Keeping Our Eyes on the Calvinball

One of the striking things about the machinations surrounding the Chrysler deal that the Obama administration is currently brokering is that people who are typically bothered by insider dealing and shady manipulations don't seem much bothered by it. You know, Democrats. David Skeel, a law professor at Penn, noticed too:

The Obama administration has closely patterned itself on the famous opening year of President Franklin D. Roosevelt’s New Deal. But the plans the administration has rolled out for Chrysler and is now cheering on in the bankruptcy court would make a true New Dealer turn over in his grave.

In the early 20th century, large troubled corporations did not file for Chapter 11 like they do today. They used a process known as “equity receivership,” which involved an artificial “sale” of the company to a new entity set up by the debtor and the investment banks who represented its bondholders and stockholders. The new entity was the only bidder at the sale, and creditors who were unhappy with the terms of the reorganization had very little opportunity to interfere.

New Dealers hated the process, which they saw as opaque and designed to foist a deal crafted by the insiders on everyone else. Jerome Frank, a lawyer who later headed an important New Deal agency and became a federal judge, complained in 1933 that the judicial sale in these cases “was a mockery and a sham.” He said, “A sale at which there can be only one bidder, is a sale in name only.” In 1938, thanks to the handiwork of another prominent New Dealer, future Supreme Court Justice and then-SEC Chairman William Douglas, Congress dramatically altered the bankruptcy laws, eliminating the former practice.

That was then, this is now.

The Obama administration blueprint for Chrysler’s bankruptcy looks startlingly like the artificial sales that the New Dealers so abhorred. Unlike a traditional reorganization, in which the parties negotiate the terms of a restructuring that is then voted on by each class of creditors and shareholders, the administration plans to quickly sell Chrysler’s most important assets to a new entity—“New Chrysler”—whose stock will be owned by Chrysler’s employees and Fiat. The senior lenders who objected to the government’s offer (which amounted to little more than 30 percent of their claims) will not have any vote on the sale. Their only option is the one they have pursued: objecting to the sale, and praying that bankruptcy judge Arthur Gonzalez takes a hard look at its terms even while the government is breathing down his neck and saying in a sense, he better approve or else.

There's more, a lot more, at the link. Read the whole thing. (H/T: Instapundit)