Karen De Coster
The last remnants of the American free-market system are experiencing a quick death by strangulation. Perhaps the most disturbing casualties of government intervention are General Motors and Chrysler, two disgraced automakers that have gone from private ownership to the public trough virtually overnight. The US government has effectively grabbed a financial stake in each company while attempting to control the reorganization process without any constitutional authority to commence such actions.
The takeovers, which have occurred at breakneck speed, are alarming. A defining characteristic of economic fascism is the control of private property and business through a government-business "partnership." This public-private alliance, while permitting private business ownership, is an arrangement that allows government to control and plan private industry. What we are experiencing from the schemers in Washington, DC is a planned capitalism, or soft fascism, that is being rolled out at an unprecedented pace.
One of the more disturbing actions on the part of the Washington establishment has been the blatant disregard for property and contract rights. First, consider the case of Chrysler. The government, while coming to the aid of a dying Chrysler, lobbed offers to its lenders, the bondholders. A group of dissident bondholders spurned the government's offer that would have given them a minuscule stake in the company while the UAW received a majority ownership position.
In response, the president denounced the bondholders, publicly proclaiming their obligation to sacrifice and referring to them as "vultures" because they insisted on maintaining their rights as senior creditors. Chrysler's bondholders, by law, are secured creditors, and they hold a senior ranking above unsecured creditors or shareholders in a bankruptcy or reorganization. Yet they were vilified and bullied for refusing to agree to a shoddy deal. Some of the holdout bondholders finally did buckle under; they dropped their legal challenge and agreed to the government's lowball offer, but only because they were strong-armed by Washington's bully tactics. Thomas Lauria, the attorney representing the group, stated that his clients weren't able to "withstand the enormous pressure and machinery of the US government." Thus the senior creditors were plundered while ownership was redistributed to the UAW, whose members are junior creditors. This makes a mockery of US securities law.
The bailout and ensuing appropriation of General Motors is no less tragic. The current restructuring plan calls for the US Treasury Department to have controlling interest in General Motors, which amounts to absolute nationalization. In GM's headquarters in Detroit there is a cluster of bureaucrats from the government's task force telling GM how to run its business. The task force, assembled by the White House, has the power to exercise significant control over product decisions. According to a GM news release, the Treasury Department will have the power to elect all of GM's directors and control the vote on matters brought before the stockholders. Additionally, the bondholders who have funded the company are being offered a paltry piece of the equity of the reorganized company — another major blow against the sanctity of contract.
Furthermore, the White House fired General Motors Chairman and CEO Rick Wagoner. When the executive branch intervenes in a private business and ousts management, bailout or not, it is a staggering violation of the American ideal of free enterprise. This sets a precedent for unlimited government trampling over the private sector. On March 30th, Obama said, "Let me be clear. The United States government has no interest in running GM. We have no intention of running GM." If that's the case — and we know it's not — then why scoop up majority ownership?
The revolving door between Wall Street and the bowels of Washington are getting a workout. It's the guys from Wall Street who run the government and the guys from government who run Wall Street. Only the guys from Wall Street - especially Goldman Sachs - who have taken over the Treasury Department are now taking over control of the domestic auto industry. You know what happened when they tried to run their own company, Goldman Sachs. How in the heck did I miss the part in the Constitution where powers were granted to the Treasury Department and its hired hacks?
Another notable abomination is the use of taxpayer dollars, on the part of the political establishment, to grant preferential treatment to one group of constituents — the unions — at the expense of each company's creditors, the bondholders. Not only is this an illicit use of the executive office for political pandering, it's a deliberate redistribution of wealth. It's also a handsome payoff to the loyal unions, who have long been big supporters of the Democratic Party.
The GM and Chrysler takeovers are orchestrated political restructurings aimed at serving the larger interests of the US government. The apparatchiks on the Potomac have the authority to coordinate production in a manner that compliments their political and social agenda. The White House has not been shy about its ambitions for green policy and the future of American-made automobiles. This coup paves the way for big government to get its tentacles into an industry that will allow the feds to ram their socialist-totalitarian, green agenda down all of our throats.
Moreover, the Obama regime already announced that it is buying 17,600 green vehicles (hybrid sedans) from Detroit's Big Three by June 1, using $285 million from the $787 billion stimulus bill. Representative Sander Levin, a Democrat from Michigan, stated, "The federal government's purchase of thousands of hybrids and other fuel-efficient vehicles from the Big Three shows that our domestic auto industry will weather this current crisis and build the cars of the future." But certainly, it shows nothing. If the car companies were capable of building the cars of the future that consumers want to buy, no bailout would have been needed, and the government would not have to place an enormous, personal order for automobiles in order to keep the assembly lines moving and inventory lots turning over. The only thing the mega-purchase "shows" is Detroit's inability to sell its automobiles at bloated prices in the free market, thereby leaving
In fact, giving the kiss of life to two dead horses, GM and Chrysler, illustrates the futility at work here, considering that both companies have just announced there will be a considerable number of dealership closings all over the country. Chrysler plans to close about 800 dealerships while GM will trim back 2,600 dealers by 2010. The fact that GM is cutting back its dealerships to the tune of 42 percent speaks volumes about its bloated, bubble-fueled predicament. The government has been pouring billions into each company's bailout bin in order to keep these inefficient, surplus dealerships around so that they could continue on their path of chasing invisible customers and not selling cars. The misallocation of resources has been staggering. Half-baked investment decisions, like these, are what we can expect from a politically anointed task force that will centrally plan the manufacture of automobiles.
As the Chrysler resuscitation continues and GM morphs into Government Motors, we can expect that the government will prepare to churn out its environmentally correct greenmobiles that the market has rejected over and over again. Freedom, choice, and capitalism will pay a dear price because a group of government bureaucrats, on the receiving end of political favors, will run a major sector of the US economy and foist a prescribed lifestyle upon American consumers.
The funeral bell is ringing a reminder of capitalism's mortality. And I won't dare touch on what happens when government-run automobile manufacturers perform like the post office or the DMV.
Karen DeCoster, CPA, has an MA in economics and works in the financial services industry. She has written for an assortment of publications and organizations, including LewRockwell.com, Ludwig von Mises Institute, Mackinac Center for Public Policy, Taki's Magazine, Euro Pacific Capital, and, most recently, the Claire Boothe Luce Policy Institute. Her website is karendecoster.com.
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