Chutzpah Unlimited

"Intense lobbying by banks and bankruptcy experts softened a key provision in the auto-bailout bill that would require government loans be repaid ahead of banks and other lenders. But the current language leaves unlcear just who would collect first in the event of a bankruptcy filing--taxpayers or existing creditors. ... The banks prime concern centered around a plan to make the U.S. government's $14 billion in rescue loans senior to other loans. They argued that this clause violated the Fifth Amendment of the U.S. Constitution, which prohibits the taking of private property without 'just compensation'. ... Historically, the only way a secured lender can be forced to take a backseat to another lender is in bankruptcy court, where a judge hears from the secured lenders and determines if those creditors are protected with additional collateral or other measures. ... 'It really sounds like a clear violation of the taking clause in the Constitutuion, to put the government ahead of all the other lenders. To go this route is a treacherous path riddled with all sorts of constitutional issues,' said Don Workman, head of the restructuring practice at the law firm of Baker Hostetler [BH]. ... It is still unclear what the practical effects of this language may be. Potentially, that could place the government behind the banks but ahead of the bondholders in repayment, say turnaround experts. Lenders said if left unresolved, the language could make banks and others even less willing to lend to troubled companies, for fear that the government could intervene in more situations. But the change may also anger policy makers, who have demanded the government and taxpayers be paid back first", my emphasis, Jeffrey McCracken & Elizabeth Williamson at the WSJ, 11 December 2008.

"GMAC LLC is racing to raise $1.25 billion in fresh capital necessary for the [Fed] to begin backstopping the company's finances. ... As a federally chartered bank, GMAC can have its debt temporarily guaranteed by the [FDIC]. GMAC could also access the Fed's discount window for inexpensive, short-term emergency loans at a time when its borrowing costs have soared due to battered credit ratings. ... GMAC's shift to a bank holding company would greatly benefit GM", Aparajita Saha-Bubna at the WSJ, 15 December 2008.

"The key to any magic trick is to focus the audience's attention away from where the action is actually taking place. That is what Congress did in the failed auto bailout bill. Language in the proposed legislation seems to uphold the rights of existing car-company creditors while also protecting any taxpayer funds used to prop up Detroit. In reality, the bill raised a chilling prospect for debt investors: that in extreme situations the government could upend the traditional pecking order of the bankruptcy process. ... Creditors' rights became an issue in the proposed automobile bailout because the government planned to put its money first in line for repayment in the event of bankruptcy. That seems to be a no-brainer for taxpayers", my emphasis, David Reilly (DR) at the WSJ, 15 December 2008.

Is Uncle Sam considering an auto maker or another banker bailout? BH's Workman should be called to Congress and told on television tell your clients, "if you want federal money, subordinate. Alternatively, we will let the auto makers go bankrupt. Which would your clients prefer?". Congress should call Vikram Pandit (VP) and ask him, if he thinks Citigroup should treat any federal auto bailout money as if it's debtor in possession financing. Then call in Kenneth Lewis (KL) and ask him what is the B of A's position. What will VP and KL say on television in front of millions as thousands of UAW members and other peasants with pitchforks surround the Capitol? That any financial institution would raise this issue is amazing. Until Unc puts money in, he holds the cards. For that matter, any bank which received federal bailout money should be prohibited from lobbying. The bank doesn't like it, give the money back. I don't see banks arguing the Fed's existence violates US dollar holders rights and for the Supremes to reverse the 1930s' "gold clause" cases. "For fear the government could intervene"? This is the banks' Alice In Wonderland world. Michael Savage, radio talk show host, speculated that what's really driving the auto bailout bill is the Bush administration's desire to protect Cerberus Capital which has positions in Chrysler and GMAC and is well-connected politically. Maybe.

Temporarily?

I agree DR, this is a "no-brainer". Either this is an auto bailout bill, or another bank bailout bill.