Bankruptcy attorney Tom Lauria is making incdendiary, and quite disturbing, charges against the Obama White House. On a radio show he claimed that one of his clients, a Chrysler bondholder, was told its reputation would be "destroyed" in the press corps if it did not accede to the Administration's wishes with regard to Chrysler's restructuring. Here's a transcript of the relevant portion of the interview:
people have asked me who I represent. That's a moving target. I can tell you for sure that I represent one less investor today than I represented yesterday. One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under the threat that the full force of the White House Press Corps would destroy its reputation if it continued to fight. That's how hard it is to stand on this side of the fence.In other words, the White House threatened severe retaliation against a creditor for standing on its legal rights. Glenn Reynolds calls this "White House Thuggery". If the allegation is true — and at this point it is just an allegation (and an allegation that could serve the interests of Lauria's clients) — I would be inclined to agree.
Assuming the allegation is true, it's more than Nixonesque thuggery. It's also stupid and short-sighted. Strong-arming secured creditors to take a back seat to unsecured creditors can't help but undermine overall faith in the sorts of economic deals necessary to quell the credit crisis and right the economy. (It certainly can't help the Administration's efforts to encourage private participation in its plan to handle toxic assets.) More broadly, letting the political class decide which creditors do or don't get paid is the sort of thing one expects to see in a Banana Republic. It is antithetical to the rule of law and undermines the trust necessary for liberal economic institutions to function.
Megan McArdle has more.
UPDATE: More from Tom Maguire.
UPDATE: More from the NYT.
TUESDAY UPDATE: Other sources are now corroborating Lauria's allegations.