A primary reason they wanted it was the desire to escape the economic chaos spawned by debtor-friendly state laws during the period of the Articles of Confederation. Hence the Contracts Clause of Article V of the Constitution, which prohibited states from interfering with the obligation to pay debts.
Hence also the Bankruptcy Clause of Article I, Section 8, which delegated to the federal government the sole authority to enact "uniform laws on the subject of bankruptcies."

The Obama administration's behavior in the Chrysler bankruptcy is a profound challenge to the rule of law. Secured creditors -- entitled to first priority payment under the "absolute priority rule" -- have been browbeaten by an American president into accepting only 30 cents on the dollar of their claims. Meanwhile, the United Auto Workers union, holding junior creditor claims, will get about 50 cents on the dollar.

The absolute priority rule is a linchpin of bankruptcy law. By preserving the substantive property and contract rights of creditors, it ensures that bankruptcy is used primarily as a procedural mechanism for the efficient resolution of financial distress. Chapter 11 promotes economic efficiency by reorganizing ...(READ at WSJ).