There is a word for it, extortion.
Over the past eight months,
we have seen a disturbing
trend coming out of Washing-
ton, DC.  We got a glimmer of
it when Bank of America CEO,
Ken Lewis, admitted to NY
State Attorney General
Andrew Coumo that BoA was
coerced into buying Merrill
Lynch.  Since then, rumors
have been circulating on how
other CEOs, of banks that were
not in peril, were forced to take
TARP money, or face lengthy
audits from the Treasury and
other government agencies.

This week the focus shifts to
the automobile industry.  GM
and Chrysler are in bankruptcy.
Chrysler, the weakest of the
'Big 3', had it's first day in court
today.  The Treasury is forcing
all of Chrysler's creditors to
accept a slice of a $2.25 Billion
dollar cash pie to write off $6.9
Billion in debts.  Most of the 42
creditors have agreed to the
proposal, and we may know
why now.  Those who aren't
have said that the White House
is threatening to publicly ruin
them via the press corps.  
HUH???

Those lenders who agreed all
have one thing in common,
they all accepted TARP funds.
Goldman Sachs, JP Morgan-
Chase, Citigroup, and others,
accepted the Treasury's offer
of 29% outstanding loans
to the troubled auto maker.
The holdouts, whom include
Oppenheimer Funds and
Stairway Capital, are fighting
for the 70% share they are
entitled to under the terms of
the corporate bonds they own.

Attorney Tom Lauria of White
& Case, who are representing
the dissenters, says that,
"We're just standing on the
law."  Lauria explains that the
issue at hand is how the pro-
posed Treasury  plan "inverts"
the standard bankruptcy code
where secured lenders are
paid in full first, followed by
lesser and unsecured lenders.
Laurie told the press on Friday
that, "What's happening is the
senior secured creditors are
going to get 29 cents on the
dollar and the unsecured
creditors are going to get $10
billion dollars."

The group of 20 dissenters
are holding about $1 Billion
dollars of Chrysler's debt.
President Obama scolded
the hedge funds and others
publicly, calling them out
for not making the same
sacrifices as others are. But
Tom Lauria told WJR's
Frank Beckman today that,
"One of my clients was
directly threatened by the
White House, and in essence
compelled to withdraw its
opposition to the deal under
threat that the full force of
the White House press corps
would destroy its reputation
if it continued to fight."  He
was referring to the firm,
Perella Weinberg, which
caved in on Thursday to
accept the Treasury Depart-
ment's deal.

Lauria went on to say that
his clients are not opposed
to rescuing Chrysler, but still
seek to be compensated under
the law.  He added that the $10
Billion dollars the Treasury
plans call for paying off all
creditors will probably turn out
to be closer to $20 Billion
based on documents filed
in the bankruptcy court.  He
also pointed out during the
interview on WJR that many
of those who are accepting
the 29% compensation had
bought Chrysler bonds which
only offered 30% return in
the event of a default. So how
could this "sacrifice", as the
Obama puts it, be the same or
be fair?

The overall plan for rescuing
Chrysler calls for the U.S.
government to obtain an 8%
stake in the company.  The
UAW will get a 55% stake
through stock equity transfer-
red to VEBA, a trust fund set
up by the UAW and the Big
3 during previous contract
negotiations to manage the
union employee health bene-
fits.  Daimler will give up its
20% stake and cough up
$600 Million a year for the
next three years to the
pension fund to walk away
from this disaster.  Fiat will
buy between a 20% to 35%
stake in the company.  The
current owner of Chrysler,
Cerebus Capital Manage-
ment, who had 80% of the
company, will get the re-
mainder.

Over the years, Chrysler
has shrunk to only about
39,000 employees in the
U.S., and about 15,000
in Canada.  A similar deal
is now being worked out for
General Motors to be re-
structured.  The UAW is
expected to get a 39%
stake in GM, with the Federal
government getting a sizable
slice, too.  Their financing
division, GMAC, will be taking
over Chrylser's auto loans
and financial services. Only
Ford Motor Company seems
to be in a healthy enough
shape for now to avoid a trip
to bankruptcy court.

The essence of all of this is
very disturbing, as the Federal
government continues to take
over and run rough shod over
major economic sectors.  The
banks, auto companies and
credit card industry are the
first to feel the heat.  New
regulations on the energy
industry and Federal health
care programs will radically
alter the landscape for
American businesses.

As I wrote last time, we appear
to be trotting down the path of
soft despotism.  The govern-
ment, in league with labor
unions, are coercing business
to bend to it's will.  The threat
of audits, legislation, and now
enlisting the media, are all
being applied to force firms
into submission.  How is any
of this different than when a
criminal mob extorts money
from victims?  Apparently,
extortion is only criminal when
it is practiced by private enti-
ties, but perfectly appropriate
when done so by the govern-
ment.