Hat tip to my friend Michael Barone, who coined the term “gangster government” to describe Team Obama’s bullying threats against the senior bondholders in the Chrysler bankruptcy, where constitutionally backed contract rights have been overturned. It shows the corruptive nature of the whole TARP program and the government’s control along with it. This is corroding the animal spirits of democratic capitalism, which rely on the rule of law.
Here’s my interview with Tom Lauria from last night’s Kudlow Report. Lauria represents the senior bondholders who were trampled on by Team Obama.
LARRY KUDLOW: We have a CNBC exclusive — the head of the financial restructuring and insolvency group at the great law firm, White & Case, Mr. Thomas Lauria. Mr. Lauria thanks very much for coming on.
KUDLOW: I want to ask you, in these bondholder meetings, with the White House automobile task force, Rattner and Bloom, did they bully? Did they threaten? Did they threaten IRS investigations? SEC investigations? What is your take on this? I heard your radio interview. I played it on my radio show on WABC. It’s tough stuff. I think this is TARP criminalism, but you tell me.
LAURIA:Well, there are a lot of things going on here that really aren’t in keeping with the way you’d expect a negotiation to go to save a company like Chrysler, much less one involving the government. I’m kind of in no comment mode on the whole Perella-Weinberg situation. But I can elaborate on things that have happened through the process and with respect to my current clients.
KUDLOW: I mean was there bullying in those meetings? I have heard from other sources that there was. And some of this stuff is pretty mean and nasty. And that ain’t the American way. What is your take?
LAURIA:Well let me tell you. With respect to the group of investors that I represent, the irony is there really wasn’t any negotiation, or any direct contact with the task force, until after the bankruptcy was announced. We were negotiating with the steering committee of the first lien lenders. There were eight lenders on that committee, four of whom were TARP recipients and four who were not. And you know, we repeatedly reached out through that steering committee to try to get into Washington to sit down with people, to get into an environment where we could find a commercially reasonable resolution. And you know, we got the “Heisman.”
You know, every time we sent a proposal, it was leaked to the press. The negotiation was you know, political falderal. It wasn’t really ever a business conversation. And when we got to the last minute, there was a separation of direction between the TARP recipients and the non-TARP recipients. I think there’s probably room for some speculation about that.
KUDLOW: But did they threaten? Let me go through some of the threats that have been out there in the blogosphere, and on the Internet, and from your own radio interview. Look, did they threaten for exampl e, to release the names of the bondholders who wouldn’t go along with their plan? Did they threaten to do that?
LAURIA: Well I’ve heard that.
KUDLOW: You didn’t hear it specifically?
LAURIA:Just to be clear, my direct contact with the task force was limited to Wednesday night and Thursday morning…
LAURIA: …before the chapter 11 case was filed.
KUDLOW: Did they do it then? Did they threaten to release the names of the bondholders then?
KUDLOW: All right. Did they threaten to invoke an IRS or SEC investigation? Because I have heard from other sources that they did. An IRS investigation. An SEC investigation. This is like Richard Nixon Redux.
LAURIA:Well I did call my accountant to make sure everything was on the up and up.
LAURIA: I did call my accountant to make sure everything was square.
KUDLOW: So are you telling us that they made those threats?
KUDLOW: You don’t know that for a fact?
KUDLOW: All right, let me go on. Regarding the issue of the bondholders themselves, has this Team Obama — Rattner and Bloom and so forth — have they violated constitutional principles by trampling on contract rights of the bondholders?
LAURIA:Well I think they’ve done so flagrantly. I don’t think that there’s any question about it. They have cooked up a scheme to try to end run contractual and statutory priority.
And you know I got to tell you, I wouldn’t be dismayed about this — so much of it was a private party and private parties try things in deals and negotiations and litigations all the time. But I think when a branch of the government that is charged with enforcing the Constitution, I think intentionally and knowingly tries to get around the law in order to advance what I think are political interests over clear contractual and legal interests, I think that’s a real problem. And I do think it calls into question the Constitution.
KUDLOW: I mean they’re using bailout nation and TARP as their lever. That’s what they’ve done from day one. And when I read Neil Barofsky — he’s the special inspector general for TARP — and I looked around, I mean to some extent this whole TARP process has degenerated into corruption. You have a thought on that? You’re describing corruption! We are corrupting the Constitution and contract law.
LAURIA:Well I’d like somebody to point out to all of us what statutory scheme the government is acting under when it takes control of an auto manufacturer, as has happened here. TARP applies to financial institutions, and Chrysler is not a financial institution. I think we all know that. And Chrysler is not with any other regulatory scheme of the government that allows it to effectively take over the corporate governance of the company. But that has effectively happened here...
KUDLOW: How about this irony — I’ve got to ask you this Tom. According to the White House, “we must save the American auto industry.” But we are giving Chrysler away to an Italian car company. Do you find that ironic? Or bizarre?
LAURIA:I think it’s both. And I don’t think it has much to do with the truth.
KUDLOW: Right. What is the truth? What is the truth? Was the UAW bailed out? Is that the truth?
LAURIA:Well if you look at the numbers in terms of the dollars that the government has put into Chrysler, and you look at the dollars that are being paid out to labor-related interests — including the pension, VEBA, other benefit programs, etcetera — it’s interesting that the two amounts roughly match up. About $10 billion going in, and $10 billion going out. It seems like Chrysler is just a vehicle for the government to pay its labor friends.
KUDLOW: Is this redistribution from bondholders to union health trusts? Is that what’s going on?
LAURIA:That’s it. That’s it.
KUDLOW: Tom Lauria, thank you for coming on. We appreciate it sir.
LAURIA:Thank you very much.
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