Yesterday, I offered an amendment on the House floor to the bill that funds all Federal Aviation Administration activities for the next 4 years. The amendment, in the obtuse world of Congressional parlance, is called a “motion to recommit.” Rather than tell you about it, I will let the roughly 8 minutes of debate speak for itself, and I have included the clip below.

The amendment failed by a vote of 263-154. Waste and corruption are alive and well in Washington.

But you already knew that.

One of the primary and fundamental pillars of a society based on capitalism and democracy is the rule of law and respect for contracts. It is hard to imagine any measure of order or fairness when the contractual agreements between two parties can be ignored, changed, or overruled by an omnipotent government force. Yet, that is exactly what the Obama Auto Task Force is doing today with the creditors and dealers of Chrysler and General… pardon me, I mean Government Motors.

Chrysler’s bondholders are secured by the assets and brands of the company. Yet, they are being asked to take a loss amounting to about 70 cents on the dollar with no stock or other ability to regain that loss. However, the United Auto Workers (UAW), whose debt from Chrysler is unsecured, is not being asked to take anywhere near that kind of loss. In reality, the UAW is receiving a significant percentage of equity in the company, which has been bailed out with taxpayer dollars that will ultimately provide the vehicle through which they hope to recoup all of their money.

The GM proposal is just as bad. Bondholders will get 10 percent of the company in exchange for what they are owed in the “deal” put together by the Obama team. The UAW however, will get 39 percent of the company for what they are owed. The problem here is that the bondholders are owed MORE money from GM than UAW is.

These proposals are in blatant disregard of the rights and obligations of contracts, all of which is being forced on these individuals, investors, retirees, and banks by the President and his team. To make matters worse, if you don’t comply with the President’s request, he will use his bully pulpit to condemn your attempts to simply enforce the terms of your contract and the rights comported to you thereby.

But it doesn’t stop there. The Obama team has now turned their insatiable ire and sights on the dealers, and in recent days we have seen the announcement of nearly 1,000 Chrysler dealers and about 1,100 GM dealers, all of whom have investments, contracts, and commitments, to simply go away, without compensation. Make no mistake, the dealers who have been allowed to stay and those who have been forced to go has been decided behind the scenes by the Obama Team, their contracts and commitments now mean nothing.

First of all, this action reflects the fact that the Auto Task Force team has no one on it with any experience whatsoever in the car business. Disposing of these dealers makes no sense at this moment. Sure, GM and Chrysler probably have too many dealers for the long term, but they are not in a long-term mode right now, they are in survival mode. If they have a market with ten dealers and reduce it to five, they will lose volume for at least the next year. But it should be recognized that dealers provide their own capital and marketing. The cost to GM and Chrysler to service a dealer is not exorbitant, and it is certainly less than the marginal profit from the incremental sales they provide day in and day out right now. About 100 dealers a month are closing their doors; attrition will naturally take care of the problem without the need for external action.

This plan also has failed to account for the employees of the 2,100 dealerships being discussed. These dealerships employ over 100,000 people, all of whom will soon join the rolls of the unemployed when these dealerships are finally closed. For an administration that claims to care about jobs, this action is a startling indication to the contrary.

There is no question that this is about cars and the car business, but it is also about the validity of contracts, the rule of law, and simple fairness. The bondholders and dealers should in no way receive any special deal or treatment, but they shouldn’t have their legal rights yanked out from under them by an overpowering administration either. This doctrine of simple fairness should be extended to all parties involved, from the bondholders to the unions; unfortunately the President’s auto task force has failed to do that.

This year, the government will borrow 46 cents of every dollar it spends.  I don't even need to say another word.

House Cafeteria: Prices in the government-run cafeterias in the basement of the House Office Buildings have gone up recently, at the alarming rate of 31% between 2007 and the end of 2008.  According to House Chief Administrative Officer Dan Beard, who oversees the House cafeterias; since 2007, when Democrats took control of the House, they have instituted requirements for organically grown food and required all workers to be union members in order to serve or cook in the cafeterias, and these steps have in turn caused the price increase. But, House staffers do not like paying for all this, so your tax dollars are being considered to subsidize this too!

Cuts: The President announced, with great fanfare, his proposals to cut $17 billion of spending from 121 programs in the upcoming fiscal year. This is after he increased spending by over $1 trillion dollars in just two bills in his first couple months in office. So, he is proposing to cut an amount that is less than 2% of what he just increased, and his proposal is half of what President Bush had proposed to cut from the same programs last year, but Congress summarily rejected.

War Spending: This week, we will vote on President Obama's $92 billion proposal for new and additional spending not included in the stimulus bill, or the omnibus bill, or the budget, or any of the already passed additional spending bills. $81.6 billion of this amount is more funding for the wars in Iraq and Afghanistan and the balance is a grab-bag of unrelated spending items such as swine flu response, and $665 million for the West bank and Gaza.  This madness must stop and as such I intend to oppose this bill.

I found this cartoon eerily appropriate...

Unions do not run companies well because they have an inherent conflict of interest with the company's objectives. This exact strategy was tried in the 1970s in Britain with the then failing British Leland under the most socialist of recent British Prime ministers, Harold Wilson. It didn't work and British Leland failed and was liquidated. Many of British Leland's brands were picked up by foreign makers in liquidation and live on today (Jaguar, Mini Cooper, Range Rover, MG) in new ownership. If I had to make a prediction, that is where I think this may all end up in the US.

In the Chrysler plan, the bondholders (who by the way are completely secured by assets) get to keep about 20 cents on the dollar and have no upside since they get no stock. The union, however, whose liabilities are not secured, gets about 80 cents on the dollar and all the upside since they would have a controlling interest (55%) in the company all by themselves. Is that really "shared sacrifice?” But yet in a press conference last week, the President scolded the "investment firms and hedge funds” for not accepting his proposal on how much of a haircut they should take and praised the UAW for their "painful sacrifice." Like much of what the President says, it is the opposite of the truth. I think the "investment firms and hedge funds” (many of which are actually mutual funds) did the right thing. They are secured creditors and should do much better in bankruptcy than this deal. I also applaud them for standing up to this President, who is consistent in demonizing anyone who does not gleefully worship his every move. Notice that all of the bondholders who are controlled by the government (Citibank) or have taken TARP funds (JP Morgan, Morgan Stanley, Goldman, etc.) all supported the President 's plan undoubtedly because they didn't have a choice since the government is on both sides of the table. But the "non-TARP" banks (that's what they are calling themselves) all opposed the deal.

Now, I know you are saying to yourself, didn’t he support the TARP? Yes, I did, because our financial system was on the verge of absolute collapse and drastic action was needed, but now, we are beyond that. The government was never supposed to be anything more than a lender or passive investor with no voting rights.

In the GM plan, the bondholders are not secured. But still, the UAW gets 39% of the stock in GM and the bondholders get 10% even though the bondholders actually are owed billions of dollars MORE than the UAW is owed. Note that this is not the employees owning the company. It is the union. There is a huge difference.

Chrysler will get about another $8 billion from taxpayers to get them through bankruptcy. This is basically a subsidy to preserve the union's majority interest.

You see what is going on here. Labor takes very little loss and gets controlling ownership (with the government) in the companies going forward so they can, in theory, get all their money back and more. Capital gets almost completely wiped out. In the age old balance between capital and labor which Adam Smith and others have analyzed for centuries, the Obama administration has declared labor the winner and capital out. Of course the fact is, both are necessary. So where does the administration get the capital to support labor? From the government. From taxpayers. From you and I.

Given my 25 years in the car dealership business, of which most of you are aware, I can't let this week go by without commenting on last week's Chapter 11 bankruptcy filing by Chrysler Corporation. What the Obama Administration is doing with the American car industry saddens me. No, it actually angers me. In fact, I am fired up big time. It has become abundantly clear that the only objective of the Obama task force is to put control of GM and Chrysler in the hands of the UAW union and wipe out anyone who had invested any capital in either of these companies. What’s more, he is using taxpayer money to subsidize the union's takeover of these companies. Here are some of my observations on what it going on:

Under the Obama plan; the government, UAW, and government-controlled banks will own 95% of GM. They will own 80% of Chrysler. The existing stockholders get 1% of GM and 0% of Chrysler. The bondholders (who are not government controlled banks) get 4% of GM and 0% of Chrysler. The remaining 20% of Chrysler will be owned by Fiat, more on this topic tommorrow...