Monthly Archives: May 2009

Chrysler Bankruptcy: What Are The Workers Owed?

Credit Crisis, Economics, Government Regulation, Politics, Unions

The news of the day is that Chrysler’s creditors have rejected the government’s pittance offering for what they’re owed in the prepackaged bankruptcy, and Obama is pissed. After all, he’s put together what he thinks to be a fair and equitable solution, and those unpatriotic assholes unfeeling greedy bastards creditors dared to defy him.

I have to tell you some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don’t stand with them. I stand with Chrysler’s employees and their families and communities. I stand with Chrysler’s management, its dealers, and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars. I don’t stand with those who held out when everybody else is making sacrifices.

So what’s happening as a result? Misinformation and misdirection, much like the worries about what would happen to GM (and their suppliers) in a bankruptcy. It is of course recommended that these people discuss the matters with a bankruptcy lawyer Harrisburg PA way, or wherever they are based, to find out what happens next. I assume you remember that, of course: the bankruptcy of GM would result in the loss of millions of jobs as the ripple effect of a vanishing company would take down suppliers, dealers, and the rest of the nation. After all, a bankruptcy would liquidate GM and they’d go completely out of business, right?? Or maybe not. It’s an argument that Warren Meyer at the excellent Coyote Blog has blasted to smithereens on numerous occasions.

But yet the argument resurfaces, today coming from Ezra Klein (with help) on the fate of the workers’ pensions in this bankruptcy:

In it, he described a hypothetical restructuring, and argued that you needed to think of both the workers and the bondholders as having made the equivalent of “loans” to the company. The difference was that the bondholder had settled on clear terms. They could end the relationship at any time by selling the bond on the open market. Labor’s “loan,” however, could not be cashed out. If the company failed to honor future obligations to workers, the money was, for labor, simply lost. Bloom explained:

They worked a lifetime and deferred a significant amount of current compensation in exchange for the company’s promise that, upon their retirement, they would be paid a fixed stream of cash and provided with help with their medical bills. Then, without their knowledge or consent, the company chose to not set aside enough money to honor that promise. This unfortunately happens more often than you think. With this being said, it is still important to check out workers comp settlements, especially if you have been in a situation like this. You may be able to get back the money you had lost, in order to get your financial life back on track.

In effect, the company borrowed money from them without even discussing the terms of the loan….So what we have is a bunch of old men and widows being forced to lend the company, for whom they worked a lifetime, some portion of the value of their pension and their health care. This loan was made on terms on which they have no input and they have no ability to liquidate their position using means such as mvl liquidation.

Labor, in other words, has no ability to liquidate. The hedge funds do. And in the case of Chrysler, the workers have seen their position brutally and quickly reduced, with very little input from them. The hedge fund, conversely, refused to liquidate their own position, and demanded ever more favorable terms from the government. And Obama, it seems, quickly grew to judge their position repellent.

Those people who have lived in a defined-benefit world have a contractual promise of certain benefits if they complete a certain term of service. For those who have completed that term of service and are already owed a pension, they may get screwed in a bankruptcy. Those who have partially completed their service, in that static union world, are still expecting to receive something back for their service. Part of the compensation, known going in, is that at the end of your work career you will have a pension to live out through old age.

So the argument is pretty simple. In a bankruptcy, all those pensioners get screwed because their company didn’t adequately fund the pension to meet their obligations. Thus, giving money to bondholders instead of pensioners is unfair. The argument is simple, but it’s also bullshit.

The defined benefit world is already on the way out. Many unionized corporations have already been obliterated by the defined benefit model, because large corporate managers, much like politicians, are often willing to promise to pay something tomorrow if it means they don’t have to make a tough decision today. Thus, the pensions grow bloated, the corporation becomes uncompetitive, and eventually goes bankrupt.

With this model on the way out, though, there is already a secondary method for dealing with this issue. It’s the same method that many states use to weather unemployment — insurance. Specifically, the Pension Benefit Guaranty Corporation, a government enterprise that charges insurance premiums to pension programs in order to protect the pensioners in case of a bankruptcy or other pension program cancellation.

So if the government’s proposed prepackaged bankruptcy fails, what happens to the pensions in the case of a standard bankruptcy proceeding?

At this point, nothing. The government agency that oversees pensions, the Pension Benefit Guaranty Corp., said it’s closely watching Chrysler’s pensions. Through a bankruptcy, a company could try to dump its pension obligation on the government. If that happens, pensions would not be wiped out, but capped, with younger retirees most likely to face larger reductions. The PBGC said it will work with Chrysler and other stakeholders to “ensure continuation of the pension plans.”

They may, like the bondholders, take a haircut on their pensions. But they won’t simply evaporate.

The bondholders aren’t waiting for another government bailout; they’re waiting for a standard bankruptcy proceeding. They (who I understand are mostly secured creditors) know that they have a position of strength here as bondholders. They buy bonds with less potential return than equities, but because they’re buying debt secured by the assets of the company, they will receive a preferred position in any standard bankruptcy proceeding. They’re sure to lose money, but they went into bond ownership with the understanding that the risk as a secured creditor is less than the risk as an equity holder.

Bankruptcy is a well-known and well-understood process which can get expensive, but you can find low cost bankruptcy Northern Ky if your in need of help. Obama is trying to change the game for political reasons, in order to protect an interest group [unions] which has been supportive of him in the past. We shouldn’t let the red herring of pensioners get in the way of understanding what is going on here.

Brad Warbiany
https://thelibertypapers.org/

No Secession, No Legitimacy!

Democracy, Doublespeak, Fascism in America, Federalism, Founding Fathers, Freedom, Liberty, Socialism, Taxation, Theory and Ideas

Many Republicans, having discovered that Bush’s policies are tyrannical, are making noises about wanting out of the fascist state that they were cheering on a few months ago. While we may wonder why it took the trivial matter of having people who have the letter D appended to their names on news reports executing Bush’s policies to open their eyes, we must welcome the fact that they are dimly becoming aware of how thoroughly their leaders had betrayed their country and are looking for ways to undo the damage these leaders wrought.

Some Republicans have even endorsed secession! This is keeping with American tradition that started the first time the idealogical ancestors of the Republican party – the Federalists – lost an election for the Presidency. In that case the merchants of New England threatened secession since Tomas Jefferson’s policies of trade embargoes with foreign markets were crippling them. Since then threats of seccession have been a regular part of the political landscape.

Often the threats of secession are not taken seriously… usually the benefits of leaving the union are not sufficiently great to attract many supporters, and thus the powers-that-be can ignore the movements completely.

Today, though, the Democrats and political leadership are reacting in horror at the reemergence of threat American phenomenon – their dreams of social engineering will go up in smoke if the masses have the option to escape! And many people who should know better are agreeing with them.

People make three arguments against secession:
1)That it is illegal
2)That it is immoral
3)That it is unwise

Let us examine these arguments. » Read more

tarran
I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.
https://thelibertypapers.org/author/tarran/

Cato scholar on SCOTUS appointments

Constitution

Ilya Shapiro from the Cato Institute dives into the names of possible replacements for Justice David Souter:

[Obama] is under great pressure to appoint a woman, and the three leading female candidates are new Solicitor General Elena Kagan, Second Circuit Judge Sonia Sotomayor, and Seventh Circuit Judge Diane Wood. Kagan would be an almost-certain pick a year from now, but having been just confirmed to be the so-called Tenth Justice, she might be seen as too green for elevation. Sotomayor — because she is Hispanic and despite a mixed judicial record — was the odds-on favorite until the Court took up the employment discrimination case of Ricci v. DeStefano (argued just last week), an appeal of a bizarre opinion Sotomayor joined that denied the claims of firefighters who had been passed over for promotion because of their race. That leaves Wood, a renowned authority on antitrust, international trade, and federal civil procedure, whose age (58) suggests that this is likely the last vacancy for which she will be considered. Wood offers a seriousness of purpose and no ideological ax to grind, and is thus the best nominee supporters of constitutionalism and the rule of law can hope for at this time.

The Huffington Post has the shortlist of possible nominees, including Leah Ward Sears (who is from my home state of Georgia).

I guess it’s too much to ask for Janice Rogers Brown.

Jason Pye
http://jasonpye.com/

Justice Souter To Retire In June, Let The Fireworks Begin

Constitution, Legal, Politics

Two weeks ago, we started hearing rumors that Supreme Court Justice David Souter would be retiring at the end of the current term.

Last night, those rumors were confirmed:

WASHINGTON — Justice David H. Souter plans to retire at the end of the term in June, giving President Obama his first appointment to the Supreme Court, four people informed about the decision said Thursday night.

Justice Souter, who was appointed in 1990 by a Republican president, the first George Bush, but became one of the most reliable members of the court’s liberal wing, has grown increasingly sour on Washington and intends to return to his home state, New Hampshire, according to the people briefed on his plans. One official said the decision might be announced as early as Friday.

The departure will open the first seat for a Democratic president to fill in 15 years and could prove a test of Mr. Obama’s plans for reshaping the nation’s judiciary. Confirmation battles for the Supreme Court in recent years have proved to be intensely partisan and divisive moments in Washington, but Mr. Obama has more leeway than his predecessors because his party holds such a strong majority in the Senate.

On that note, the Legal Times Blog has this early take on who might be on Obama’s short list:

During the presidential campaign in 2007, Obama made that point when he said, “Sometimes we’re only looking at academics or people who’ve been in the [lower courts]. If we can find people who have life experience and they understand what it means to be on the outside, what it means to have the system not work for them, that’s the kind of person I want on the Supreme Court.”

That said, most of the names that have been mentioned as possible Obama nominees do have judicial or academic experience. Some of those names:

— Sonia Sotomayor, a Hispanic female who sits on the U.S. Court of Appeals for the 2nd Circuit.

— Elena Kagan, the former dean of Harvard Law School who is less than two months into her tenure as the first female U.S. solicitor general.

— Harold Koh, the former Yale Law School dean and an Asian-American, whose nomination as State Department legal adviser is pending.

— Kathleen Sullivan, the former Stanford Law School dean and a partner in the New York office of Quinn Emanuel Urquhart Oliver & Hedges.

— Diane Wood, a judge on the U.S. Court of Appeals for the 7th Circuit.

— Kim Wardlaw, a judge on the U.S. Court of Appeals for the 9th Circuit who is Hispanic.

— Massachusetts Governor Deval Patrick, a former assistant U.S. attorney general for civil rights who is African-American.

The conventional wisdom is that Souter’s retirement isn’t that big a deal because his replacement is unlikely to change the ideological balance of the Court, but Ilya Somin points out that this isn’t necessarily the case:

It ignores the fact that the newly appointed justice will likely serve for many years to come, during which time the composition of the rest of the Court will change. Today, the average Supreme Court justice serves for over 26 years. Over such a lengthy tenure, there is likely to be turnover among the other justices, and the current appointee’s ideology may have a major impact on the balance of power over the long run even if its immediate effect is insignificant.

For example, let’s assume that Justice Souter’s replacement always votes exactly as Souter himself would have. So long as the rest of the Court remains the same as today, nothing will change. However, if Obama is then able to replace even one of the five more conservative justices, the balance of power would become very different than it would have been had Souter been replaced by a more conservative justice than himself. What would have been a 5-4 conservative majority will become a 5-4 liberal one. Justice Antonin Scalia, for example, is 73 and could eventually be replaced by a liberal Obama appointee – especially if Obama wins reelection in 2012. Moreover, Souter’s replacement will likely serve for decades to come. So Scalia’s possible replacement by an Obama appointee is just one of many events that could happen during the tenure of Souter’s successor that could make his or her ideology extremely important.

Somin is, of course, correct that, in the long term, the Justice that replaces Souter will have some impact on the Court, but, as a I noted when discussing the initial Souter retirement rumors two weeks ago, the short-term is an entirely different story:

Souter isn’t the only Justice who could be close to retirement. John Paul Stevens is 88 and has been on the Supreme Court for 34 years; although he was appointed by a Republican he has drifted to the left of the Court ever since and would likely be more comfortable having his replacement named by a Democrat. Additionally Ruth Bader Ginsburg is 76 and has recently not been in good health.

Of course, all three of these Justices could resign this year and their replacements would not have any real impact on the balance of the Court. The truly significant resignations would come from Anthony Kennedy, who is 73, and Antonin Scalia, who is 73.

Nonetheless, it’s entirely likely that Barack Obama will have the opportunity to name two or three new Supreme Court Justices before his first term is over.

And if he’s re-elected in 2012, there could be two or even three more on top of that. In the long run, that will be what really matters.

C/P: Below The Beltway

Doug Mataconis
http://www.belowthebeltway.com
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