CEI Hails Supreme Court's Freezing of Chrysler Bankruptcy
Chrysler, GM bankruptcies on Collision Course with Constitution
Washington, D.C., June 8, 2009—
Statement of John Berlau, Director of CEI's Center for Investors and Entrepreneurs
Kudos to the Supreme Court for refusing to be steamrolled by the Obama administration's politically-organized bankruptcies of Chrysler and General Motors and extending the stay on Chrysler's planned sale to Fiat. Regardless of the final outcome of this case, the bankruptcy plans put together by the executive branch are on a collision course with the U.S. Constitution. The Supreme Court seems to recognize that the future of the federal judiciary -- as an entity to decide bankruptcy and other cases independently of the executive branch -- is at stake.
In setting up the procedures for bankruptcies in that document, the Founding Fathers envisioned almost no role for the U.S. President, and gave power almost entirely to Congress and the federal courts. The Constitution gives Congress the exclusive power "to establish ... uniform laws on the subject of bankruptcies throughout the United States [Article 1, Section 8]." It created the courts to adjudicate these bankruptcies. It gives the president almost no say over bankruptcy laws and certainly no power to organize and intervene individual bankruptcies.
President Obama and his auto task force should respect the role of the courts and recognize that their role is not to rubber stamp the administration’s plan to take over Chrysler and General Motors, but to apply bankruptcy precedents and faithfully apply the law to the facts at hand, with an understanding of how contracts work in t and of the thousands of middle-class families who own the car companies’ debt securities as individual investors or through their IRAs and 401(k)s.
The Supreme Court needs to look beyond the individual circumstances of Chrysler to weigh how the treatment of creditor contracts in these cases will affect American credit markets in the future. If courts cave to politicians’ whims and give secured creditors and bondholders less than they would receive under traditional bankruptcy precedents, our credit markets will suffer further damage as lenders and investors will be less willing to put their capital at risk in companies whose contracts could be abrogated at politicians’ demand.
Bankruptcy is a not an executive but a judicial function, and the Supreme Court and lower courts reviewing the car companies’ cases should take as much time as they need to weigh the competing interests and ensure an equitable outcome. The measure of success should not be how fast Chrysler and GM emerge from this bankruptcy, but the degree to which contracts are honored in the type impartial judicial process envisioned by the Constitution.