We have been witness over the past several weeks to White House strong arming of businesses the likes of which have previously been unknown in this country. And now if appears Obama has crossed a threshold that the Constitution forbids.
First there are the TARP loans. The government has refused banks the ability to repay them. Instead, the Obama administration floated a plan, still under consideration, of de facto nationalizing the banks by converting bank TARP loans to common stock. One would think it could not get worse than that, but one would be wrong.
Obama, in proposing to reorganize the auto manufacturers, wants to place his major constituency, big Labour, at the front of the line when it comes to an ownership stake in GM and Chrysler. The end result of such a move is that secured creditors of the two companies would suffer a relative loss far in excess of that which would be suffered by the unions. Not only has the Obama plan been set up to show blatant favortism in contravention of the commercial code, but Obama and his crew were publicly criticizing - and privately threatening - the secured creditors holding out against this plan. Powerline, refering to this as banana republic capitalism, has the whole story. And indeed, there is nothing to distinguish this act of Obama from similar extortions of property by Hugo Chavez in Venezuela or . . . well, pick your favorite dictator.
Fortunately, it seems that the creditors are fighting back. At least one attorney, Thomas Lauria, has gone public about the threat to the entities he represents made by the Obama administration - to use the White House Press Corps to destroy them in the eyes of the public. Today, Lauria has filed a brief challenging the proposed acts of Obama based on the Fifth Amendment. Specifically, he cites to a 1935 case, Louisville Joint Stock Land Bank v. Radford, that dealt with a provision of the New Deal that would have acted to strip a secured creditor of the value of his security by government fiat. The Supreme Court held that, regardless of the government's compelling interest in responding to the economic chaos of the depression, such an act violated the 5th Amendment prohibition against taking private property without just compensation. It is a case dead on point. Hot Air has the story.
I will assume, without looking it up, that this case is still good law. It's interesting to note that this case fell two years prior to FDR's "court packing" scheme. FDR was tired of being stymied by a Supreme Court that found much of his "New Deal" legislation unconstitutional. In 1937, FDR proposed to expand the number of Justices on the Supreme Court and pack the Court in his favor. FDR lost the battle and the legislation failed. That said, FDR won the war. The Supreme Court got the message and began regularly defering to FDR's wishes and taking congressional findings at face value.