Did the Obama Administration overstep its Constitutional bounds, in the dealings with Chrysler? That is the topic of an editorial written by Todd Zywicki, which appears in the Wall Street Journal. Entitled “Chrysler and the Rule of Law,” Mr. Zywicki explores the ramifications of what the current President has done, not just for Chrysler, its shareholders and financiers today, but also for all businesses of all types in the future.

The Obama administration’s behavior in the Chrysler bankruptcy is a profound challenge to the rule of law. Secured creditors — entitled to first priority payment under the “absolute priority rule” — have been browbeaten by an American president into accepting only 30 cents on the dollar of their claims. Meanwhile, the United Auto Workers union, holding junior creditor claims, will get about 50 cents on the dollar.

Later on, he says,

By stepping over the bright line between the rule of law and the arbitrary behavior of men, President Obama may have created a thousand new failing businesses. That is, businesses that might have received financing before but that now will not, since lenders face the potential of future government confiscation. In other words, Mr. Obama may have helped save the jobs of thousands of union workers whose dues, in part, engineered his election. But what about the untold number of job losses in the future caused by trampling the sanctity of contracts today?

The value of the rule of law is not merely a matter of economic efficiency. It also provides a bulwark against arbitrary governmental action taken at the behest of politically influential interests at the expense of the politically unpopular. The government’s threats and bare-knuckle tactics set an ominous precedent for the treatment of those considered insufficiently responsive to its desires. Certainly, holdout Chrysler creditors report that they felt little confidence that the White House would stop at informal strong-arming.

If American businesses are not safe from “arbitrary governmental action,” can the American public be?

Remember, also, that Chrysler was one of many companies that got money from the government — that’s our money, folks — just a few short months ago, which will probably never be repaid. That means that our children will have to repay for the stupidity of our elected officials’ actions.

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