President Obama has given new meaning to the term “bully pulpit”. I have read and watched in amazement as more and more stories emerged of the President strong-arming investors to give up their rights and financial interests under threat of a public derision from the White House. I can understand the President encouraging the involved parties to come to an agreement, but to flat out threaten them into compliance is outrageous.
Michael Barone, via the Washington Examiner, describes the core of this story:
[I was angered] when I heard what bankruptcy lawyer Tom Lauria said on a WJR talk show that morning. “One of my clients,” Lauria told host Frank Beckmann, “was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight.”
Lauria represented one of the bondholder firms, Perella Weinberg, which initially rejected the Obama deal that would give the bondholders about 33 cents on the dollar for their secured debts while giving the United Auto Workers retirees about 50 cents on the dollar for their unsecured debts.
Did you catch that? The President thought that a reasonable solution was to give a better deal to the unsecured debts of the UAW than to the secured debts of the bondholders. Then, when someone representing the investments of those secured bonds objected, he was threatened by the White House! When the President of the United States overrides the risk-reward calculations involved here, the whole foundation of free markets begins to collapse. You can’t change the natural tension without significant consequences.
It’s not unusual to see this kind of bullying in Third World countries where the victims are threatened at the point of a gun. In the most productive capitalist society in all of human history, though, the only thing worse than threatening to kill the CEO is threatening to ruin the company’s reputation in the press. Bad press can cripple a good company and will destroy a weakened one. This is a fate worse than death for a corporation.
I’m not surprised by the direction and plans articulated by President Obama. What amazes me is the pure chutzpah involved. I like this observation from Clifford S. Asness in his open letter:
The President’s attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to “sacrifice” some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power.
It’s bad enough when the President tries to pass unfair or un-Constitutional laws. It’s worse when he simply acts as if they don’t exist and ignores them. It’s just crass when he ignores the law and tries to pay off friendly organizations in the process.