Here’s what I think – Milton Friedman once said that “there is nothing more permanent than a temporary government program.” The assertions that federal ownership of GM will be short-term have been met with howls of disbelief. President Nixon said the same thing when the government nationalized the railroads with Amtrak and Conrail (though the government did sell Conrail, after operating it with massive losses for over 20 years) in 1970. The Nixon administration said, “It is expected that the corporation would experience financial losses for about three years and then become a self-sustaining enterprise.” This is virtually the same assertion made yesterday by President Obama about General Motors. Look at Amtrak, the Post Office, the Tennessee Valley Authority (TVA) today; they are all owned by the feds. They enjoy a monopoly status (it is a crime to run a railroad in competition with Amtrak, to compete with the Post Office for first class mail, or to sell electricity to TVA customers). They all lose money. And they all appear to be federal in perpetuity. And worst of all, no one seems to care about the massive loss of dollars they cause each year. Will we one day feel the same way about GM?
New York Court Set to Hear Challenge to Chrysler, Fiat Deal
Here’s what I think – Under federal court rules, appeals from a bankruptcy court are filed with a federal district court. However, if the party resisting the appeal (here, Chrysler itself and the Treasury Department) can persuade a circuit court that the appeal will come to it eventually, the circuit court may take the appeal directly from the bankruptcy court, bypassing the district court. All this means a far faster appellate process, one that will respect the June 15th deadline for Fiat to acquire some of Chrysler’s assets or walk away. The essence of the appeal is that the haircut the bankruptcy court administered to the Chrysler bondholders is unconstitutional because the effect of it was to change the priority of bondholders under federal and Delaware (the State of Chrysler’s incorporation) law, retroactively. The state and federal laws mandate that the bondholders be paid in full before any other creditor is paid anything. The disregarding of that law is not permissible, since the bankruptcy court is bound by it. Only the Congress or the Legislature of the State of Delaware could change such a law, and then, it could not be changed retroactively. The ancillary argument here is that by changing, or disregarding, those laws, the bankruptcy court has “taken” the property of the bondholders. Takings without full compensation are expressly prohibited by the Fifth Amendment to the Constitution.