Business Law Prof Blog

No-one Will Now Lend to Auto Companies

Obama's villification of auto company lenders, the two hedge funds that held out for better terms, pretty much seals the deal -- the government is going to be the only auto company lender.  Why lend to auto companies when the President can fix the terms of repayment and call you out if you disagree?  Not anyone with money and common sense.

Souter Announces Retirement

Justice Souter's primary business decisions was Virginia Bankshares, a rambling mess of an opinion on Rule 10b-5 and mergers written early in his tenure.  Justice Scalia felt the need to summarize the holding of opinion in the opening three sentences of a concurring opinion because Souter's rendition was so confusing..  Souter will be defended by his clerks, whose major creditential is his selection of them to be clerks, and few others.  He will not be missed,  Republicans will view his retirement as his final act of disloyalty -- he could have retired last year and given Bush a pick. Democratics will view his retirement as time to finally get another "real liberal" on the court.  He was selected after a few months on an appellate court because he had no track record and was known to a few connected New Hampshire conservatives, few of whom now exist and who thought he was one of them -- he was not.  He came to be grouped with the "liberal wing" of the Court. [Some say is was a personality clash with Scalia.] He lives an isolated, monk-like life. He was a poor writer and a muddled thinker who was "work[person]like" in his court habits.  One of another of many, many non-notables on the Court, which itself is a virture of sorts.         

Chrysler In Chapter 11

There are many, many aspects to this story. Let me mention a few.  First, Obama has proposed and still seeks, through a bankruptcy trustee now, to buy a car company worth nothing for $12 B in clash, TARP money to GMAC, and TARP money to secured lenders and turned the company over to the UAW and Fiat, sort of.  Fiat will bring its "technology" and the UAW will negotiate with itself to built better quality cars for appropriate wages.  This deal in inane. Fiat is losing money, has a very poor reputation for quality, produces cars that cannot meet United States safety standards, and is not nearly the partner that Daimler Benz was -- the one that failed. The UAW will, with political backing, make few real concessions.  It is amazing that the President of the United States is attempting to structure the operation of one of the world's largest automobile companies.  His mistakes are predictable.  Second, the board of directors will get four Presidential appointees and an appointee from Canada and Ottawa.  Liberals will get what they always wanted, a board of directors of a major American corporation appointed by politicians who are less interested in profits and more interested in "public welfare" than ordinary shareholders.  This is not a recipe for a profitable company; it is a recipe for a continually subsidized company.  Third, in the future Chrysler will seek to dump its pension and health benefits on the United States and we will oblige, as a form of "legal subsidy" to one of our leading export companies so as to enable it to compete with China and others in automobile production.  This will be the beginning of some form of nationalized pensions and health care.  Predition:  Within two years, Fiat will pull out with a dealership agreement (access to old Chysler dealers) and Chysler will be folded into GM, with another major subsidy.  The plan is probably already in the works. I hope I am wrong.

The Legacy of the First 100 Days

It will take some time, maybe another six months, but the full legacy of the first 100 days of the new administration will be dribbled out, story by story, local paper by local paper, in reporting on the inside corruption of the awarding of the trillions in federal funds in the various stimulus and bailout packages.  The legacy will be in bribery, favoritism, corruption, lobbying, pay to play, and political payback.

Who and Where are the AIG "Trustees"?

The press has finally, finally noted that government appointed "trustees" have control of government stock positions in a variety of finanical institutions.  There is now some bewildermen over who they are and what they are doing.  The three trustees of 80 percent of the stock of AIG are business insiders who make 100,000 dollars a year, make no public comment, meet once a month and "stay in touch by phone", and who have done nothing, nothing to help this struggling company.

The BofA Deal

The transcript of Paulson threatening the job of CEO Lewis if he does not close the Merrill Lynch deal has re-ignited the fuse on whether, in particular, the government overplayed its hand in forcing the merger and on whether, in general, the government is simply exercising too much power over the financial industry and others.  The answer to both questions is affirmative.  Private industry leaders need to grow tougher back-bones and stand up to these threats.  Private lawyer should investigate whether they can sue government officials for economic torts under the Federal Tort Claims Act. 

The Hunstman Case

A panel in Vegas discussed the Delaware Chancery case on Apollo v Huntsman.  Comments by Chancellor Lamb, if reported properly (and big it), reveal that a willingness to negotiate a settlement could affect the outcome of busted deal cases.  Why? It should not affect the merits and Judges should do what they are paid to do -- decide cases on the merits when parties cannot agree.  A Judge that does not want to decide cases should not be a judge.

Stress Tests Test Disclosure Obligation

The government's games with "Stress Tests" for banks show once again that disclosure to shareholders if "for others."  Shareholders of banks that are evaluated want to know the results as soon as their executives learn them.  Yet government and bank executives do not want to reveal them.  Who wins, banks executives.  When the Stress Tests finally came out, guess what -- they will be late, negotiated, and nobody will fail.

Broadcom Case

When District Judge Carney threw out portions of the criminal case against Broadcom for backdating stock options, he did so on grounds that has the corporate bar taking notice.  The  corporate attorneys failed to tell an executive that they represented the corporation and not him.  This is an old, old problem in corporate legal representation.  A corporation attempts to save a few bucks by having a corporate counsel "help" executives as well.  Penny wise and pound foolish.

Thomsen Cashs In

Linda Thomsen, the chief enforcement officer at the SEC who left (?) after a poor record of SEC enforcement (and Congressional testimony on same) during the Madoff scandal years has landed a fat job at Davis Polk when firms are downsizing.