Mitch Daniels gets defensive about Chrysler BK lawsuit

So many lies, straw men, and distortions in one piece, and they all serve for Mitch Daniels’ self-aggrandizement. He never mentions the cost to Hoosiers of this lawsuit. He elides his administrations’ decisions to gamble state pensions on risky investments. And most importantly, there’s no mention of what would have happened if the lawsuit had succeeded – the money to repay Hoosiers would not have mysteriously appeared. We would have gotten even less back.

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June 10 will be a silent anniversary, but one worth noting by those alarmed at the past year’s assault on free institutions. It was last June 10 when the federal government tossed aside the option of proven, workable bankruptcy procedures in order to nationalize Chrysler on behalf of its union allies.

The one effort to stop the Chrysler cramdown was launched by three Indiana pension funds. Believing they were making both a wise investment and a gesture supportive of a longtime state employer, Hoosier retired teachers and state policemen had purchased some $19 million in Chrysler’s secured debt. The market consensus at the time was that, at 43 cents to par, the bonds were well below their value if bankruptcy ultimately came.

Bankruptcy came, all right, but in a new, extra-legal form run by the federal government. The United Auto Workers, who owned no interest in the company, were simply handed a 55% interest, a gift valued then at $4.5 billion. When no one else wanted to buy the firm, Fiat was given a 20% stake for free to take it over. After this looting, the legitimate creditors were told to be happy with the remnants. For Indiana’s retired teachers and state policemen, this amounted to 29 cents on the dollar, a loss of $6 million versus the purchase price and millions more below the expected value in a standard Chapter 11 proceeding.

Aided by incensed counsel donating much of their time pro bono, Indiana returned to the Supreme Court with a slim hope of recovering its pensioners’ assets, reinstating traditional American property rights and making secured credit secure once more. It seemed to some an exercise in futility: The judge in the Coyotes case commented from the bench that the “poor pension manager from Indiana . . . was kind of like the gentlemen in Tiananmen Square when the tanks came rolling.”

The nation is not safe from crony capitalism. In the past year we’ve experienced the nationalization of the student loan industry and the passage of national health-care and financial-services regulation, each of which is rife with new opportunities for government favoritism and preferential handouts to favored corporations like Chrysler.

But thanks to a quiet correction by the Supreme Court—and a little Hoosier stubbornness—the rule of law has been re-established. The greatest benefits will accrue not to lenders and borrowers but to all those whose jobs are created because investors once again can trust that the money they’ve risked is safe from seizure by the state.