Source: http://www.ibdeditorials.com/IBDArticles.aspx?id=328747531802969
By INVESTOR'S BUSINESS DAILY | Posted Monday, June 01, 2009 4:20 PM PT
Economy: With General Motors' long-awaited "pre-packaged bankruptcy" finally here, America is on the verge of a new era — one where government, not investors and consumers, is the final arbiter of success.
Read More: Economy
GM's bankruptcy pushes bondholders aside in favor of the U.S. government and the UAW. Though bondholders hold $27 billion in debt, they'll get just 10% of stock.
How's that compare with the other "stakeholders?" For spending $50 billion to bail out GM, the government will get 60% of the equity in the new GM; the UAW, which along with other unions gave millions to Democrats, will be repaid for its loyalty with 17.5% of the stock for $10 billion of unsecured debts.
So the government, with roughly two times what private bondholders have on the table, gets a stake five times bigger. And the union, with about a third as much "invested," gets a 70% bigger stake. Even the Canadian government, with its $9.5 billion "invested," ends up with 12%.
They call it "restructuring." We call it theft. Never in our memory has there been a more thorough, systematic effort to disenfranchise the shareholders and bondholders of a major American firm.
It will make investors — domestic and foreign alike — think twice about investing in an American stock or bond in the coming years. Why invest if your money and rights as an investor can be arbitrarily stripped from you, as they were in GM's case?
But our real issue with this isn't that people will lose money. It's that we don't believe the government's actions are even legal.
The White House has basically been manipulating GM into bankruptcy since early this year, putting 31-year-old Brian Deese, a Yale law student, in charge of GM's restructuring. "It is not every 31-year-old who, in a first government job, finds himself dismantling General Motors and rewriting the rules of American capitalism," the New York Times said with tongue in cheek (we think).
It used to be that the "rules of American capitalism" came from 200 years of U.S. case law, the Constitution and legitimate federal regulation. But no more. Instead, the job's been given to someone not yet out of law school. This shows shocking contempt for GM, once the world's pre-eminent industrial company, for American capitalism and the rule of law.
We don't think this travesty passes constitutional muster and hope to see it vigorously challenged in federal court soon.
Our Constitution is very specific. It limits the executive branch's rights to those enumerated therein. The rest it grants to the people and the states. It also requires due process under the law, especially when government "takings" are involved.
That's why in 1952, when President Harry S. Truman tried to seize control of the U.S. steel industry during a debilitating strike, the Supreme Court made him back down. And Truman had a real emergency on his hands: the Korean War.
We pored over Article II of the Constitution, known as the Executive Powers Clause. Nowhere is the White House granted the right to override the time-tested bankruptcy process, to use Treasury money raised by taxing Americans to buy or bail out companies, to fire CEOs, to micromanage corporate policy, or to abrogate lawful contracts made by private parties.
Yet, our government has done these things and more — leading to a corrupt GM bankruptcy. The damage to our system of corporate capitalism and the rule of law is severe. Next stop: Federal court?
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