Tom Suhadolnik explains how Barack Obama is simply setting aside conventional bankruptcy law in order to nationalize the automobile industry while moving simultaneously to nationalize the financial system using existing regulatory powers combined with intimidation.

How many Americans who pulled the democrat lever last November really intended to vote for Marxism?

At the end of April the Obama administration tested its ability to take direct control of the US financial system. The test was a success. There is a revolution underway which would impress Chavez or Castro. If you were like most people, you did not realize it happened.

As the details of the GM restructuring plan emerged, on Monday, April 27th, Lawrence Kudlow was one of the first to sound the alarm as secured lenders and bond holders were being given a fraction of the amount owed to them under long established bankruptcy law.

What is going on in this country? The government is about to take over GM in a plan that completely screws private bondholders and favors the unions. Get this: The GM bondholders own $27 billion and they’re getting 10 percent of the common stock in an expected exchange. And the UAW owns $10 billion of the bonds and they’re getting 40 percent of the stock. Huh? Did I miss something here? And Uncle Sam will have a controlling share of the stock with something close to 50 percent ownership. And no bankruptcy judge. So this is a political restructuring run by the White House, not a rule-of-law bankruptcy-court reorganization. …

To understand the gravity of the events you need a basic understanding of bankruptcy laws. The pecking order of bankruptcy claims is supposed to be:

1. Debtor in Possession (DIP) financing which is loaned to the restructuring company
2. Secured Lenders – creditors whose loans are backed by assets such as real estate or equipment
3. Unsecured Lenders – creditors such as bond holders, vendors and the UAW
4. Equity Owners – shareholders

When a company files for bankruptcy the claims that are superior (represented by a lower number) in the pecking order are paid first. Claims with equal status are treated equally; those claims are almost always paid on the same pro rata basis. It is an explicit goal of our bankruptcy system is to treat all creditors equally. …

In the case of GM, the UAW and bond holders are both unsecured creditors with equal rights under bankruptcy law. As The Cleveland Plain Dealer reported Monday April 27th, interim GM CEO Fritz Henderson contends a 2007 deal between GM and the UAW gives preference to unsecured claims of the UAW. The bond holders never explicitly agreed to have their claims subordinated to the union so that contention is certainly open to debate in bankruptcy court.

Considering GM owes the UAW $20 billion (Henderson says the figure is closer to $30 billion) and bond holders $27 billion, they should receive a similar ratio of shares in the restructured GM. The deal announced by Henderson gives roughly 40% of the stock in a reorganized GM to the UAW, 50% to the government and 10% to the bond holders. The math does not make sense even if you accept Henderson’s contention that the UAW is owed $30 billion. …

The Chrysler reorganization details are more bizarre. At Chrysler the institutions owed $6.9 billion by Chrysler are secured creditors. As a matter of law, the secured claims would be superior to those of the UAW in bankruptcy court.

Putting the Chrysler deal in terms of household finances, the secured creditors would be the banks holding the mortgage and car note. Instead of the car and house going back to the bank in bankruptcy, the Chrysler deal calls for the car and house to be shared with unsecured creditors like credit card companies and the cable company. That is not how the system is supposed to work.

These bedrock principles are codified in our bankruptcy laws. …

Obama has made it clear he is willing to use his political muscle on the banks as well. …

The Obama administration will be able to make a plausible argument that nationalization of the banks was forced upon the administration by capitalism run amok. Given the type of patently absurd statements made by politicians of all stripes, this rather nuanced position will pass without a second thought.

In summary, the mechanism to nationalize the US financial system is now in place. All the levers are controlled by the executive branch. Here how it works:

1. The government determines various loses have eroded a particular bank’s balance sheet and regulatory intervention is necessary.
2. The bank is ordered to raise additional capital to maintain the proper asset ratio.
3. Increasing government activism causes private capital to avoid investing in banks.
4. The government is “forced” to loan more money to the bank in exchange for more stock and control via loan conditions like those found in earlier TARP loans and legislation.
5. As government acquires more power they force the bank to accept loses to benefit key constituencies of the administration (like the UAW) or the sale of toxic assets to firms like Pimco.
6. If the government does not own the majority of the bank’s stock return to step 1and repeat.

On May 5th, Fox reported as many as 10 of the top 19 banks in the country will need to raise additional capital following the stress tests. The troubled asset auction program is expected to start within a few weeks. If the administration chooses to do so the largest banks in the country can be nationalized by the end of summer.

There is no additional legislative action required to allow the executive branch to continue on this path. The regulatory framework was reviewed and approved by the judicial branch decades ago. The public at large may not even notice what is happening. Anyone looking for strutting fascists will be disappointed; this revolutionary change will be brought about by clean cut men and women in pinstripes.

Not only can it happen here, it is happening here.

Read the whole thing.

Jake Tapper tells us the White House is denying using threats and intimidation against businesses opposing its plans.

A leading bankruptcy attorney representing hedge funds and money managers told ABC News Saturday that Steve Rattner, the leader of the Obama administration’s Auto Industry Task Force, threatened one of the firms, an investment bank, that if it continued to oppose the administration’s Chrysler bankruptcy plan, the White House would use the White House press corps to destroy its reputation.

The White House and a spokesperson for the investment bank in question challenged the accuracy of the story.

“The charge is completely untrue,” said White House deputy press secretary Bill Burton, “and there’s obviously no evidence to suggest that this happened in any way.”

How can anyone believe Barack Obama would allow his staff to do anything like that? Well, there are precedents from the campaign, like this one.

These charts from Policy Watch demonstrate “the change” in action.

National Review’s Julie Gunlock responds with dudgeon to some haute bourgeois foodie condescension from Berkeley, California restauranteur Alice Waters, suggesting that just possibly not everyone can actually afford terroir and that “fresh, local, and organic” may not fully address the difficulties faced by American families in bad economic times.

Alice Waters — the organic-food world’s most active and least humorous spokesperson — commented on the new White House vegetable garden: “The most important thing that Michelle Obama did was to say that food comes from the land. . . . People have not known that. They think it comes from the grocery store.”

Oh, really — is that what people think? To whom, exactly, is Ms. Waters referring? Is she referring to the millions of people living in the grain-belt states of Ohio, Indiana, Illinois, Iowa, and Missouri — states one cannot drive across without spending hours staring at corn and soybean fields? The millions living along the Pacific Northwest coast and Alaska who are supported by the fishing industry? The fishermen of Gloucester, Mass.? Maybe she is talking about people living in Wisconsin — where dairy farms and cow pastures are as ubiquitous as art galleries in New York. Or perhaps she is referring to the thousands of people like me, who — in the suburbs of an East Coast metropolis — just throw a few Lowe’s-purchased plants in the ground, and hope for some rain to support a small backyard garden. Yes, Ms. Waters, even these “people” know that the grocery store doesn’t spontaneously produce food.

Her condescension is typical of a food culture that is increasingly withdrawn from mainstream America — a food culture that increasingly preaches to the average American consumer that eating non-organic food is bad for you. The truth is, organic food is an expensive luxury item, something bought by those who have the resources. Those who can afford it and want it should have it, but organic food is not a panacea for the world’s ills.

It may be easier for Ms. Waters and her cadre to simply label Americans stupid and ill-informed than to tackle the real reason people are not eating more organic and locally grown food — i.e., most Americans simply are not able to afford it. Even 60 Minutes — known for asking tough questions and making interviewees sweat — basically punted on this issue. Highlighted on the program earlier this year, Waters introduced Lesley Stahl to a man that grows organic grapes and sells them for a staggering $4 a pound (to give non-shoppers some perspective on this price, grocery-store grapes usually cost under $2 a pound, and even most meat comes in under $4 a pound).

While Stahl did seem surprised at the high price, Waters never directly addressed the cost issue; instead, she made an offhand remark that people would simply have to make the choice between expensive grapes and Nike tennis shoes. What she fails to appreciate is that some people can’t buy those tennis shoes either.

Stuart Varney, in the Wall Street Journal, explains that the administration is actually resisting TARP repayments from certain banks. This Administration’s economic policies aren’t about money. They are about power and control.

I must be naive. I really thought the administration would welcome the return of bank bailout money. Some $340 million in TARP cash flowed back this week from four small banks in Louisiana, New York, Indiana and California. This isn’t much when we routinely talk in trillions, but clearly that money has not been wasted or otherwise sunk down Wall Street’s black hole. So why no cheering as the cash comes back?

My answer: The government wants to control the banks, just as it now controls GM and Chrysler, and will surely control the health industry in the not-too-distant future. Keeping them TARP-stuffed is the key to control. And for this intensely political president, mere influence is not enough. The White House wants to tell ’em what to do. Control. Direct. Command.

It is not for nothing that rage has been turned on those wicked financiers. The banks are at the core of the administration’s thrust: By managing the money, government can steer the whole economy even more firmly down the left fork in the road.

If the banks are forced to keep TARP cash — which was often forced on them in the first place — the Obama team can work its will on the financial system to unprecedented degree. That’s what’s happening right now.

Here’s a true story first reported by my Fox News colleague Andrew Napolitano (with the names and some details obscured to prevent retaliation). Under the Bush team a prominent and profitable bank, under threat of a damaging public audit, was forced to accept less than $1 billion of TARP money. The government insisted on buying a new class of preferred stock which gave it a tiny, minority position. The money flowed to the bank. Arguably, back then, the Bush administration was acting for purely economic reasons. It wanted to recapitalize the banks to halt a financial panic.

Fast forward to today, and that same bank is begging to give the money back. The chairman offers to write a check, now, with interest. He’s been sitting on the cash for months and has felt the dead hand of government threatening to run his business and dictate pay scales. He sees the writing on the wall and he wants out. But the Obama team says no, since unlike the smaller banks that gave their TARP money back, this bank is far more prominent. The bank has also been threatened with “adverse” consequences if its chairman persists. That’s politics talking, not economics.

Bad economic news has proven good news for the left, who first used public dissatisfaction over the economy to win the election last November, and who have since gleefully taken every market plunge and corporate insolvency as the basis for another power grab.

Russ Smith observes the happy leftwing American elite making hay while clouds fill the sky.

There’s presently a school of thought, mostly among the liberal intelligentsia, that the devastating recession has morphed from sheer panic to sour resignation throughout the nation. As a result, we’re now seeing the first wave of magazine and newspaper articles that assess the wreckage and grandly speculate upon the future of American society. This “first draft of history” is premature—in fact, the Las Vegas-tinged economy, where the rules are constantly changing, remains enveloped in gut-wrenching uncertainty—but I’m not an armchair sociologist with a sinecure at a prestigious university or think tank, or insulated by the downturn from inherited wealth or celebrity.

These pundits, left-leaning economists, and other designated “experts,” differ on the precise ramifications of the vanished “American Dream,” but the crux is similar: we’re entering a long, long era of reduced expectations and simpler way of life. Considering the sources—and academia is the epicenter—it’s not surprising that “Reaganism” is now a filthy word, Wall Street money-grubbers are and will be considered pariahs on the order of pornographers and ambulance-chasing lawyers, and high taxes are both necessary and desirable. An element of this commentary is the lingering resentment of the Bush years—the “stolen” election of 2000, Kerry’s loss in ’04, and the supposed philistinism of the former president—but the larger theme is, hey, we’re now in charge!

Hat tip to Bird Dog.

South Park explains the federal decision making process used by both the Bush and Obama Administrations for dealing with the current economic downturn.

1:03 video

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Hat tip to Andrew Sullivan.

The New York Times published yesterday’s resignation letter from Jake DeSantis, executive vice president of the American International Group’s financial products unit, to Edward M. Liddy, the chief executive of A.I.G.

Dear Mr. Liddy,

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down. …

The profitability of the businesses with which I was associated clearly supported my compensation. I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses. In this way I have personally suffered from this controversial activity — directly as well as indirectly with the rest of the taxpayers. …

But you also are aware that most of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn’t defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut. …

I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

On March 16 I received a payment from A.I.G. amounting to $742,006.40, after taxes. In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less — in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to 90 percent stands. Once all the money is donated, you will immediately receive a list of all recipients. …

This choice is right for me. I wish others at A.I.G.-F.P. luck finding peace with their difficult decision, and only hope their judgment is not clouded by fear. …

Sincerely,

Jake DeSantis

Matt Drudge:

OBAMA SEEKS EXPANDED POWER TO SEIZE FIRMS

The Washington Post puts it slightly differently, but Drudge is more accurate.

John Hawkins finds the Annointed One embarrassing to watch on 60 Minutes.

Many of us, that at times during our lives, have believed we could do a better job than the President of the United States, just as we thought we’d do a better job than the coach of the Pittsburgh Steelers or the network executive who greenlighted Real Chance of Love.

The problem tends to be that what looks so crystal clear from the outside, usually in hindsight, appears confusing, muddled, and difficult to fathom when you’re actually going through it.

That’s why experience matters, particularly executive experience, and it’s a big part of the reason why Barack Obama has done such a mediocre job so far.

Obama is a silver-tongued political novice who has managed to be in the right place at the right time.

Now, if you’re a hammer, every problem looks like a nail. And if you’re a politician like Barack Obama, who has gotten everything he has in life by being slick and sounding confident, every problem looks like something that can just be talked away.

That tendency was on display in his Sixty Minutes interview, a ‘grilling’ which would be considered a softball interview for a Republican (”Wow, that’s a great swingset for your kids to play on. How are they liking the White House so far?”) but was still probably tougher than any interrogation Obama has received since he entered the White House. (After all, he even admitted that he gets lost in the White House “repeatedly.”)

Each time Obama got a tough question, he did what sociopathic politicians have doing for decades: he lied, dodged, and talked out of both sides of his mouth.

Read the whole thing.

In their negative campaign books on Barack Obama, Jerome Corsi and David Freddoso took an extended look at the democrat front runner’s long record of radical associations and virtually nonexistent record of legislative accomplishment, and observed that Obama’s record was really that of a faithful servant of the corrupt Chicago democrat party machine.

Yes, Obama faithfully voted for the agenda of the democrat party’s leftwing base when it was safe to do so, but he carefully avoided sticking his neck out or crusading for controversial leftwing positions which might conceivably compromise his viability as a candidate for higher office.

Despite all the associations and the rhetoric, both authors speculated that Obama as president might very well operate as he did previously, as a faithful servant of the interests of his party’s key special interest constituencies and contributors, making only the occasional safe, usually symbolic, gestures to the radical base.

Obama, during the campaign, took great care to convey the impression that he was not ultra-leftwing or radical but really pragmatist, and would govern as another responsible moderate democrat.

Well, it turns out we were all in for a surprise.

Obama has not attempted to govern moderately or responsibly in the least. He’s taken the combination of his own electoral victory, a congressional majority, and an economic crisis as a license to spend, regulate, and socialize without restraint. For a long generation, ever since the Carter debacle, politicians have treated the US economy as a third rail, recognizing that voters would promptly and decisively respond to economic pain by punishing any party seen to be responsible for an assault on their prosperity.

Uncharacteristically, even democrats like Bill Clinton moderated their populist impulses, restrained their urge to redistribute, and kept Alan Greenspan in charge of the Fed simply in order to preserve confidence. Ironically, the Bush Administration made the mistakes it did, in rushing to intervene and to supply bailouts on the basis of exactly the same belief in the necessity of maintaining economic confidence.

But not Barack Obama. Obama has moved rapidly to treble George W. Bush’s war-based deficit in a single month. He has turned the treasury’s printing press on full speed, virtually guaranteeing a reprise of 1970s style, if not Weimar Germany style, inflation. He plans of raising taxes, nationalizing health care, regulating everything that moves, and putting caps on financial industry salaries. He might as well send in a few drone aircraft to launch hellfire missiles into Wall Street.

Barack Obama is obviously not afraid of losing the confidence of the business sector. He feels empowered by the economic crisis, not intimidated by it. The deeper the hole he digs, he seems to think, the more basis he has to justify increasing federal power and a greater federal share of the economy.

Obama is treating government the way a 17 year old drives. The more out of control he gets, the harder he pushes on the accelerator.

Carol Baum, at Bloomberg, reads today’s news and finds herself living in a Rand novel.

Somewhere John Galt is smiling.

The hero of Ayn Rand’s “Atlas Shrugged” is smiling because he’s seen it all before: the government’s intervention in the private sector; the constraints placed on business in the name of the people; the desperation on the part of government bureaucrats when they realize their leverage is limited; and — this part is still fiction — the decision on the part of business leaders to walk away from the enterprises they built.

That’s all I could think about when I read that American International Group Inc., recipient of $173 billion in taxpayer funds, was paying out $165 million in bonuses to employees of its financial-products group, the poster boy for risk and greed.

The Obama administration, Congress and the public are outraged taxpayer dollars are going to enrich the folks who got us into this mess. So am I.

Members of Congress want to blame Edward Liddy, the former chief executive officer of Allstate Corp., who was recruited by former Treasury Secretary Hank Paulson in September to steer AIG away from the shoals.

Liddy is paid $1 a year for his efforts. “My only stake is my reputation,” Liddy said in a March 16 open letter to Treasury Secretary Timothy Geithner.

His only crime, as far as I can tell, is inheriting compensation contracts providing for retention bonuses for certain AIG derivative traders, some of whom have left the company, and listening to lawyers on his options. …

I’m not alone in noting the parallels in the government’s evolving response to the financial crisis. For a year I’ve been waiting for Paulson or Geithner to announce “the John Galt Plan to save the economy,” which is right out of Rand’s novel.

It wasn’t until the AIG bonus brouhaha broke last weekend and I watched government officials flailing to contain the fallout that I realized the government is losing its leverage. Or maybe it never had any leverage to begin with.

Let me explain. The government has been propping up teetering financial institutions, including AIG, Citigroup and Bank of America, creating the illusion that the banks need the government.

The government doesn’t care about these institutions. It cares about the stability of the financial system: the totality, not the parts.

Congress can refuse to allocate more money to institutions in which it already owns a share (80 percent in the case of AIG). It can levy a tax on the AIG bonus payments or withhold them from the next $30 billion cash infusion, although who would notice? And it can install new management.

Why hasn’t the government put in its own people already? Maybe no one wants the job.

The government needs Liddy and Citigroup’s Vikram Pandit and Bank of America’s Ken Lewis to continue working to restore their firms to prosperity in the same way the looters in Rand’s novel need Hank Reardon and Francisco d’Anconia and Dagny Taggart, respectively, to run their steel mills, copper mines and railroad.

From their perches as chairmen of the House Financial Services Committee and Senate Banking Committee, respectively, Democrats Barney Frank and Chris Dodd fulminate about the lack of regulation and about inflated CEO compensation. For Dodd, it’s a good opportunity to deflect attention from his sweetheart mortgages from former Countrywide CEO Angelo Mozilo and his questionable real estate deal in Ireland.

All that’s left for life to imitate art completely is for these CEOs to quit. Let Barney Frank and Chris Dodd run AIG. Let’s see how they fare.

The government needs these companies to survive — and buy back the government’s ownership stake — more than they need the government. Most of these CEOs are already wealthy. They don’t need a job working for the government, which is what running a bank amounts to today.

What’s in it for them? One dollar of compensation? Their reputations? The house on the lake looks more appealing by the day.

Is anyone surprised sales of “Atlas Shrugged” have spiked in recent months as reality comes to resemble Rand’s fiction?