He Who Has the Gold Makes the Rules, Or So He Thinks

As I wrote in my most recent post, "Killing Chrysler," bankruptcy might be the best thing for debt holders. While I generally don't care for bankruptcy, it does happen, and the rights of both parties should be respected by law. However, with President Teleprompter and his union goons in office, what should be and are vary greatly.

The Wall Street Journal reports indirectly, in a piece titled, "Chrysler Pushed Into Fiat's Arms" (May 1, 2009), that TARP-backed banks were pressured to encourage other debt holders to accept the government's deal. People who switched to Allstate saved an average of $396 per year. Quote Now!

What becomes clear, as the story reports:

"The administration had repeatedly said it has no plans to run Chrysler or dictate its business plans. ... The pact allows the government and UAW to reorganize the company's top management."

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Interesting, President Teleprompter wants to reward the UAW goons with control over the third largest automaker, and then tell them what cars to make. Sounds crazy? Also from the article:

"Moreover, the government said it would use the agreement with Fiat and Chrysler to encourage fuel-efficient cars."

Didn't it seem strange to anybody that the President of the United States was announcing the bankruptcy of a publicly traded company? Have you wondered why the federal government is getting its nose and your money into these businesses and not just letting them fail naturally, under existing bankruptcy law?

Clearly, this is about political power, and the socializing of the U.S economy. Consider how President Teleprompter speaks about the debt holders seeking enforcement of their contractual rights and relief from the courts:

They "decided to hold out for the prospect of an unjustified, taxpayer-funded bailout," Mr. Obama charged. Were that not enough demonization, Cogressman for Life, Rep. Dingell (D. MI) calls the debt holders, "...'rogue hedge fund' and 'vultures' and said in a statement that they 'will now be dealt with accordingly in court.'

Wow, name calling, threats of court? This is just business, right? Not really, as this is really just a push to control as much industry as possible. Guess what GM, you're next!

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In less than 100 days, the federal government now owns 85% of one of the world's top insurance companies (AIG), and has its claws in the top banks via TARP. GM is next, and after that, health care. If this isn't stirring just a bit of worry in your mind, it better!!

My sincerest hope is that when the debt holders get to court, they plead their case, and the judge pays the secured debt holders their due. Further, I hope the judge pays each aggrieved party all they are entitled to under the law, and leaves President Teleprompter's dreams of industrial domination in the dirt.

Congress Declares Contracts Null and Void

Hello nationalization, good bye rule of law! Barney Frank (D-MA) has done it again. Byron York reports in the Washington Examiner that:

"...the House Financial Services Committee, led by chairman Barney Frank, has approved a measure that would go beyond the most draconian features of the original AIG bill... the "Pay for Performance Act of 2009," would impose government controls on the pay of all employees ... of companies that have received a capital investment from the U.S. government. It would be retroactive, changing the terms of compensation agreements already in place. And it would give Treasury Secretary Timothy Geithner extraordinary power to determine the pay of thousands of employees of American companies."

In case any of you missed my post, "The Unconstitutional Congress," I spelled out how this type of ex-post-facto law is unconstitutional. The Constitution of the United States, Article I, Section 9, paragraph 3 provides that: "No Bill of Attainder or ex post facto Law will be passed." Additionally, here is a lovely quote from James Madison:

Bills of attainder, ex-post-facto laws, and laws impairing the obligation of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation. James Madison, Federalist 44.

Whether Congressman Frank is attempting to cover up his and fellow Democrats unbelievably incompetence relative to Freddie Mac and Fannie Mae, or they truly believe that Congress can arbitrarily revoke contracts is yet to be seen. In either case, what they are doing is a violation of the basic principals of the founding of this country! Further, if allowed to pass, it will destroy the financial foundation of the United States. Nitro-Pak.com

The United States is economically successful because of its transparency, its commitment to contracts, as well as its protection of private property and the rule of law. However, what we are seeing of this Congress and President Teleprompter is a wanton attempt to destroy the economy of this country. Special Sign Up Bonus: FREE rollover minutes. Order Today!

Allow me to issue this warning today:

Citizens of the United States, if you wish your country to remain the bastion of liberty and prosperity, act now to reign in the blatant, unconstitutional action of this Congress and President. Contact your elected representatives and regularly demand accountability, constitutional action, and an end to destruction of the rule of law. Failure to act will lead to cataclysmic consequences and the absolute destruction of liberty! Pray for our leaders and our country that this Republic will not become the home of tyranny! Great fares to India on Air France!

In case you don't think this behavior is serious, allow me to refer you to the CEO of GM, who, according to President Teleprompter, was fired by the government. Since when did the government have the authority to fire anybody from a private company?? This gross abuse of government authority must stop!

The Unconstitutional Congress

Bills of attainder, ex-post-facto laws, and laws impairing the obligation of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation. James Madison, Federalist 44.

The US Congress has written and is debating legislation, today 19 March 2009, to "claw back" the bonuses that AIG awarded to certain employees in the amount of $165 million. Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

It turns out that Sen. Chris "Sweetheart Countrywide Mortgage" Dodd (D-CT) admitted to writing the legislation that allowed the bonuses in $787 billion stimulus package.

Dodd, D-Conn., told FOX News that Treasury officials forced him to make the change.

"As many know, the administration was, among others, not happy with the language. They wanted some modifications to it," he said. "They came to us, our staff, and asked for changes, and the changes at the time did not seem that obnoxious or onerous."

In a brazen attempt to cover their political backsides, Congress has written legislation "...that would levy a 90 percent tax on bonuses paid to employees with family incomes above $250,000 at companies that have received at least $5 billion in government bailout money." Guess who wrote this gem, none other than tax cheat Charlie Rangel (D-NY). Become a Decision Maker. Search Director, VP, & Manager level Jobs.

The legislation is clearly unconstitutional, as it specifically targets AIG who lawfully paid bonuses, that were approved by Congress. Congress approved the bonuses as part of the last $30 billion in aid that AIG received. In short, it is a Bill of Attainder. According to techlawjournal.com a Bill of Attainder is:

A legislative act that singles out an individual or group for punishment without a trial.

The Constitution of the United States, Article I, Section 9, paragraph 3 provides that: "No Bill of Attainder or ex post facto Law will be passed."

As I wrote in my previous post, "Bonus Indignation" Congress is trying to make political hay and create cover, by using AIG as a scapegoat. This is all a big distraction from the disastrous spending they have written and President Teleprompter has signed.

Americans are finally beginning to clue in to the enormity of the bailouts and fiscal irresponsibility of Congress and President Teleprompter. As America's future generations have been sold down the river of debt, and the current generations are getting ready to face hyper inflation, Congress fiddles with manufactured outrage over $165 million. Protect your Medical Identity with TrustedID. $1,000,000 Warranty & Great Customer Service

Too bad they don't have President Bush to kick around any more.

Bonus Indignation

** Check out the follow up article, "The Unconstitutional Congress. **

Congress is shocked, shocked, to see that AIG awarded bonuses to employees! Gasp, contracts existed where if employees met certain conditions they would get bonuses. How dare they!?! Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

How much are these bonuses? $787 billion, nope? How about $401 billion, try again? What about $178 billion? Not even close, the bonuses are $156 million. So why am I so sarcastic? Simple, these indignant Congressmen are hypocrites! Hey Grassley, have you clowns considered resigning in shame at your reckless abandon in spending, which is far less than Seppuku that you are calling the AIG folks to perform? I didn't think so.

After spending like drunken sailors and setting up any number of bailout programs, these goofballs are angry because employee contracts were fulfilled? I guess that's what skilled politicians do, feign anger at insignificant events all the while smiling and laughing while creating the conditions for hyper inflation.

Consider, as stated in the Wall Street Journal, that, "He (Obama) and the rest of the political class thus neatly deflected attention from the larger outrage, which is the five-month Beltway cover-up over who benefited most from the AIG bailout."

Shocked? Don't be, considering the likes of Sen. Chris "Sweetheart Mortgage" Dodd (D-CT) and Rep. Barney "I had a sexual relationship with a Fannie Mae executive Herb Moses" Frank (D-MA) who are on the case. Protect your Medical Identity with TrustedID. $1,000,000 Warranty & Great Customer Service

Congress has had its hands in the financial crisis since the very beginning and bear a significant amount of blame. For them to start criticizing private employment contracts is absurd, much like everything else Congress and Obama have been doing since his inauguration. It is time to face the facts that government has overstepped and our country is in danger of losing its foundation in the rule of law.

"Beware of Geeks...Bearing Formulas"

Warren Buffett says it all, as reported in the 03 November 2008 print edition of the Wall Street Journal, titled "Behind AIG's Fall, Risk Models Failed to Pass Real-World Test." The article explains why the risk modeling used by AIG was one of the most significant causes of the storied insurers dramatic fall and current weakness.

As I have written in the past (Financial Crisis Primer), much of today's financial crisis is based on poor risk management. Additionally, the U.S. government had a strong role in the distortion of the mortgage and mortgage-backed securities market, creating a ripple effect felt through the credit-default swaps.

What is a credit-default swap? From the article:

"In essence, AIG sold insurance on billions of dollars of debt securities backed by everything from corporate loans to subprime mortgages to auto loans to credit-card receivables. It promised buyers of the swaps that if the debt securities defaulted, AIG would make good on them."

So, AIG had a Dr. Gary Gorton, formerly a Wharton professor and now a professor at Yale School of Management, build highly detailed models to determine "worst case scenarios" for the securities AIG was using for the credit-default swaps. While Dr. Gorton provided data based solely on the default potential of the backing securities, the AIG management was the final say on what was purchased.

So far, this sounds like a good practice. A very smart PhD economist builds a huge computer simulation to model risk. What the model didn't take into account is where this all falls apart and AIG is getting almost $100 billion in U.S. government loans.

The risk model of Dr. Gorton didn't account for the loss in value of the backing securities, nor did it account for the loss in value of AIG itself. Why? Mainly because the financial instruments used to create the credit-default swaps were so complex, and the other outside factors were near impossible to predict. In short, there were too many variables making proper risk management impossible also.

One can argue, as does a current criminal case, that AIG should have exercised better judgment in how it set up and sold credit-default swaps. One can argue that conservative risk management would have minimized these issues and allowed AIG to not require government financing. Perhaps there is another lesson in all of this. When something is too good to be true, like loose credit and cheap money, it pays not to be greedy. Just ask Lehman Brothers, or should I say, Barclays?