Candidate Barack Obama promised “change,” but few suspected one of the biggest changes would be an unparalleled attack on the rule of law orchestrated from the Oval Office. It is, to say the least, an ironic turn of events for a president who fancies himself a constitutional scholar and who rode into office excoriating George W. Bush for “shredding” the rule of law.
We saw this on full display last week as Obama disingenuously promised a “quick” bankruptcy of Chrysler and vilified the car company’s creditors as “speculators.” As a Financial Times columnist explained:
For once, the law is unambiguous: senior secured creditors should be paid before junior unsecured creditors and employees (the words “senior” and “junior” are a bit of a give-away on this point). By turning legal wisdom on its head — and vilifying investors that opposed the move — the administration is signaling the principle is no longer sacred.
While that, in itself, will not cause a massive capital flight away from the U.S., it will have some serious repercussions.
Fund managers and hedge funds are already reluctant to participate in the authorities’ plans to rid banks of toxic assets for fear of government retribution on pay. The Chrysler “cram-down” of lenders is hardly going to fill them with confidence. …
The government has a real problem here. Call it the “paradox of the official bailer-outer”: the authorities’ position as rescuer-in-chief forces them to take an active role in the private sector, yet their goals (saving jobs, getting re-elected etc) conflict with the smooth running of the very markets they are trying to preserve.
This, of course, is not the only instance in which the administration and its allies have tried to eviscerate property rights. The AIG bonus debacle was a shabby display of government-by-mob rule. While the president later thought the better of it, his first reaction was to gin up some anger against the AIG executives who had a legal right to their bonuses — and whose contract rights had been protected (they thought) by congressional action instigated at the behest of Treasury Secretary Tim Geithner. So much for the sanctity of contracts.