Obama’s auto policy: All in the Democratic family
By: Timothy P. Carney
Examiner Columnist
May 6, 2009
President Barack Obama’s auto industry policy promises to heighten the influence of lobbyists and to open the door to ethical transgressions and even outright corruption. By naming as car czar a financier who is also a Democratic fundraiser steeped in cozy business-government relationships, and by replacing the traditional bankruptcy procedures with the will of politicians, Obama has injected Detroit with all the elements of crony capitalism.
Auto czar Steve Rattner, 56, a top Democratic fundraiser, is an old hand at leveraging political influence into profit, as shown by the business dealings of his hedge fund, Quadrangle Group.
One Quadrangle client was New York City’s pension fund — an arrangement at the heart of recent federal convictions for illegal kickbacks. Federal authorities charged that a “senior executive” at Quadrangle — Rattner, according to the Wall Street Journal — met with a consultant who was looking for places to invest the city’s pension fund money. A short time later, the city invested in Quadrangle, and Quadrangle cut a check to the consultant, who has since pleaded guilty to taking illegal kickbacks.
Quadrangle is not under investigation nor has it been accused of wrongdoing in making the payment, but New York’s comptroller is looking into whether the firm failed to disclose the payment.
Rattner, it turns out, is also the personal money manager for New York City’s Republican Mayor Michael Bloomberg.
In Washington, Quadrangle also seems to play politics for profit. Quadrangle paid $160,000 to the K Street firm Navigant Consulting from February 2005 through the end of 2006 to lobby Congress, the White House, and the Department of Labor on a handful of bills regarding asbestos litigation and compensation.
What was Quadrangle’s stake in asbestos legislation? The firm didn’t return a phone call seeking an answer, but it’s not too hard to deduce. Many hedge funds invested in companies damaged by asbestos lawsuits. These funds then lobbied for legislation that would alleviate some of the liability the companies faced, thus boosting companies’ stock value.
Alternatively, a hedge fund could make the opposite play: Watch a vulnerable company’s stock rise as prospects improve for asbestos legislation, then short the company and lobby to kill the bill. Sometimes the lobbyists just acted as intelligence gatherers. A Wall Street Journal article in December 2006 explained the dynamic:
“Some hedge funds, which tend to choose riskier investments that can yield high returns, saw the troubled asbestos companies as attractive. To weigh the value of their investments and decipher bankruptcy-court actions, hedge funds hired teams of analysts and researchers. When Congress began considering legislation to bail out the industry, the funds hired lobbyists to assess its prospects.”
So Rattner understands how public policy can create private profits. It should come as no surprise, then, that his auto plan involves upending bankruptcy law and precedent in favor of a system in which the winners and losers are chosen by politicians or their appointed “czars.”
Rattner and Obama have decided that the United Auto Workers union should get 55 percent of Chrysler. At the same time, they’ve attacked many of Chrysler’s secured creditors — who, in a regular, nonpoliticized bankruptcy, would be repaid in full — for resisting this deal. In a federal complaint, these administration targets alleged: “The government exerted extreme pressure to coerce all of [Chrysler’s] constituencies into accepting a deal which is being done largely for the benefit of unsecured creditors at the expense of senior creditors.”
For the foreseeable future, Chrysler will be on the federal dole, both directly and indirectly. The Obama-Rattner plan puts UAW in charge of Chrysler, which is good news for the Democratic Party.
UAW’s political action committee spent $13.1 million last election cycle, a slow year for the union’s political arm. Of the PAC’s $2.3 million in direct contributions to candidates and candidate PACs, more than 99 percent went to Democrats. Of 42 Senate candidates to get UAW money, only one was Republican, and that was Arlen Specter.
The union’s PAC also reported $4.5 million in independent expenditures supporting Obama, plus an additional $423,000 opposing John McCain.
So, here’s the arrangement: You pay your taxes, the Obama administration funnels some of the money to Chrysler, whose profits enrich the UAW, which in turn funds Obama’s re-election.
Predictability, precedent and the rule of law have been replaced with the fiat of politicians. Chrysler could become a pass-through entity from taxpayers to the Democratic Party. And in charge of it all is a Democratic fundraiser. Boss Tweed would be proud.
