Moments before I went into the White House briefing on Friday (May 29) and listened to Press Secretary Robert Gibbs field questions about the future of Chrysler, I spoke to the man who is behind the lone intervention in the Administration-orchestrated bankruptcy deal for the auto giant: Indiana State Treasurer Richard Mourdock, who has filed suit in a New York’s federal court against the arrangement.
“The Chrysler deal is a clear violation of the Fifth Amendment to the Constitution and more than 150 years of bankruptcy law,” Mourdock told me. Under the Fifth Amendment, he noted, private property cannot “be taken without due process of law. That clearly has not happened in this case. There has been no process of law consistent with long-standing precedent whatsoever.”
Under the terms of the bankruptcy arrangement, the treasurer explained, “the secured creditors in Chrysler will get only 29 cents on the dollars for what they invested in the company. There was $6.9 billion worth of secured credit in Chrysler at the time of the deal. $6.6 billion was owned by banks and the remaining $300 million was owned by private pension funds, which covered thousands of retired state police officers and teachers.
“Twenty-nine cents on the dollar for people like that is not ‘just compensation’ at all, but the government says they have to abide by it,” said Mourdock, spelling out the basis for Indiana’s lawsuit, “This is the first time in the history of American bankruptcy law when secured creditors received less than unsecured creditors. And that ain’t right!”
Special Treatment for Fiat
Indiana’s treasurer contrasted the portion of the Chrysler bankruptcy deal that impacts harshly on retired state employees with that portion in which the Italian-based Fiat Corporation will get 20% of the reorganized Chrysler.
“How do President Obama and Secretary [of the Treasury Timothy] Geitner justify pensioners taking losses, while a foreign-owned business gets 20% of the new corporation without investing a single penny in the deal?” Mourdock asked.
In charging that the Administration is “throwing away the rights of secured creditors,” Mourdock also took after the President for labeling such creditors who opposed the Chrysler deal as “greedy speculators” and “unpatriotic.”
“That’s precisely what he said at his news conference,” said the Indiana treasurer, “Indiana taxpayers, retired Hoosier state policemen and teachers are neither greedy speculators nor unpatriotic. They are, however, secured creditors of Chrysler. They deserve to have their funds protected under the full auspices of the law.”
The Chrysler bankruptcy is a particularly sensitive issue in Indiana. Kokomo, Indiana and its suburbs are home to more than 7,000 Chrysler employees. Mourdock estimates that, under the bankruptcy arrangement, there will be losses of $22 million to the state’s pension funds for the money invested in Chrysler.
The essence of Indiana’s lawsuit, Mourdock went on to say, is “that the TARP bill was, as it says in the text Congress passed, ‘to aid ailing financial institutions’–banks, credit unions, insurance companies, and the like. An automaker is not a financial institution. After TARP was passed, Congress tried to pass a separate auto bailout bill and it failed. That’s when the Obama Administration said: ‘To heck with that. We will just say they qualify under TARP.’ If that was Congress’ intention, I ask, why did they try to pass a specific bailout bill for automakers? Henry Paulson, the secretary of the treasury when TARP was enacted, specifically said it was not for auto companies…This stuff is egregious.”
The Indiana lawsuit is nothing short of historic, something that may stop the Obama Administration’s reorganization of one of the “Big Three” automakers and lead to a fresh judicial restatement of “just compensation.” Although the judge in the case denied the suit’s request to halt the bankruptcy deal, Mourdock noted, “he left the door open for an appeal [to the U.S. Circuit Court of Appeals]. We fully expect this will go all the way to the Supreme Court.”
A two-time U.S. House hopeful and two-term local government official, the energetic Mourdock is known among his fellow Hoosier GOPers as “the hardest working man in show-biz.” No other Republican, I was told when I was last in Indianapolis, makes more Lincoln Day dinners or other speaking dates than Mourdock.
When we spoke on Friday, Mourdock was again on the road, but this time hawking his challenge to the Obama Administration over the Chrysler bankruptcy and the Fifth Amendment. As he told me, “I certainly never imagined I’d be the sole guy to stand up for free market capitalism against a federal administration. But if that’s my destiny, I’ll fulfill it.”
Parting Shot: It goes without saying that, after finishing with Mourdock, I was anxious to ask Robert Gibbs about the White House’s reaction to the lawsuit over Chrysler. The President’s top spokesman didn’t call on me but he did address the issue of creditors in Chrysler, GM, and other auto companies that require a federal rescue. As Gibbs told one of my colleagues, they will be part of “a restructured company in the future. Again, if you’ve got somebody who’s making an investment in a company, we think that those are people that can decide they want to be part of something that’s restructured and hopefully viable; that gives them the ability in some of these instances to do that.”
Two days after Gibbs’ briefing, Mourdock described his comment as “fascinating.” But the truth is, he said, “is that the secured creditors of GM are being given the opportunity to participate in the "new company"… not the Chrysler secured creditors. That why he carefully parsed his statement to say, ‘that gives them the ability in some [emphasis added] of these instances to do that…’ This too shows how they’re making up the rules as they go.”