FOR SALE: Law books written and published prior to the election of Barak Obama as President of the United States. These books will be extremely valuable for historians who will one day want to write about how our society governed itself prior to the Age of Obama.
I am selling my law books because they are no longer relevant. Even if I had a job, which I do not, I would not need my law books because they are hopelessly out-of-date. The old rules described and explained in the law books no longer apply during the Age of Obama.
Upon reflection, I am happy to be retired or unemployed (depending on the term you prefer to use). It’s a good thing I’m no longer practicing law because much of what I learned in law school and during my legal career is no longer applicable during the Age of Obama. It’s a good thing I don’t work for a bank or financial institution because I would be unwilling to lend money to individuals or businesses during the Age of Obama. And it’s a good thing I’m not a member of the United States Congress during the Age of Obama because I would be very unpopular and would have no chance of being re-elected unless I sold my soul by adopting and accepting policies and philosophies with which I strongly disagree.
The Age of Obama, of course, refers to the current period in the history of the United States that began with the election of Barak Obama as our President in November 2008. We don’t know when the Age of Obama will end or what our country will be like when it does end. We do know, however, that President Obama promised to bring “change” and a “fundamental transformation” to the United States of America. It is becoming increasing clear he is fulfilling his promise.
We don’t have to look far to find examples of how the old laws and rules no longer apply. Let’s take a look at the current bankruptcy proceeding involving Chrysler LLC. According to news reports, Chrysler has about $6.9 billion of debt that is secured by Chrysler’s properties and assets. This debt is referred to as “secured debt” because it is secured by a lien on Chrysler’s property. It’s like the mortgage on your house. You borrowed money when you purchased your house, and the lender took a lien or mortgage on your house to secure your debt. If you don’t pay your debt, the lender can take your house.
According to the law books I am now trying to sell, the holders of Chrysler’s secured debt are entitled to be paid in full out of the proceeds of the collateral securing the debt before any of those proceeds may be used to pay unsecured claims. As the term implies, unsecured claims refer to debts that are not secured by property or collateral of the debtor. Under the old rules, therefore, the holder’s of Chrysler’s secured debt would be first in line to be paid. But the old rules do not apply during the Age of Obama.
Under the Obama Administration’s reorganization plan, the holders of Chrysler’s secured debt would be required to release their “first in line” position and their claims to Chrysler’s assets in exchange for about 33 cents on the dollar. In contrast, the retiree health care plan for the United Auto Workers Union, which holds unsecured claims against Chrysler, would receive both (i) a $4.6 billion note from Chrysler payable over 13 years at a 9% interest rate and (ii) a 55% ownership interest in the reorganized Chrysler. The reorganization plan also provides that the governments of the United States and Canada, both of which hold Chrysler debt that is junior to the secured debt, would own 10% of the reorganized Chrysler.
Most observers have concluded that the reorganization plan strongly favors the Union, which holds unsecured claims against Chrysler, over the holders of the secured claims, who, according to my law books, are entitled to be paid in full before the holders of unsecured claims receive anything. In an article published in The New York Times, Mary Jo Dowd, a partner in the bankruptcy practice at the Arent Fox law firm, said, “This is extraordinary, truly extraordinary. I would have never thought a year ago that this would occur. These are truly unusual times.” Asked if he could recall any other union that fared as well, David L. Gregory, a labor law professor at St. John’s University, replied, “Nobody’s even close.”
Despite the harsh terms of the reorganization plan for the holders of Chrysler’s secured debt, President Obama was furious when some of the holders of the secured debt refused to support the plan and thereby forced the bankruptcy filing. By putting Chrysler into bankruptcy, the government will be able to cram its plan down the throats of the objecting holders of the secured debt. This should not be a problem because many of the holders of the secured debt are banks that are now owned or controlled by the government. They will be afraid to go against the wishes of the Obama Administration. Other holders of the secured debt who do not like the plan have admitted they feel threatened by the government and are afraid to oppose it. The reorganization plan now must be approved by the holders of two-thirds of the dollar amount of each creditor class and by more than 50% of the total number of holders of the class. David Friedman, the head of the bankruptcy group at the law firm Kasowitz, Benson, Torres & Friedman, has speculated that the holders of the secured debt who oppose the reorganization plan will be outvoted, but they will not be outvoted on the merits. Instead, they will be outvoted because a good number of the holders are under the effective control of the government.
Let’s assume the Obama Administration’s reorganization plan for Chrysler is ultimately approved. Now let’s assume you work for a bank or financial institution. Would you be willing to make a new secured loan to a company that has a connection to the government or that has employees who are members of a union? Would you be willing to invest in or purchase distressed assets or troubled securities without knowing whether the government would change the rules after the fact in order to make it more difficult for you to recover your investment?
Now let’s assume you are an investor, perhaps a retiree, who owns secured bonds issued by companies that have unions. Should you sell your bonds because you know the old rules no longer apply and the bondholders no longer have the protections they previously enjoyed under the law and under the contracts under which the bonds were issued?
The Obama Administration also wants to change the rules that govern your home mortgage. The proposed new rules would allow bankruptcy judges to rewrite contracts to reduce the amount that people owe on their mortgages.
Consider this example. Assume I loaned you $250,000 so you could purchase a house, and you gave me a promissory note for $250,000 and a mortgage on the house. Under the current rules, which are described in my law books, if you fail to pay your indebtedness to me, I can foreclose on the house, sell it, and hopefully recover all or most of what you owe me. Under the new rules proposed by the Obama Administration, a bankruptcy judge could simply reduce the amount of your indebtedness to me to $200,000 (or any other amount the judge deems appropriate) and permit you to stay in the house. Using this example, I would incur a loss of $50,000, you would still be living in the house, and you would now owe me $200,000 instead of $250,000. The bankruptcy judge would also have the right to lower the interest rate you agreed to pay me.
What do you think will happen if the new rule proposed by the Obama Administration becomes law? Unless you think I am a fool, I will not be making any more loans to enable people to purchase a house. If the new rule becomes law, mortgage loans will be hard to get and, to the extent they are available, the interest rates will be substantially higher than they are today to compensate the lenders for their increased risk. Despite the insanity of the new rule, President Obama and at least 45 Democrats in the U.S. Senate are in favor of its adoption. Fortunately, 45 votes in the Senate are not enough for the new rule to become law, but I am sure the Obama Administration will keep trying to obtain the additional votes it needs. The Age of Obama is just beginning so you can expect to hear more about this and other changes in the laws described in my law books.
There are many other examples of how the old laws and rules will no longer apply during the Age of Obama. One new example surfaced this week with Justice David Souter announced his retirement from the United States Supreme Court. Justice Souter’s retirement will give President Obama his first opportunity to appoint a new Justice to the Supreme Court. During the campaign, the President said he would select nominees to the Supreme Court who will show “empathy” and who will be “sympathetic” to “those who are on the outside, those who are vulnerable, those who are powerless…” Based on President Obama’s own comments, it is clear that a commitment to uphold the law and the Constitution will not be a major criteria affecting his nominee to the Supreme Court. As a result, I have a feeling the next Justice of the Supreme Court will not be a candidate to purchase my law books. He or she will not need them any more than I do. Do I have any other takers?
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