Supreme Court Temporarily Blocks Illegal Chrysler Giveaway to UAW

Supreme Court Justice Ruth Bader Ginsburg yesterday granted a stay temporarily blocking the government’s plan for Chrysler, which would give effectively give most of the company to the UAW union, while paving the way for a dubious merger with Fiat. The stay was sought by pension funds that were (along with taxpayers) ripped off by the government’s plan.

The pension funds deserve to win, since the government has trampled on federal bankruptcy laws, the federal TARP bailout statute, and the Constitution in forcing its plan down the pension funds’ throat.

But there’s no telling how long the stay will last, or if the Supreme Court will reach the merits of the pension funds’ claims. The federal government says that even if it is acting illegally, the courts are powerless to do anything about it, since the pension funds challenging its actions have no legal standing to complain. A federal bankruptcy judge bought this argument. But it is false, as I explained yesterday, since the funds do indeed have standing, even if the government were right in its exaggerated claims about what will happen if its plan is blocked.

The bailouts have been economically destructive, politicizing auto industry decisions. The Washington Post today notes that as a result of being bailed out, General Motors is now even more subject to “political pressures,” and as a result plans to build a money-losing politically-correct car “even if it loses money, taxpayer money.” Obama recently pressured General Motors to keep its headquarters in high-tax, crime-ridden, racist, economically-collapsing Detroit.

General Motors and Chrysler would have been better off if they had filed for bankruptcy last year, rather than taking federal money, since the bailouts have come with costly political strings attached, such as dropping opposition to costly CAFE regulations and other federal mandates, and bowing to political meddling in fundamental corporate decisionmaking, and have left the automakers with higher labor costs than if they had just ripped up their collective bargaining agreements in a standard bankruptcy. That endangers their long-run competitiveness. Indeed, the politicized auto bailouts resemble the failed British auto bailouts of the 1970s. If the automakers had ripped up their collective bargaining agreements in a regular bankruptcy, they would now be in a position to recover without taxpayer funds, since it was rising gas prices last year that pummeled their ability to sell the big cars that are their profit center, and gas prices have fallen enormously since their peak last year.

The Obama and Bush Administrations used money from the $700 billion financial system bailout for an auto industry bailout. Legal scholars at the Heritage Foundation, Clinton Administration Labor Secretary Robert Reich and many other commentators have argued that using the bank-bailout money for auto bailouts violates the bank-bailout statute.

The federal government is effectively giving Chrysler to the UAW union, while giving the shaft to other Chrysler stakeholders, like the Indiana state pension funds that invested in loans to Chrysler. As law professors like Todd Zywicki have noted, that violates federal bankruptcy laws.

Indiana Treasurer Richard Mourdock was right to challenge it in court. Mourdock correctly notes that the unfair plan for Chrysler pushed by the Administration violates the bankruptcy laws and rips off Indiana residents by leaving state employee pension funds and construction funds with a small fraction of what they are owed by Chrysler, far less than the UAW is getting, even though the pension funds are secured lenders and the UAW is not. By cheating Chrysler’s lenders, the government’s plan discourages lending, and sets a dangerous precedent that makes it harder for companies like Chrysler to raise money to create jobs in the future, as newspapers like USA Today have noted.