The Big Three Automakers

Floor Speech

Mr. CARTER. I think most people know I spent a little time in the courts of this country. I am going to start off this conversation by saying that I'm not a bankruptcy judge, nor a bankruptcy litigant. And, in fact, I do not claim any expertise whatsoever in the area of bankruptcy. But I have some serious concerns that bother me about some things that are going on, and I would hope at least that the American people have these same concerns, because I really believe that the third branch of our government, the Judiciary, is there for recourse for all citizens, big and small. I think they are the fallback position, where politics should not interfere, but due process should prevail.

I believe that the protection of the minority interests of whatever we may be doing, it is best protected in the courts of our country.

I look at what is going on tonight and have been trying to figure out--and, I'm going to tell you, you're going to hear me ask a lot of questions tonight that I would like someone to give answers to, because I don't understand where things are going. But I'm looking at what is going on with the automobile industry in this country.

You know, the big three automakers in this country have been symbols of corporate greatness for my entire lifetime. We all can have a debate about who made the best car, what is the best car ever made, but most Americans would argue for some form of a GM car or Ford or a Chrysler as the best car they ever drove. Our grandfathers and our fathers have owned these vehicles and they have worked with these companies, and they have been respected and honored across this Nation.

Now, these companies are in trouble. At least two of them seem to be in a lot of trouble--Chrysler and General Motors. At least it has been indicated through the media that Chrysler is going to be seeking recourse in the bankruptcy courts.

The reason I say it has been indicated is because, in the normal course of things, what you normally see is that the board of directors, through its chief executive officer, will have a vote or will discuss the economic situation of the company and will come up with the fact that it's just not going to be viable. That at least they need the reorganization and the cancellation of some of their debts to be able to maintain order within the company and be a viable company.

But, in the case of Chrysler, the announcement was made by President Barack Obama to the media in a speech that he made announcing Chrysler would go into bankruptcy--at least it's my personal opinion that I don't believe at that time Mr. Obama held any position in the corporate structure of Chrysler to speak on their behalf, other than he is the President of the United States and he may have more knowledge than some of the rest of us, but it would be normal for Chrysler to make that announcement.

But then it would be normal for the board of directors of Chrysler to fire the executives of their company if they are not doing a good job, and it would be normal for the board of directors of General Motors to do the hiring and firing of executives that they have hired to manage their company.

March 29 of this year, President Obama forced the CEO of General Motors, Rick Wagoner, to resign from his post. As far as anyone can tell, this marks the first time in American history that a United States President has directly intervened in the daily running of an American business.

So we start with that announcement. The CEO, Mr. Wagoner, is fired by the President. Then, the President announces--not the CEO of Chrysler, but the President--announces the bankruptcy of Chrysler.

This bankruptcy, under normal circumstances, would go before a bankruptcy judge. And we have a set of laws that are established in this country--they are called creditors' rights. And we have creditors that stand in different positions when it comes to being repaid on debts, depending on whether they are secured or unsecured creditors, and we have a battery of laws that make that determination, and the bankruptcy court, doing a way more complicated analysis than I just did, comes up with who gets paid what and when and where and how and what happens; what assets are sold, all or part, and these are laws that are on the books that pretty well anybody can go see, and they are from time-to-time changed by the legislative body.

But we understand now from what the newspapers tell us that the Obama administration has announced the deal they expect to be rubber-stamped by the bankruptcy court. That deal is, according to the papers, a 55 percent ownership of Chrysler will be owned by the UAW, United Auto Workers. So the laborers of that company will be owning 55 percent of Chrysler. Then, 35 percent of Chrysler will be owned by Fiat, a foreign company out of Italy, and other places, I am sure. Then, 8 percent of Chrysler will be owned by the United States Government, and 2 percent of Chrysler will be owned by the Canadian Government.

I suppose, if we look at who is normally involved in corporate structure, you would have stockholders and preferred stockholders that are probably in there someplace; and, it looks like, to me, that they are divested of any interest in this trade.

Now, let me say that this should be something that the court makes a decision based upon creditors law, but it seems to be this is being shoved into the hands of the court, with an announcement by the White House saying: This is a settlement these people have agreed to, and you will do it this way.

I wonder, who is looking out for the stockholder? I don't own any Chrysler stock, but if I owned a share of Chrysler stock I would think that at one point in time I owned a portion of the Chrysler Corporation, that I was one of the owners of the business. Because we can cut through all the mystique of a corporate structure, the mystique that many call the bad guys, the big corporations. But big corporations are nothing more than a gathering of people who are called shareholders who invest their hard-earned money into a company, expecting that company to make profits and, in turn, return that value to them by an increase in stock price and possibly a dividend. It is Americans and others investing in America. That is what a corporation is all about.

Now, whether it is a small corporation that is in Round Rock, Texas, where I come from, that maybe has 20 shareholders, or whether it is a giant corporation like the Chrysler Corporation that probably has, who knows, a million shareholders, those people have invested their money and they have some interest in that business, and through their representatives that they elect to the board, they supposedly have a voice in what is going on. Yet, if this deal is the deal we are talking about, I don't see where these shareholders, whether they be preferred or whether they be ordinary stock shareholders, I don't see where they are accommodated at all.

You can hear some criticize and say that the Federal Government is taking over the automobile industry. Of course, I am sure that they would argue: Well, certainly not in the case of Chrysler, because we are not going to own but 8 percent of Chrysler. But their agent, the group that donates 99 percent, by the last report, of their political donations to the Democratic Party, the UAW, owns a controlling interest, 55 percent.

There seems to be an assumption that when this is announced by the White House that this is the deal, even though it seems that some of these preferred creditors have actually stood up a little bit and said, wait a minute, we didn't make this deal. But it seems that these people are then, by the White House, called not cooperative or other things.

In fact, it was reported in the newspapers that they twisted the arms of these preferred creditors to a point where they felt like they were being threatened and not being able to look out for the interest of their people. And, of course, the finger was pointed to them as the big rich preferred creditors, the big rich bondholders, when, in reality, these companies were stepping up and saying:

We are not going to be threatened by the administration. We are going to stand firm. Because it is not just the couple of great big rich folks. They have got lots of people, including other people's pension funds, that are invested in their hedge funds and their groups that own this interest.

According to Thomas Lauria, Global Practice Head of the Financial Restructuring & Insolvency Group at White & Case, said that Perella Weinberg Partners was directly threatened by the White House and, in essence, compelled to withdraw its opposition to the Obama Chrysler restructuring deal under the threat that the full force of the White House press corps would destroy its reputation if it continued to fight.

That statement should concern us all. The White House press corps is supposed to be a press corps that is gathering news and making inquiries, not becoming an arm of the White House or the White House's restructuring force that they are putting together to restructure this deal for Chrysler. It should concern every American that the White House is threatening the use of those people who sit in those press conferences supposedly asking the tough questions of the President, they are threatening that they can use them to harm these individual bondholders, these bondholder companies. I think there is something tragically wrong with that.

One of the questions I ask is where are our courts in this situation. I mean, the stockholders are being left with their interests basically dissolved in the Chrysler Corporation. The bondholders are being threatened by the press corps of the White House to the detriment of their shareholders to take possibly 25 cents or less on the dollar as part of the deal, when there are creditors' rights laws that should be looked to by the bankruptcy court. And if you are not getting good recourse from the bankruptcy courts, there are other courts you can go to.

I am very disappointed that there seems to be some weakness that the courts are not standing up for what could be, and in my estimation would be, a large body of people whose defined rights are being forced away from them by the heavy hand of the White House. And the White House heavy hand is a dangerous place to be.

I will remind you that President Harry Truman seized the Nation's steel mills during the Korean war in order to avoid a shutdown during a strike. He could have sought an injunction barring the strike under the Taft-Hartley law, but instead he chose to seize based on his powers as Commander in Chief. He specifically notified Congress of the right to reverse or endorse his action, but Congress chose not to act. The Supreme Court overturned Truman's Executive order.

The legal questions were: Has the Congress granted the President the power to take possession of the property? The answer was ``no.'' Does the Constitution grant the President the power to take possession of the property? The answer was ``no.'' Is Truman's Executive order in compliance with the Constitution? And the answer was ``no.''

The opinion written by Justice Black said: All powers of the Presidency are contained in the Constitution or in subsequent acts of Congress granting specific powers to the Executive. The contention that the aggregate power of the Constitution and acts of Congress create new, more far-reaching powers was rejected by the Court. Under the Taft-Hartley Act of 1947, Congress has addressed the precise issue of labor strikes and national security, and has chosen not to grant the President the right to break a strike.

Likewise, nowhere in the Constitution is the Executive granted the right to seize power. An evaluation says Youngstown was instrumental in reaffirming that the President cannot legislate, only execute legislation passed by the Congress.

Black wrote: The Constitution limits his function in the lawmaking process to recommending of laws he thinks wise and the vetoing of laws he thinks bad. The ruling limits the nature of the Executive order to carrying out the limitation of laws already established by Congress.

Now, I guess the question that we would have in what is going on in the Chrysler case, and to some extent the General Motors case, which we will get to in a little while: Has Congress granted the President the power to take control of the negotiations of a private corporation and attempt to make a settlement to go before the bankruptcy court? I would certainly argue that the Congress has not given the President that power, nor do I think that the Constitution grants President Obama the power to take control of the negotiations to be submitted to a bankruptcy court and to threaten those who choose not to enter into these negotiations with abuse by the White House press corps that would harm their business. I don't think the Constitution in any way, form, or fashion grants that power to the President of the United States. And I think what is going on with the White House and its heavy-handed manipulation of the duties and responsibilities of the bankruptcy court is nowhere granted by Congress or by the Constitution of the United States.

I think Americans ought to be looking at this, and Americans ought to be concerned about this. These are private businesses owned by private people who borrowed money from other groups of people who either are shareholders or lenders in some form or fashion whose rights are defined by law. And for the President of the United States and the White House to intervene to force a settlement to be submitted to the court and then ask the court to basically rubber-stamp that settlement without looking to the protection of these other rights of the other individuals that are involved, to me, these raise questions that we need to be asking; because if the government can do this to the Chrysler Corporation and the millions of stockholders that own Chrysler Corporation, who else could they do it to that stood in the way of their negotiations? And where does the Constitution or the Congress authorize the President of the United States to heavy-handedly negotiate in this private situation? And where does it authorize the turning over of 55 percent of the business to the laborers who work there in the form of the ownership by their union? And why isn't it quid pro quo, when you look at what that union had done?

In 2008, according to reporting that has been done, according to Open Secrets, the UAW gave 99 percent of its political contributions to the Democrats in the 2008 cycle. If you give 99 percent, then you own 55 percent of the company. Is that the way it is supposed to work? Shouldn't some court somewhere ask that question? Shouldn't some courageous litigant somewhere stand up for the rights of the stockholder, stand up for the rights of the bondholders, speak out for those preferred creditors? Shouldn't someone be going to court and speaking out on these people's behalf?

I have real concerns because I start from the premise that I believe that that third branch of government that I served in for 20 years is there for the protection of all Americans. That is what our court system is about. And if we are going to politicize--and as we look now to an appointment of a new Supreme Court Justice--if we are going to so politicize our court system as to take away the ability for the weaker party to have a voice through politics, then there is something wrong.

We, as Americans, need to be asking that question, and I would challenge my colleagues to start thinking about this: At what point in time does the
President have to follow the Constitution, or at least does the Congress have to grant him powers before he can do these things?

That is just Chrysler. Now, the GM deal, President Obama hasn't announced yet that they are going to the bankruptcy court. But they are trying to work out a settlement.

Oh, going back to the Chrysler deal, doesn't it bother anyone that the deal we are making is taking control away from the American stockholders and from the board of directors of Chrysler and giving ownership to the labor union? I don't see any indication that the labor union is making the assumption of any of these debts or contributing any money to this project. They are just being rewarded for being a labor union. Now where is the logic in that? And then what are they going to do? Thirty-five percent of that is going to be Fiat. I have nothing against Fiat. I actually owned one at one time. So let me lay my cards on the table. It was a neat little yellow convertible, and my wife told me I couldn't keep it, but I owned one for a while, and it was fun and a good car.

But now we are basically turning Chrysler over to a foreign company. I don't have anything against foreign companies. We are in an international world. But let's get a reality check here. The President of the United States is putting together a deal to turn Chrysler over to a foreign company in a foreign country. And you can bet your boots that one of these days the word ``Chrysler'' won't be in our vocabulary anymore. I hope and I wish Fiat all the best, but realize that it will be the ``Fiat Company of North America,'' or at least logic would seem to make one think so.

All of this is to make sure that we meet a pledge that the President of the United States made to the UAW that he would protect their benefits and pensions. The government didn't protect the benefits and pensions of the Delta pilots when Delta went bankrupt. So why, all of a sudden, is the government going into ownership of this company and taking direct direction of this company to make sure that it benefits this labor union rather than another labor union? It is a question that we ought to be asking. It is a question some court ought to be looking into. This concerns me.

Before I go any further, I do want to go ahead and lay the supposed GM deal that the White House is telling us looks like this is what they are recommending, and I read this one on the front page of The Wall Street Journal. Fifty percent of General Motors will be owned by the United States Government; 39 percent of General Motors will be owned, again, by the UAW; 10 percent of the company would be owned by the bondholders, so at least the bondholders of General Motors are going to end up with 10 percent ownership. And the stockholders are going to do all right, too. They are going to go from at least more than 1 percent, they are going to go from some percentage of GM down to 1 percent. So if you're the proud owner of GM stock, then all of the stock that is out there is going to be worth 1 percent of General Motors.

One of our Members was telling me that he owned, I forgot what he said, 1,000 shares of General Motors or something like that. The diluted price is estimated to be somewhere between two cents and a nickel a share for General Motors stock--General Motors, that great icon of American industrial might. Many pension funds, teachers' retirement funds and other people invested in them because they were like the American flag. They were American industry at its best. And now all those people and all those funds that invested in stock are going to own 1 percent of a company where they used to own most of the company.

They are going to take the burden, the great burden, of the mistakes made by General Motors and, I would argue, that overwhelming pressure put on by the United Auto Workers to maintain, at all costs, their right of contract. There are written and unwritten contracts, but the contract is sacred in America, and the unions certainly stand up for the rights under their contract. But under creditors' rights, there are rights, too, that are created by law. And a person who does something and buys stock or invests in a bond, those people have the right to rely upon the law to protect them, just like a contract. But it seems that every day as we go forward in the Obama administration, the sanctity of contracts seems to be of less and less importance, and, truthfully, that will be terrible for this Nation.

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Mr. CARTER. I thank the gentleman. I want to point out a couple of things so we don't get off into this magic world that has been created by our Democrat friends and the media, that stockholders are some sort of exotic, wealthy billionaires that own all of these companies.

The teachers retirement system of Texas probably owns General Motors stock. I don't know, I haven't looked into it. But back when General Motors was $60 or $70 a share and everybody was proud to be an American, I am sure that pension funds for our teachers around this country invested. So those people would be looking at a 2-cent value or a 3-cent value or a nickel value for stock that they paid $60 or $70 a share for. So don't get into this magic myth that is created by those who would like to socialize this country that we are talking about fat cats. We are not talking about fat cats. We are talking about the ladies down at the Catholic church that got together and decided they would have an investment club. And they all put a little bit of their egg and butter money, as my grandmother used to say, in a little pot and said, now let's sit around and study the stock page in the newspaper and let's buy ourselves some stock.

A lot of them made a whole lot of money and lost a whole lot of money during the dot-com boom of the 1990s. But those were not fat cat investors. Those were little old ladies at the Catholic church, okay, or at the Methodist church or at the Baptist church or the bridge club or whatever. They are your neighbors. They are the people who live next door to you. They are the people your children go to school with, their parents; and even the kids' college funds are invested in things like General Motors and Chrysler.

So when we nationalize these industries, when we take it out of the hands of the people who own it, which is the stockholders, and we don't give them, defend their rights as stockholders, we make a deal through the pressure of the White House.

You know, interesting statement, this is one of the lawyers talking about what happened to the bondholders in the Chrysler deals. He said, ``One of my clients was directly threatened by the White House and in essence compelled to withdraw his opposition to the deal under threat that the full force of the White House press corps would destroy his reputation if he continued to fight. That was Perella Weinberg,'' Tom Lauria, the head of the bankruptcy department for the top New York City law firm of White & Case, told a WJR 760 radio host.

He goes on to say down here, ``Some of the critics charged that the administration used leverage to provide TARP funds to force banks to comply with this deal. In other words, investors like JPMorgan Chase, who also were bondholders in this Chrysler deal--the old TARP fund deal that we've been talking about now for months--was all of a sudden the twist to make them get in line. And what happened was this group that Mr. Perella Weinberg was involved in, they didn't take any TARP funds, so they didn't have the twist. And they stood up. And what did they do? They threatened them with the White House press corps. I'm sorry, when I was a kid, this doesn't sound like the America that we grew up with. This sounds like the people we used to fight. This sounds like Joe Stalin and some of those people that threatened their way to power.

I am telling you, we ought to be worried about this. And I am deeply worried--although I am happy to see that this New York law firm is involved. I would hope that good litigants--because I believe in the justice system--would use the justice system to protect the rights of these creditors. I would hope they would do that.

I would hope that we would realize that neither this Congress nor the Constitution of the United States has given the White House or the President of the United States the kind of power and authority that he is executing and utilizing on these two car companies. And then we find out that we've got some folks that--they have already said that they would take common stock in the banks, so they want to be stockholders when it comes to the banks. They want to vote that stock and control those banks. They want to take majority interest in our large banks. That is another nationalization of an industry.

And so some of the banks said, you know what? We see the handwriting on the wall. We see that freight train coming down the track right at us. Here's your money back. We don't want your TARP money, take it back. And they are refusing to take the money back and threatening to charge massive penalties if the banks return the money that the American taxpayers provided to bail out banks in this TARP program. If they don't need the money and they want to give it back, what in the world is wrong with that? Except you no longer control the bank when they give the money back. You no longer can control the deals that are made with Chrysler by twisting the arms of the banks. You no longer can control American industry. And that is the kind of thing that these trillions of dollars that we're spending, we, as Americans, should be deathly afraid of, that there are people who would control our Nation with the money that we give them out of our pocket and we permit them to borrow in our name that we are going to have to pay back.

I remember what I told my children as soon as they could understand English: the United States Government, nor any other government, never made a dime; they took it from you.

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Mr. CARTER. I thank the gentleman. I want to point out a couple of things so we don't get off into this magic world that has been created by our Democrat friends and the media, that stockholders are some sort of exotic, wealthy billionaires that own all of these companies.

The teachers retirement system of Texas probably owns General Motors stock. I don't know, I haven't looked into it. But back when General Motors was $60 or $70 a share and everybody was proud to be an American, I am sure that pension funds for our teachers around this country invested. So those people would be looking at a 2-cent value or a 3-cent value or a nickel value for stock that they paid $60 or $70 a share for. So don't get into this magic myth that is created by those who would like to socialize this country that we are talking about fat cats. We are not talking about fat cats. We are talking about the ladies down at the Catholic church that got together and decided they would have an investment club. And they all put a little bit of their egg and butter money, as my grandmother used to say, in a little pot and said, now let's sit around and study the stock page in the newspaper and let's buy ourselves some stock.

A lot of them made a whole lot of money and lost a whole lot of money during the dot-com boom of the 1990s. But those were not fat cat investors. Those were little old ladies at the Catholic church, okay, or at the Methodist church or at the Baptist church or the bridge club or whatever. They are your neighbors. They are the people who live next door to you. They are the people your children go to school with, their parents; and even the kids' college funds are invested in things like General Motors and Chrysler.

So when we nationalize these industries, when we take it out of the hands of the people who own it, which is the stockholders, and we don't give them, defend their rights as stockholders, we make a deal through the pressure of the White House.

You know, interesting statement, this is one of the lawyers talking about what happened to the bondholders in the Chrysler deals. He said, ``One of my clients was directly threatened by the White House and in essence compelled to withdraw his opposition to the deal under threat that the full force of the White House press corps would destroy his reputation if he continued to fight. That was Perella Weinberg,'' Tom Lauria, the head of the bankruptcy department for the top New York City law firm of White & Case, told a WJR 760 radio host.

He goes on to say down here, ``Some of the critics charged that the administration used leverage to provide TARP funds to force banks to comply with this deal. In other words, investors like JPMorgan Chase, who also were bondholders in this Chrysler deal--the old TARP fund deal that we've been talking about now for months--was all of a sudden the twist to make them get in line. And what happened was this group that Mr. Perella Weinberg was involved in, they didn't take any TARP funds, so they didn't have the twist. And they stood up. And what did they do? They threatened them with the White House press corps. I'm sorry, when I was a kid, this doesn't sound like the America that we grew up with. This sounds like the people we used to fight. This sounds like Joe Stalin and some of those people that threatened their way to power.

I am telling you, we ought to be worried about this. And I am deeply worried--although I am happy to see that this New York law firm is involved. I would hope that good litigants--because I believe in the justice system--would use the justice system to protect the rights of these creditors. I would hope they would do that.

I would hope that we would realize that neither this Congress nor the Constitution of the United States has given the White House or the President of the United States the kind of power and authority that he is executing and utilizing on these two car companies. And then we find out that we've got some folks that--they have already said that they would take common stock in the banks, so they want to be stockholders when it comes to the banks. They want to vote that stock and control those banks. They want to take majority interest in our large banks. That is another nationalization of an industry.

And so some of the banks said, you know what? We see the handwriting on the wall. We see that freight train coming down the track right at us. Here's your money back. We don't want your TARP money, take it back. And they are refusing to take the money back and threatening to charge massive penalties if the banks return the money that the American taxpayers provided to bail out banks in this TARP program. If they don't need the money and they want to give it back, what in the world is wrong with that? Except you no longer control the bank when they give the money back. You no longer can control the deals that are made with Chrysler by twisting the arms of the banks. You no longer can control American industry. And that is the kind of thing that these trillions of dollars that we're spending, we, as Americans, should be deathly afraid of, that there are people who would control our Nation with the money that we give them out of our pocket and we permit them to borrow in our name that we are going to have to pay back.

I remember what I told my children as soon as they could understand English: the United States Government, nor any other government, never made a dime; they took it from you.

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