Come for the Politics, Stay for the Pathologies

Wednesday, June 10, 2009

Two Steps Forward, One Step Back

I got a bit carried away yesterday in my “signs of intelligent life” post. Apparently the Supreme Court does not see any property rights issues related to the  shotgun Chrysler-Fiat marriage. We shouldn’t be surprised. This alarming, illegal plan of the Obama administration to effectively give Chrysler to the UAW while cheating other pension plans and ripping off taxpayers is pathetic. Not only is it trampling all over private ownership rights and running roughshod over established law, but it is forcing a deal with a company that is said to have Enron style accounting and corporate governance issues. A regular bankruptcy will turn out to have been a better choice.

Here’s a short history of the sorry place we have arrived at with respect to private property rights: First, we had the 2005 Kelo decision, in which SCOTUS determined that private property rights are not as important as the government’s right to give your property to someone who has plans to generate more (tax) revenue than you do. Now comes the Supremes decision that there’s no need to hear the case in the Chrysler bankruptcy filing. The issue here is that the secured bond holders – until now known as first secured debt holders because by law they are paid off first in any bankruptcy filing - were forced to accept 29 cents on the dollar in order for the UAW – non-secured creditors – to secure a 55% ownership (plus seats on the Board.) Pure political payoff for the union’s staunch support of Democrats in general and Obama in specific.

What are we to conclude from this?  The founders of this nation knew that private property rights were not just fundamental to prosperity, but to freedom itself. That’s why they ensured that private property rights were guaranteed  (primarily through the Fifth Amendment’s Takings or Just Compensation Clause) in the Constitution. We can no longer be assured that these rights will be unquestionably upheld by the Supreme Court of the land. I guess this will make it a lot easier to spread the wealth around. If there’s any left to spread after Congress addresses the other imminent crises of health care and global warming.

At a minimum, you’ll not see any investors lining up to buy secured corporate bonds, previously one of the safest investment vehicles for pension funds and 401-k’s. Debt will be more expensive for all businesses, which they will pass along to their customers along with any VAT’s and all of the costs for everything else that Cap and Trade will impose. And we thought Carter was the master of hyper-inflation.