GM & The Real Story Of Their Loan Payback

Last month, GM and the Obama administration were crowing over GM's repayment of a government $4.7 billion dollar loan. GM released an ad announcing the act. I wrote at the time that the ad was likely so misleading as to constitute fraud under SEC regulations. Powerline has come to a similar conclusion. Apparently, someone at the Weekly Standard reworked the ad to bring it in line with reality. Heh.

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The NYT Finally Addresses The Obama Administration - GM Fraud

I posted here on the fraud being jointly perpetrated by GM and the White House as regards GM early repayment of its government loan. Touted by both GM and the White House as proof of GM's profitability and responsibility, they failed to note that the repayment was accomplished using TARP funds. The Bush administration would have been roasted to a smoking husk over this in the MSM had his administration engaged in such a blatant fraud. Nonetheless, as with most things involving the left, it has been virtually ignored by the left. Today, weeks after the story broke, the NYT has posted an article addressing the fraud:

. . . Truth seekers the nation over . . . are indebted to Senator Charles E. Grassley, Republican of Iowa, who in recent days uncovered what he called a government-enabled “TARP money shuffle.” It relates to General Motors, which on April 21 paid the balance of its $6.7 billion loan under the Troubled Asset Relief Program.

G.M. trumpeted its escape from the program as evidence that it had turned the corner in its operations. “G.M. is able to repay the taxpayers in full, with interest, ahead of schedule, because more customers are buying vehicles like the Chevrolet Malibu and Buick LaCrosse,” boasted Edward E. Whitacre Jr., its chief executive.

G.M. also crowed about its loan repayment in a national television ad and the United States Treasury also marked the moment with a press release: “We are encouraged that G.M. has repaid its debt well ahead of schedule and confident that the company is on a strong path to viability,” said Timothy F. Geithner, the Treasury secretary.

Taxpayers are naturally eager for news about bailout repayments. But what neither G.M. nor the Treasury disclosed was that the company simply used other funds held by the Treasury to pay off its original loan.

Neil M. Barofsky, the inspector general overseeing the troubled asset program, revealed this detail when he spoke before the Senate Finance Committee on April 20.

“So it’s good news in that they’re reducing their debt,” Mr. Barofsky said of G.M. But he went on to note that G.M. was using other taxpayer money to make the loan repayment, according to the transcript of his testimony.

Armed with this information, Mr. Grassley fired off a letter to Mr. Geithner on April 22, asking for details of the transaction. “I am concerned ... that this announcement is not what it seems,” he wrote. “In fact, it appears to be nothing more than an elaborate TARP money shuffle.”

Mr. Grassley heard back from the Treasury last Tuesday. Herbert M. Allison Jr., assistant secretary for financial stability, confirmed that the money G.M. used to repay its bailout loan had come from a taxpayer-financed escrow account held for the automaker at the Treasury.

Emphasizing that the cash in the account was “the property of G.M.,” Mr. Allison said that the department had approved the company’s use of the money to retire the original debt because it was “consistent with Treasury’s goal of recovering funds for the taxpayer and exiting TARP investments as soon as practicable.”

It’s certainly understandable that G.M. would want to spin its repayment as proof of improving operations. But Mr. Grassley said he was troubled that the Treasury went along with the public relations campaign and didn’t spell out how the loan was retired.

“The public would know nothing about the TARP escrow money being the source of the supposed repayment from simply watching G.M.’s TV commercials or reading Treasury’s press release,” Mr. Grassley said in a speech on the Senate floor last Wednesday, saying that “many billions” of federal dollars remained invested in G.M.

“Much of it will never be repaid,” Mr. Grassley added. “The Congressional Budget Office estimates that taxpayers will lose around $30 billion on G.M.”

(Taxpayers still own $2.1 billion in preferred stock of G.M. and almost 61 percent of its common equity.) . . .

Of course, there is much joy in Mudville when a recipient of government aid repays its obligations. And it is also natural that the administration is keenly interested in reassuring taxpayers that losses on their bailout billions will be smaller than expected. Still, employing spin and selective disclosure is no way to raise taxpayers’ trust in our nation’s leadership. . . .

I pointed out in my initial post that this fraud and collusion likely fell afoul of securities regulations. And today, Hot Air and Powerline conclude similarly. This is more than a bad act - it is a potentialy criminal scandal. It is certainly a scandal deserving of far more than a buried article in the business section of the NYT, though that is at least a small start.

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Utterly Shameless - & Fraudulent

You might have caught this bit of seemingly good news today if you saw this commercial . . .



Or you might have heard the news from an ecstatic White House. This from CBS News:

No one was cheering louder than the White House about General Motors' repayment of $6.7 billion in loans from the federal government.

First thing this morning, Press Secretary Robert Gibbs alerted his 56,000 followers on Twitter of "BIG NEWS."

"GM pays back US $6.7 billion used to save jobs," Gibbs exulted. But he had more.

"BIGGER NEWS," he trumpeted. "Payment was 5 years ahead of schedule."

. . . Later at his daily press briefing, Gibbs didn't wait for a reporter to ask him about the GM payback. He portrayed it as a vindication of President Obama's decision to provide a federal bailout to GM and Chrysler . . .

The amount repaid by GM is less than 13 percent of the $52 billion in federal bailout funds provided to the automaker. The remainder of the bailout was converted into stock, which GM still intends to pay off. Gibbs concedes, "obviously, we're not out of the woods by any stretch of the imagination." But he thinks the payback demonstrates that GM is on a path to renewal. . . .

Vice President Biden added his voice to the White House chorus, hailing the GM payback as a "huge accomplishment."

"The President of the United States took a lot of heat for that effort," said Biden of the GM bailout, saying it kept the company alive while it was transitioning.

"And I would just like to point out that I am proud to be associated with the guy who saw the necessity to do this," boasted the VP about his constitutional boss.

Biden said the rapid GM payback "exceeded our expectations."

White House economic advisor Lawrence Summers came closest to telling the critics of the bailout "we told you so," without actually using those words.

"This turnaround wasn't an accident of history," said Summers in a blog on the White House website. "It was the result of considered and politically difficult decisions made by President Obama to provide GM and Chrysler - and indeed the auto industry - a lifeline, if they could demonstrate the will to reshape their businesses and chart a path toward long-term viability without ongoing government assistance."

But the payback also gives the White House ammunition in defense of future government bailouts, should they be needed. Gibbs said it's the White House hope they won't be.

Great news for Obama and GM indeed - until you get the rest of the story. This, courtesy of Jamie Dupree via Q&O:

The issue came up yesterday at a hearing with the special watchdog on the Wall Street Bailout, Neil Barofsky, who was asked several times about the GM repayment by Sen. Tom Carper (D-DE), who was looking for answers on how much money the feds might make from the controversial Wall Street Bailout.

“It’s good news in that they’re reducing their debt,” Barofsky said of the accelerated GM payments, “but they’re doing it by taking other available TARP money.”

In other words, GM is taking money from the Wall Street Bailout – the TARP money – and using that to pay off their loans ahead of schedule.

“It sounds like it’s kind of like taking money out of one pocket and putting in the other,” said Carper, who got a nod of agreement from Barofsky.

“The way that payment is going to be made is by drawing down on an equity facility of other TARP money.”

Translated – they are using bailout funds from the feds to pay off their loans.

This is absolutely unreal. This is nothing more than a shell game with taxpayer money, yet it is being presented as if GM is actually becoming a profitable organization again. Its been a long time since I looked at securities law, but I would be willing to bet this incredibly bit of misleading news from GM and its primary stockholder, the Obama administration, easily crosses those regulatory lines that define fraud under SEC regs. This is GM and the Obama Administration colluding to perpetrate a massive fraud on the American people.

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And This Will Fix Our Financial Problem?

As I look at the financial "reforms" proposed by Obama, it appears that there is precious little in the way of reform that is actually meant to address the issues raised by our financial crisis. My first question in that regard is how can Obama reform the financial system if we have not identified the problems at issue. Obama has established a commission to determine the causes of our financial break down. He wants reforms passed this summer, but the commission won't be reporting until the winter. So how the hell can he push through financial reforms months before that commission has completed its work and issued its report? Obama's push for financial reform before the commission issues its report makes a mockery of both.

Beyond that question, all of my issues with Obama's proposed financial reform are substantive. One, we know that much of the problem with the subprime mortgages came about because sub-prime loans were being bundled and given AAA ratings. This should be a central focus of financial reform, yet how that happened has been perhaps the most studiously ignored issue of the entire sub-prime mess. Indeed, the degree to which it has been ignored is making my spidey senses go tingling off the charts. On its face it appears that there has been massive fraud - and fraud that deeply implicates Fannie Mae. Moreover, having heard Barney Frank within the past year pressure Fannie Mae to upgrade the rating for certain loans, I really wonder whether this issue might not implicate some of our elected representatives also.

Two, it appears that our financial crisis came about one step removed from the sub-prime crisis. Besides apparent fraud in the bundling of tranches, you had derivatives designed to spread the risk - normally a good thing - but you also had recently enacted mark to market accounting rules that required institutions to show the value of their mortgaged backed securities as zero when the market for mortgages froze. Of course the value of the securities was not zero, but this rule caused untold chaos for those firms holding many securities - and it was what nearly froze the international credit market. Yet I see nothing being done to address those rare situations when mark to market becomes punitive and fails to give an accurate measure of the value of the securities being held.

Three, I supported the bailout of our financial institutions last year in light of the unique circumstances and the threat to credit - a meltdown that might have caused a true depression. That said, under anything short of such a unique set of circumstances, we should be not bailing out any financial institution. For capitalism to work, corporations need to be allowed to fail - whether they be AIG or GM. Yet Obama's proposed regulations give the government unlimited power to take over and bail out financial institutions and even establishes a slush fun to support such acts.

Four, Fannie and Freddie need to be completely privatized and put out of the reach of Congressional control. No one can argue that it was the demonic intersection of Fannie and Democrats that lay at the heart of our current fiscal woes. Yet they have now been, for all practical purposes, completely nationalized by the Obama administration.

Five, it was social engineering of credit qualifications that led directly to our current fiscal woes. Any financial reform should make color blind lending standards mandatory. Yet Obama proposes to put racially charged lending standards back into the front and center of our financial industry. That is anything but reform.

Six, someone needs to explain how heavily taxing banks and their profits will do anything to protect the banks customers, improve efficiency, or do anything other than further feed the trough at which at which our voracious socialist governments feed. Yet that is what is being proposed by the IMF:

Tough proposals to cut the world's biggest banks down to size by taxing their profits and pay were outlined by the International Monetary Fund tonight in an attempt to spare taxpayers another massive public bailout of the financial sector.

In measures more stringent than Wall Street and the City had expected, the fund called for the introduction of a twin-track approach to the three-year banking crisis that would both force firms to pay for any future support packages and raise new taxes on their profits and remuneration. . . .

Those are the issues I see. Michael Barone, writing at The Examiner amplifies several of them:

. . . The Dodd bill, however, has it trumped. Its provisions promise to give us one episode of Gangster Government after another.

At the top of the list is the $50 billion fund that the Federal Deposit Insurance Corp. could use to pay off creditors of firms identified as systematically risky, i.e., "too big to fail."

"The Dodd bill," Democratic Rep. Brad Sherman writes, "has unlimited executive bailout authority. That's something Wall Street desperately wants but doesn't dare ask for."

Politically connected creditors would have every reason to assume they'd get favorable treatment. The Dodd bill specifically authorizes the FDIC to treat "creditors similarly situated" differently.

Second, as former Bush administration economist Larry Lindsey points out, the Dodd bill gives the Treasury and the FDIC authority to grant an unlimited number of loan guarantees to "too big to fail" firms. Chief executive officers might want to have receipts for their contributions to Sen. Charles Schumer and the Obama campaign in hand when they apply.

Lindsey ticks off other special favors. "Labor gets 'proxy access' to bring its agenda items before shareholders as well as annual 'say on pay' for executives. Consumer activists get a brand-new agency funded directly out of the seniorage the Fed earns. No oversight by the Federal Reserve Board or by Congress on how the money is spent."

Then there are carve-out provisions provided for particular interests. "Obtaining a carve-out isn't rocket science," one Republican K Street lobbyist told the Huffington Post. "Just give Chairman Dodd and Chuck Schumer a s--tload of money."

The Obama Democrats portray the Dodd bill as a brave attempt to clamp tougher regulation on Wall Street. They know that polls show that voters strongly reject just about all their programs to expand the size and scope of government, with the conspicuous exception of financial regulation.

Republicans have been accurately attacking the Dodd bill for authorizing bailouts of big Wall Street firms and giving them unfair advantages over small competitors. They might want to add that it authorizes Gangster Government -- the channeling of vast sums from the politically unprotected to the politically connected.

That can boomerang even against the latter. Goldman Sachs employees gave nearly $1 million to the Obama campaign and $4.5 million to Democrats in 2008. That didn't prevent the Goldman from being shoved under the SEC bus. Gangster Government may look good to those currently in favor, but, as some of Al Capone's confederates found out, that status is not permanent, and there is always more room under the bus.

Ultimately, I see no reason to think that the financial reforms proposed by Obama will do a single thing to improve our economy. What a surprise, eh?

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A Descent Into Corruption & Abuse Of Power Is Not The Change For Which We Had Hoped

Unlimited power is apt to corrupt the minds of those who possess it; and this I know, my lords, that where laws end, tyranny begins."

William Pitt The Elder, Speech to the House of Lords, 1770

The Democrats have achieved what amounts to complete power in America. And the far left wing of the Democratic Party, led by Obama, are skirting if not violating the law in order to get their way. Numerous acts of intimidation and abuse of power are showing up everywhere you look. That includes at least two egregious acts that have come to light just this day - the intimidation of a witnesses and Obama's unilateral decision to fire the Inspector General (IG) for Americorps who had recently investigated and received a judgment against a major Obama supporter.

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In the Chrysler and GM bankruptcies, we have seen extortion and strong arming from Obama and his "car czar" to trample on statutory and constitutional rights of secured creditors. With the nations major banks, we have seen the Obama administration refuse to allow repayment of loans and then use their control to influence bank decisions as regards Chrysler and GM. Even now, though allowing repayment, the government is maintaining warrants that they could exercise at any time to take over the effective ownership of every major banking institution in America. We have seen the White House take direct control of the 2010 census and insert the deeply corrupt ACORN into the counting process. We have seen the Obama DOJ make the inexplicable decision not to prosecute voter intimidation by the New Black Panthers. And we have the Obama DOJ ignoring a recent Supreme Court case and making decisions that can only further promote voter fraud.

In the House, Nancy Pelosi and the Democrats repeatedly refused to allow ethics investigations of numerous Democratic lawmakers who are reeking with the stench of corruption. Indeed, even the NYT editorial board is starting to choke on that one. Tax fraud Charlie Rangel and "friend of Angelo" Chris Dodd still not only retain their seats in Congress, but their chairmanships. And we have the left protecting ACORN at every turn, cancelling hearings to investigate their corruption and insuring that all attempts to block robust funding of ACORN on the taxpayer's dime are rebuffed.

And today, there is more. First up are charges of witness intimidation. Democratic Rep. Ed Markey, co-author of the Waxman Cap and Trade bill, sent a letter to Federal Energy Regulatory Commission asking FERC to investigate MidAmerican Energy Holdings on the same day that company’s CEO was set to testify before the energy panel on the dangers of a carbon cap and trade system. In another instance, health care lobbyists were warned by two senior democratic staffers not to meet with the Republican leadership to discuss the proposed health care plan. As they reportedly said, doing so would be a "hostile act."

But by far the worst act is Obama's unilateral decision to fire Gerald Walpin, the Inspector General of AmeriCorps. An inspector generals job is to investigate for waste, fraud or abuse of federal funds. Walpin had recently investigated Kevin Johnson, an Obama supporter, and the nonprofit St. HOPE Academy that Johnson headed. Walpin found six instances of funds being diverted or wrongly used, none of which were disputed by Johnson. Walpin handed his findings over to the DOJ. The DOJ then found sufficient cause to order St. Hope to repay about half of nearly $847,000 in federal grants they had received from AmeriCorps. On the heels of that, not only did Obama act to fire Walpin, but Obama failed to comply with an act he voted for last year meant to protect Inspector Generals from political pressure. That law requires Obama to allow allow thirty days to pass after informing Congress of the intent to fire an IG, and to provide specific reasons for the firing. Obama did neither. Byron York has the definitive postings on this one. He also adds that this situation with Walpin may be the tip of the iceberg, stating that a "number of inspectors general around the government have been expressing concerns to Congress recently about threats to their independence."

On a final note, not included in the bill of particulars above are the highly questionable procedural games that the Democratic majority is playing in Congress. Major bills are not being written in committee. Instead, they are being written in secret by the far left wing of the Democratic party then pushed out with calls for an immediate vote. Nancy Pelosi virtually wrote the porkulus bill behind closed doors, and then referred to Republican complaints about the lack of bipartisanship in drafting the bill as mere "process arguments." And it is not just Republicans. The NYT reported last month "[f]orty-five House Democrats in the party’s moderate-to-conservative wing have protested the secretive process by which party leaders in their chamber are developing legislation to remake the health care system." Then there is Obama's proposal for ramming socialized medicine legislation through by grossly misusing the "budget reconciliation" procedure in the Senate.

Obama and the far left are drunk with power and vastly overreaching. Indeed, any number of Obama's acts to date would have, had they been done by Bush, resulted in substantive calls for impeachment. There is a reason Dafydd ab Hugh of Big Lizards tagged Obama as "Lucky Lefty." But with a press corps that more resembles a smitten school girl - indeed, so much so that one of the editors of the left wing SF Examiner is complaining - utterly none of these tyrannical acts designed to skirt law and democracy are being followed up by the MSM. This is not the hope and change Obama promised - but it is the reality his background clearly foreshadowed.

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A Very Good Day At The Supreme Court

Hats off to the Supreme Court. They had a really good day. They stopped, at least temporarily, the sale of Chrysler to Fiat in bankruptcy court. They refused to hear a constitutional challenge to the military's "don't ask, don't tell policy." And they decided that Judges who take sizable campaign contributions shouldn't later sit in judgment of their benefactors.

First up, the challenge of some Indiana secured creditors to the Chrysler bankruptcy. Justice Ginsburg refused to rule on the merits of the challenge and, instead, issued an order halting the sale of Chrysler assets to Fiat pending further hearing on the matter. This from the Washington Post:

The decision buys the court time to consider objections filed over the weekend, and it comes as the clock is ticking. Fiat can back out of the deal if it is not finalized by Monday, and the government has warned that the only alternative would be to force the nation's third-largest automaker into liquidation, throwing the industry in turmoil and leaving tens of thousands of people without jobs.

The stakes may be higher for the Obama administration: If the court backs some of the claims, it could disrupt plans to rescue General Motors and weaken the government's hand in stabilizing the troubled economy.

"Every day that Chrysler remains in bankruptcy without consummating the sale threatens to postpone the resumption of production even further and to prolong the period of $100-million-per-day losses" financed by taxpayers, Elena Kagan, the U.S. solicitor general, said in a 26-page filing with the high court.

To be absolutely clear, the reason this matter has reached the Supreme Court is because the Obama administration has walked all over the constitutional and statutory rights of those people who invested in Chrysler. If the Obama administration had tried to come up with a fair plan to begin with, one that didn't favor the unions over Chrysler's secured creditors, they wouldn't be in this mess in the first place. And now, they are trying to strong arm Justice Ginsburg with the same crisis like atmosphere that arm twisted Congress into passing the largest spending bill in history without ever having read what they had voted on. A tip of the hat to Justice Ginsburg for refusing to cave in to this crisis mongering.

In other big news from the Supreme Court, they knocked out a challenge to the military's "don't ask, don't tell" policy regarding gays in the military. They refused a petition for cert. This is in fact an issue of both social policy and defense policy - two areas were the Court should always defer to the Executive and Congress. The Court has no enumerated powers as to defense, and as to social policy, that is the whole purpose behind the legislature. Whether to allow gays in the military was clearly not at issue when the Equal Protection clause was passed, and therefore this question should not fall under the sphere of issues amenable to Supreme Court decision making.

Lastly, the Court decided, in a 5-4 decision, that Judges who are the recipients of substantial campaign contributions from a party should not sit on cases where that party is a litigant. The conflict of interest and appearance of impropriety are so obvious one would think that this one would be a no-brainer. And for five of the justices, it was. The liberal five. I can mark my calendar as the last time I found myself in agreement with the left of the Supreme Court was in the 1990's. It's a once in a decade type of thing. Alas, this is one of those rare occasions when I think Justices Roberts, Alito, Scalia and Thomas got it wrong.

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Rank Amateur Finds Comfort With Other Rank Amateurs

A bit of late blogging on this one. Its the NYT story about 31 year old political appointee Brian Deese -

- who is not schooled in economics,

- who has no experience in business,

- who has never met a payroll

- who has heard of Wall St. but never been there,

- who has no association with the automobile industry beyond occasionally driving a car, and

- whose entire work resume consists of working on political campaigns,

and who is now, in the words of the NYT, Obama's go-to guy "in charge of "dismantling General Motors and rewriting the rules of American capitalism.".

This is beyond comprehension. Is anyone going to start holding Obama to account before he completely destroys us.

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Dealergate . . . Its Better Than Watergate

It is an ancient custom for kings to confiscate the property of disfavored subjects and distribute it among their supporters to cement the king's power. Indeed, it is a tradition as old as non-democratic government itself. In the modern era, it has been a particular hallmark of communist governments. It is clealry unconstitutional for our government to do this under the 5th Amendment which reads, in pertinent part,:

. . . nor shall private property be taken for public use, without just compensation.

In fact, until a few days ago, it was impossible to envision something like this even being attempted in the U.S. That was until people started shining a light on what has been happening with dealerships as part of the reorganization by Chryseler and GM pursuant to plans of Obama's "auto czar." A clear pattern is developing, though it is still awaiting more data. It appears that, among the many dealerships being cancelled by those organizations - all seem to be Republicans or dealers who did not affirmatively support Obama. If you supported Obama, you not only keep your dealership, but you get the huge benefit of your nearby competition getting axed.

It is clear that many of the dealerships getting axed were quite profitable - thus negating any claim that the decision to kill them was based on economic considerations. If the decision of which dealships to axe is being directed by the Car Czar, with GM and Chrysler merely acting as intermediaries, then this act would be as unconstitutional as if done directly by the White House itself. If all of this in fact holds up to further scrutiny, then it is an unconstitutional act whose illegality dwarfs Watergate, where the only illegal acts were spying and coverup.

Doug Ross broke this story several days ago. He has since updated his post. Here are some of the things we know now, based on review of partial data:

- The initial pass at the list of shuttered dealers showed they had donated, in the aggregate, millions to Republican candidates and PACs and a total of $200 to Barack Obama.

- Dealer Jim Anderer told Fox News' Neil Cavuto he can't comprehend how his dealership can be among those killed: he stated that his sales volume ranking is in the top 2 percent of all dealers.

Then there is this from Rick Moran, writing at the American Thinker:

Now comes more evidence that these dealer closings were politically motivated.

Through Reliapundit at Astute Bloggers, we learn that the lawyer for the dealers being torpedoed believes that the closings were ordered not by Chrysler, but by the White House: (via Reuters )

A lawyer for Chrysler dealers facing closure as part of the automaker's bankruptcy reorganization said on Tuesday he believes Chrysler executives do not support a plan to eliminate a quarter of its retail outlets.

Lawyer Leonard Bellavia, of Bellavia Gentile & Associates, who represents some of the terminated dealers, said he deposed Chrysler President Jim Press on Tuesday and came away with the impression that Press did not support the plan.

"It became clear to us that Chrysler does not see the wisdom of terminating 25 percent of its dealers," Bellavia said. "It really wasn't Chrysler's decision. They are under enormous pressure from the President's automotive task force."

The dealer closings were not ordered by the bankruptcy judge but by the White House. This puts a whole new light on how the dealers to be closed were chosen and, more importantly, who did it.

And do see the post from Gateway Pundit:

Now there's this...

RLJ-McLarty-Landers is owned by three men. One was the former Chief of Staff for President Clinton.One is the founder of Black Entertainment Television and a huge Obama supporter.

All 6 of their Chrysler dealerships will remain open. And, get this... Their local competitors have been eliminated!

Doug Ross calculates the odds of all six of these dealerships remaining open while all of their competition has been axed as being to be about "one ten-millionth of one percent." Do see his calculations.

Bottom line. This is starting to stink more and more. This has the potentail to be a huge scandal. Any bets on whether the MSM will take notice?

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Will On Obama, Fantasies & Our Auto Industry

George Will has a great article today pointing out the demagoguery of Obama and the problems of Obama's decision to become the director of our auto industry.

George Will begins his article referring to a fantasy land where people pursue utopian ideas with ever more fanatical focus as all crumbles about them. He then analogizes this to Obama's foray into the auto industry:

At the Academy of Obama, professors and others devise plans for extracting a new and improved automobile industry from a semi-sort-of-bankruptcy arrangement that -- if it survives judicial scrutiny; that is not certain -- will give the United Auto Workers 39 percent of General Motors, with the government owning 50 percent. During future contract negotiations, will the union's adversary be an administration that the union helped to put in power?

The UAW will own 55 percent of Chrysler, . . .

. . . The president's "surgical" bankruptcy plan for Chrysler requires some of the company's lenders, mostly non-banks, to receive less than they would as secured creditors under bankruptcy law.

The law may still make itself heard over the political thunder. Meanwhile, the president faults these "speculators" for not being as cooperative as are most of the banks that have lent to Chrysler. But the banks are compliant because they are mendicants: Having taken the government's money, they are the government's minions.

. . . It is Demagoguery 101 to identify an unpopular minority to blame for problems. The president has chosen to blame "speculators" -- a.k.a. investors; anyone who buys a share of a company's stock is speculating about the company's future -- for Chrysler's bankruptcy and the dubious legality of his proposal. Yet he simultaneously says he hopes that private investors will begin supplanting government as a source of capital for the companies. Breathes there an investor/speculator with such a stunted sense of risk that he or she would go into business with this capricious government?

Its chief executive says: "If the Japanese can design [an] affordable, well-designed hybrid, then, doggone it, the American people should be able to do the same." Yes they can -- if the American manufacturer can do what Toyota does with the Prius: Sell its hybrid without significant, if any, profit and sustain this practice, as Toyota does, by selling about twice as many of the gas-thirsty pickup trucks that the president thinks are destroying the planet.

Obama overflows with advice for Americans who he thinks need admonitions . . . He also advises that this is a good time for Americans to put their hygienic hands on the steering wheel of a new car. He hopes buyers will choose American cars. A sensible person might add: Buyers should choose cars made by the Ford Motor Co.

This is so because Ford has, so far, avoided becoming an appendage of the government. And because the national interest will not be served by GM and Chrysler flourishing. It might cost taxpayers more in the short run, but in the long run it will be less costly for the country if the government finds its confident plunge into industrial policy so unpleasant that, sadder but wiser, the incumbent professors and others will flee from such adventures in extracting sunbeams from cucumbers.

Read the entire article. Its clear Obama wants to force his vision of vast fleets of fuel efficient, small cars on the American public. My own opinion is that he is setting up GM and Chrysler to be moribund corporations that will be, whether wanted or unwanted, long parasites on the American taxpayer, and thus at his beck and call.

It is an utter atrocity that Obama is being allowed to pursue both his payoff to big Labor and his strong-arming of "speculators" who have every right to the protection of the law, all unremarked by a press corps that is now, seemingly, an arm of the government. Indeed, there is no need to create a Ministry of Propaganda, that is one executive department that was already formed and fully staffed on day one.

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The Constitution - - The Last Refuge Against A Scoundrel

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.

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Obamanomics Pulling Hard Left

We are moving ever more quickly into socialism and, if the inevitable huge jump in inflation kicks in before our economy can recover, then we will have stagflation that will make us pine for the good old days of the Carter economy. The Obama administration is now seeking to take effective ownership of both our auto industry and our banking industry. This is on top of the cap and trade plan and Obamacare. And it is on top of massive public spending that threatens us with more debt than that created by all previous administrations combined. And that's only the first 100 days. There are many more to go. Indeed, when cap and trade and Obamacare hit, the numbers get too big for my five year old calculator.



Let's tick these off, one by one. The government refused banks the right to pay back TARP funds and floated a plan, still alive as far as I know, to coercively turn TARP loans into common stock, effectively nationalizing the banks and giving the Obama administration the right to set bank policy. Since it was setting bank policy through the Community Reinvestment Act that is at ground zero of our economic crisis, this ought to be doubly troubling.

As to the auto industry, we have already seen the incredible intervention of Obama forcing the CEO of GM to step down - apparently to get someone in the top spot who would be more amenable to the government's plans for the company. Now we have the government floating a plan that for GM and Chrysler that would have the government become the primary owner of both, with Big Labor as a junior partner. As to holders of common stock and bond holders who are legally entitled to far more - well, they are evil capitalists anyway who didn't likely vote for Obama, so they get shafted. See here, Powerline and Big Lizards.

Just to add here problem with government ownership of the means of production is that they will direct production and costs in ways that help them politically - or that are ideologically driven - rather than do what makes economic sense for the business and its customers. It is only the latter that helps all parties. It is why not a single socialist economy has ever prospered. Well, the ruling elites and their cronies all prosper, but the average Jack and Jill certainly do not.

Then there is the Troubled Assett Relief Program (TARP) that is growing in size and corruption by the day. As reported in the WSJ, Neil Barofsky, the Special Inspector General (SIG) for TARP, spoke before Congress in February, telling the legislators that far more transparency was needed to prevent vast fraud and abuse. At the time, Treasury concurred and said that they would institute changes to the program. Treasury since has dug in its heals and it really looks like TARP is out of control. The Special Inspector General (SIG) issued a report to Congress just the other day. I have not yet had time read the Quarterly Report of the Inspector General to Congress, but Powerline did - and their report is troubling indeed. Some snippets:

- - report documents the stunning and at least partly illegal expansion of TARP from the $700 billion originally allocated by Congress to what is now a $3 trillion complex of programs.

- - most troubling feature of the SIG's report is its documentation of reluctance on the part of Tim Geithner's Treasury Department to make even modest efforts to protect the interests of the taxpayers. To take just one glaring example, Treasury has refused to require banks to account for what they do with the billions of dollars they receive in TARP money.

- - The Treasury Department is now managing a vast portfolio of "troubled assets" on behalf of the American people. It has not, however, developed any plan for how to dispose of them, or how to manage them

- - The SIG discusses the "Public-Private Investment Program," one of the most controversial aspects of TARP. PPIP is intended to form public-private "partnerships" to buy distressed assets, mostly mortgage-backed securities. But the vast majority of the risk lies with the taxpayers, while the program is rife with opportunities for connected insiders to make a fortune.

There is much more and, if you do not have the time to read the SIG report, I would urge you to see the post at Powerline. As John Hinderaker sums it up in his post:

1) The government's $3 trillion and counting TARP program represents the greatest opportunity for sharp operators to profit at taxpayer expense in history.

2) The Obama administration is either in favor of giving Wall Street sharks this opportunity or, at a minimum, doesn't much mind doing so. (If this seems odd, remember where Obama got the biggest chunk of campaign contributions in 2008.)

3) It may be that the TARP complex of programs is the beginning of a national-socialist type takeover of the financial services industry by the federal government.

4) We can only hope that this turns out not to be the case, and TARP is only the biggest--and perhaps, by the end of the day, the crookedest--waste of taxpayer money in history.

5) so far the only person or organization who appears to be looking out for the taxpayers is the Special Inspector General. We will be reading his future reports with great interest.

Why is it that we did not see this splashed across the papers as a huge scandal in the making?

One last note relating to TARP, though hardly least in importance, is that the programs - and people - who gave us this economic meltdown are still in place. As I wrote months ago, our credit rating system - the one that regularly gave us triple-A ratings for mortgage backed securities based on subprime mortgages - was completely broken. It was a huge contributing cause to the mess we are in, and truth be known, it is wholly unclear why and how this happened. Regardless, as the SIG wrote in his report to Congress, and as quoted in the WSJ, "credit ratings on residential mortgage-backed securities (RMBS) 'have proven to be unreliable and largely irrelevant to the actual value and performance of the security. Arguably, the wholesale failure of the credit rating agencies to rate adequately such securities is at the heart of the securitization market collapse, if not the primary cause of the current credit crisis.'" So can we at least get a correction of the systemic problems in our credit rating industry? Fat chance with Barney Frank at the helm. Indeed, Barney Frank's sole contribution to adjusting the credit rating system since Obama and cronies took power was to call on credit agencies to give higher ratings to municipal bonds than their risk justifies so that states could raise more money.

As to Obama's plan to revitalize the economy, he rammed through his massive spending bill without any meaningful debate. While tax cuts gets the money into the economy near immediately and can have long term effect as businesses expand, government spending can take years to have any impact and the effects are largely transitory. As far as I can tell, we have yet to see in history a government successfully borrow and spend its way out of an economic crisis such as we are in. It did not work for FDR, and most recently, it did not work for Japan. Dale Franks at Q&O has done a very interesting post how closely our current economic plans mirror those that failed utterly in Japan in response to its own financial crisis.

Then there are Obamacare and cap and trade. The former is an intermediate step towards socialized medicine expected to add a trillion dollars to our tax bill. The latter is designed to force us off of oil and coal - at the modest initial annual cost of $4k per American family - and into a world of green energy that does not exist. Those pushing cap-and-trade the most are those people and industries who stand to make a true windfall - GE and Al Gore chief among them.

Further, Obama is now warring on domestic production of energy plants using coal - and I seriously doubt this administration will consider any sort of expanded domestic oil production. Oil costs are low now. That said, the pendulum will, as it always does, swing. The massive markets for oil in China and India will again take hold. When it does, we will be even less prepared for the huge jump in oil and gas costs then when we were a year ago, when merely $4 a gallon for gas was putting a world of hurt on American families. Obama, despite his promises to the contrary during the campaign, is doing nothing to prepare us for this inevitability.

We are in a mess and the left, having primed the nation with class envy and then convinced a majority that they could improve the economy, are now spending us into penury for generations to come. Obama - who in fact himself bears some personal responsiblity for our current financial crisis through his strong arming of Chicago banks on behalf of ACORN - is nothing if not an opportunist. He and his like minded cronies are using the economic crisis to work a fundamental change to our nation. We are on the road to European socialism. I wonder if we will even stop there between now and 2012? Or will we run past that line following the rainbow to Utopia?

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