A little while ago, I wrote a piece discussing how much money labor unions had spent on getting Barack Obama elected, and what kind of return they’re getting on that investment. There’s an old joke that defines an “honest politician” as “one who, once bought, stays bought.” By that standard, President Obama is a remarkably honest politician.
When Chrysler was teetering on the brink of bankruptcy, the Obama administration put together a plan for avoiding the court filing. Under the plan, Chrysler would be majority-owned by the United Auto Workers, with the next-biggest shareholder being the Italian automaker Fiat. This plan had one weakness: it required Chrysler’s creditors to go along, setting aside the lion’s portion of their claims and writing off most of their debt.
No problem, they thought. Most of those creditors had accepted TARP money, so the government already had a bit of leverage to twist their arms.
Unfortunately, enough non-TARP creditors refused to write off massive amounts of their investors’ money that they forced Chrysler into bankruptcy anyway.
Well, the Obama administration appears to have paid very close attention to that move, because they’re now pulling pretty much the same play on California.
The Golden State is, as most everyone knows, teetering on the brink of financial collapse. The state government has instituted a whole series of budget cuts, shaving off about $74 million.
One of those cuts was in the pay for health-care workers who assist low-income disabled and elderly Californians. Their union didn’t like it one bit, so they called up the White House and asked if was something could be done.
The Obama administration informed California that its attempt to save $74 million could cost them $6.8 billion — in TARP money.
Essentially, the Obama administration was doing to California with its TARP money precisely what the non-TARP lenders did to Chrysler — using their financial leverage to shoot down a recovery plan that didn’t meet their favor, and threatening to drive the troubled organization into insolvency.
Now, it must be noted that TARP was not created by the Obama administration. It is, in the words of Obama, “inherited from the Bush administration.” If Bush ever foresaw how TARP would be used — as a club to cudgel its beneficiaries into complying with government plans and dictates — it would be the blackest mark on his legacy.
In the meantime, we need to learn from the narrowly averted Chrysler plan and the state of California — everything favor from the government comes with strings attached. They might not be very visible at first, but they are always present and almost impossible to sever.