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Arguments in Chrysler BK Appeal Today

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The Second Circuit will hear arguments in the Chrysler bankruptcy appeal today. The appeal is spearheaded by Indiana pension funds and state treasurer Richard Mourdock.

The old saw in legal circles is that, if the law is on your side, pound on the law. If the facts are on your side, pound on the facts. If neither is on your side, pound on the table. From the excerpt quoted by the news sources I’ve seen, the Indiana funds are pounding on the table.

“This attack on the most fundamental of creditor rights has been funded, orchestrated and controlled by Treasury, despite its complete lack of statutory and Constitutional authority to do so.”

The facts seem to be, according to the bankruptcy court (court order – pdf) after hearing evidence, that the plan approved by the bankruptcy court will yield more money to first priority creditors than they would have gotten out of a liquidation. (See my prior analysis here.) The only distributions being made for pre-bankruptcy petition debts will go to the first priority lenders, including the Indiana pension funds. Junior lienholders and unsecured creditors who will receive a benefit from the New Chrysler going forward do so because of new value they are contributing.

In addition, Indiana appears to have waived its right to challenge the bankruptcy plan by virtue of the investment agreement it signed on to. The first priority creditors signed onto an investment agreement whereby the investors agreed to be bound by the actions of an administrator. To take certain actions, the administrator had to get the approval of a certain percentage of the dollars invested — seems to have been a one-dollar, one-vote kind of deal. The Indiana funds are an extremely minor player in this investment fund, holding something like 0.6% of the total stake. The administrator received the approval of something like 96% of the dollars held. Now, the Indiana funds are trying to paint this as some sort of brave stand — Mourdock is bold enough to act where the rest of the financial giants were cowed into obeisance by the mighty federal government. The more likely explanation is that this is the best deal available under the circumstances. Political gain is what Mourdock and, perhaps, the Daniels administration hope to realize from this challenge.

I am curious about a couple of aspects related to this First Lien Credit Agreement to which the Indiana funds are subject. First of all, if the other creditors under the agreement are (as the Indiana funds seem to be suggesting) breaching their fiduciary duty by acquiescing to a bad deal because of political pressure; will the Indiana funds zealously protect their investment by suing its fellow creditors for the losses experienced because of this breach. If Mourdock is doing this for political gain, clearly the answer is “no.” If he truly believes his public position, then the answer should be “yes.” I suspect the former.

The other aspect of the First Lien Credit Agreement about which I am curious is whether the Indiana funds are opening themselves up to a suit themselves from their fellow creditors. I have to imagine that if the Indiana funds are acting outside of the terms of the agreement and, by doing so, cost their fellow investors money, there is some provision for those fellow creditors to make a claim against the Indiana funds. Given that those funds have at stake 96 times the money of the Indiana funds, the exposure could be substantial.

Guess we’ll have to wait and see what the Second Circuit does with this.

Indiana and the Chrysler Bankruptcy

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Some of my fellow Hoosier bloggers (h/t Abdul and Josh Claybourn) have been following the Chrysler bankruptcy, particularly with respect to Indiana’s unexpectedly prominent role in the matter. Josh, in particular, has strong feelings on the issue, calling the proposed reorganization (presumably with some degree of hyperbole “The End of Capitalism as We Know It.”)

For those who haven’t been following the matter, Indiana Treasurer Richard Mourdock has been spearheading objections to the reorganization plan because of its affect on approximately $42 million nominally owed to the Indiana State Teachers Retirement Fund, the Indiana State Pension Trust and the Indiana Major Moves Construction Fund for investments these funds made in Chrysler. This represents about 0.6% of the $6.9 billion in first priority liens against Chrysler’s assets. However, despite Indiana’s very minor position among this class of creditors, it is the one raising the biggest stink and trying the hardest to derail the process. Chrysler smells politics. So do I. Under the proposed plan, Indiana will receive a return of about 29%.

This is an issue that journalists and Indiana politicians should probably be familiar with going forward. Maybe I’m wrong, but this has the smell of Mourdock and, potentially, Gov. Daniels trying to set themselves up politically as champions of the marketplace and defenders against Obama’s nefarious economic plots. If the bankruptcy court’s description (pdf) of the evidence presented bears any resemblance to what was actually presented, Indiana’s pursuit of these claims looks like a waste of taxpayer money – first there is no apparent alternative that would yield more money to the Indiana funds than the one being approved by the court; and second Indiana invested in Chrysler subject to an agreement that requires the Indiana funds to go along with the decisions of fellow investors that control a vastly greater share of the funds invested. Those creditors have consented to the deal with Fiat for a New Chrysler.

Much more after the jump.

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Indiana Funds’ Request to Delay Chrysler Bankruptcy Denied

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Three Indiana funds,  the Indiana State Teachers Retirement Fund, the Indiana State Pension Trust and the Indiana Major Moves Construction Fund, sought to delay the Chrysler bankruptcy, but their motion was denied by the bankruptcy judge.

At a hearing Wednesday, U.S. Bankruptcy Judge Arthur Gonzalez in Manhattan denied a motion by a group of Indiana pension funds to hold off on the sale hearing while they have more time to review documents and other discovery in the matter.

. . .

The pension funds . . . are seeking to challenge the constitutionality of the sale because of the U.S. government’s heavy involvement in the deal.

The funds, which own about $42.5 million of Chrysler’s $6.9 billion in secured debt, have claimed the deal was unconstitutional because the United Auto Workers union, an unsecured creditor, would see a better recovery. The secured creditors are expected to receive about 29% of their claims under the plan.

So, if my math is correct, these funds’ $42.5 million will turn into $12.3 million, a loss of about $30 million. State Treasurer Richard Mourdock “vows” an appeal. Chrysler calls Mourdocks actions “political grandstanding.” Indiana is the only investor among 46 of them who is challenging the repayment plan for bondholders. Major banks including Citigroup and J.P. Morgan Chase have accepted the plan.

A Decade of Masson’s Blog

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I date the beginning of this blog from November 15, 2004. Prior to that, I had been holding forth on national politics on, I think, a blogspot platform. After the November 2004 elections, I felt like there were plenty of people offering opinions on national issues. My first post was an ode to a young dog of mine I had to put to sleep because of a cancerous tumor on her liver. A couple of weeks later, I started reporting on state issues and was off and running from there.

My productivity has ebbed and flowed over the years — probably as a mirror of my productivity out in the real world. My favorite time to blog is probably the beginning of the legislative session when none of the introduced bills have yet been filtered by the legislative process. These bills are easy to digest, frequently entertaining, and generally come at a time when I have a lot of energy. Later on in the session, the important bills get technical and complicated, things move fast, and my energy level is down. In any event, my best work has to do with reading and writing about the bills during the legislative session. The rest is often filler. The summers and falls feature fewer entries, less focus, less objectivity, and more off hand opinion. Over the years, as I’ve mentioned before, other social media outlets like Twitter and Facebook have scratched the blogging itch in a way that has decreased postings here.

The state blogosphere was pretty sparse when I started. The Indiana Law Blog and Advance Indiana are probably the only blogs I followed then that are still around today. Lots of bloggers have come and gone during that period. A decade is an eternity in Internet time. But there is one blogger in particular I want to mention: I particularly mourn the passing of Doghouse Riley during that period. Once he got going, his writing was like an avalanche falling down a mountain onto the target of his wrath. It was a thing of beauty.

My tenure has been marked by relatively little wrath; more of a nerdy interest in the political. Low key sarcasm and mockery is more my style. Maybe it’s a Gen-X thing. Probably the issue I followed the most extensively and gained me the most readership was Daylight Saving Time. Back in December 2004, I didn’t even know how to say it right, referring to “Daylight Savings Time”

This has been the basic problem with daylight savings time legislation in the past. The state splits about 50/50 as to whether to have it or not. Most folks who think about it have a fairly strong opinion one way or the other. The folks who are in favor of it are divided between Eastern time and Central time, so they have been losing the fight for decades. Now, we have one party rule and a governor who apparently thinks it’s a good idea, so maybe it has a chance.

Guess it did have a chance.

If I had to pick a favorite blog post over the years, it would probably be “Chrysler and the Indiana Bankruptcy.” It had a lot of things going for it I liked. I was jousting with some fellow bloggers; I did some reasonably thorough legal analysis; the complexity of the underlying subject matter lent itself to specious, disingenuous, and self-serving characterizations in other places; I was skeptical of Richard Mourdock before it was cool; I’ve had cause to reuse the original piece over-and-over again.

Over the years, I’ve noticed an affinity for certain broad topics – health care, education, religion, privatization, nostalgia for the “good old days,” and the nature of labor. But also a focus on certain narrower matters: daylight saving times, license plates, and the Toll Road for example. But there has been absolutely no plan. From time to time, people ask me why or how I do this. It’s simply a matter that I enjoy writing. I enjoy reading. I enjoy holding forth on topics of interest. And, so I do what I enjoy doing. When I feel like writing, I do it. When I don’t feel like writing or don’t feel like I have the time. I let it go. While I could probably have greater readership and have produced better things over the years if I had a less whimsical approach to this, I probably would have burned out years ago.

The experience has been almost entirely positive. I have met a good number of great people through this blog, and become closer to others. I hesitate to mention anyone in particular for fear of excluding the others, but just as an example, “HoosierOne” has become a dear friend of the family, welcome at family dinners, and a great favorite of my kids.

At times, this blog has felt like a public space with remarkable discourse among the readers. Certainly I have learned a great deal from others at those times. Other times, particularly when one of the dedicated trolls has taken an interest in my blog, the discourse has devolved into something less valuable. But that’s the Internet for you.

So, I’ll keep mashing away at the keyboard from time to time and hope something more or less readable comes out. Thanks for reading.

This Weekend at the State GOP Convention

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This weekend was the state’s GOP convention, and from my casual observation, there were three matters of note that took place which were, in declining order of significance:

1. Dark horse candidate for the state Treasurer nomination Kelly Mitchell won on the third ballot. She defeated Marion mayor Wayne Seybold (the “establishment” candidate) and Don Bates (the “Tea Party” candidate). The first ballot had all of them taking roughly 1/3 of the vote. When it became clear that Bates would not win, most of his delegates jumped to the Mitchell camp. Mitchell is an employee at the Treasurer’s office. Normally, I’d say that’s a good thing for a position like this — Treasurer isn’t a position you want making headlines — it’s just one where you want the job done competently and quietly. And, maybe her experience is a good thing. My only reservation is that Richard Mourdock has been running that office for the last 8 years. I’ve had a decidedly dim view of his judgment since his self-aggrandizing nonsense with the Chrysler bankruptcy.

2. The party adopted a platform plank stating: “We believe that strong families, based on marriage between a man and a woman, are the foundation of society.” By implication, strong families based on other arrangements – same sex marriages, single parent households, widows and widowers, extended families – are second class. My thought is that strong families are to be valued no matter how they are composed. So, the culture wars will continue on that front until further notice, I suppose.

3. Not content with being known for venturing a public statement presuming to know the mind of God and his intent that a rape result in pregnancy, state Treasurer Mourdock decided to go the full Godwin in his farewell speech:

The people of Germany in a free election selected the Nazi Party because they made great promises that appealed to them because they were desperate and destitute. And why is that? Because Germany was bankrupt. . . . The truth is, 70 years later, we are drifting on the tides toward another beachhead and it is the bankruptcy of the United States of America.
. . .
Over the next several years, every time a program began to fall apart, Mr. Hitler’s party was very, very good at dividing Germany by pointing to this group or that group,” he said. “First they went after their political opponents. Then they went after the aristocrats. Then they went after the trade unionists. And ultimately of course they went after the Jews. They deprived them of their property, their rights, their citizenship, and for millions their humanity. Because they were bankrupt!”

(See also – here for quote.)

His grasp on history is clearly tenuous if he sees strong parallels between the current U.S. and 1920s and 30s Germany – reeling as it was from the horrors of World War I and the burdens of Allied reparations. But, really, you don’t have to be a scholar to avoid these sorts of missteps. If you’re a public official and you are thinking of saying something about rape and Nazis other than to observe they are evil. Just don’t. Come up with a non-rape, non-Nazi way to make your point. (Pro-tip: slavery too.)

Indiana’s Election 2012: The Middle Finger of the South Gets Hit With A Hammer

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Indiana has been called the middle finger of the South thrust up into the Midwest. The 2012 Presidential electoral map bears this out. And, after the state elections, that finger just got even redder. But, there were unexpected spots of blue. It’s as if election 2012 was an electoral hammer that smashed down on Indiana.

2012 Electoral Map

The election that I think will have the most impact on Hoosiers is that of Mike Pence to governor. He is a Congressman who seems to have done nothing but unsuccessfully pursue conservative social legislation while in the House of Representatives. He hid his socially conservative light under a bushel for most of the campaign against John Gregg, but – though I am no Nate Silver – I predict that within the next 60 days, you will see this side of him emerge with a vengeance as the General Assembly — now even redder with some legislators of an almost Dominionist bent — will regard themselves as unleashed.

I don’t think David Long or even, particularly, Brian Bosma have real fire in their bellies for religiously motivated legislation. But, the Democrats lack any real power for them to use in maintaining discipline in their caucuses. So, they’ll have to let such things go and likely embrace a lot of the nonsense. Certainly the Constitutional marriage inequality amendment will come through and go to the ballot. (Unfortunately for my gay friends, I think this means it will show up in 2014 which isn’t as electorally advantageous to them as would be having the question on the ballot in a Presidential election year.)

The spots of blue would appear to be a cautionary tale against going off the rails to the right. Richard Mourdock, about whom I’ve been no fan because of his Chrysler antics, lost in no small part because of his rape and abortion comments. Joe Donnelly would have stood no chance had the more centrist Sen. Lugar remained in the race. Consequently, the Democrats retained control of the U.S. Senate. The other spot of blue was something I didn’t see coming at all until maybe the final week or so. Glenda Ritz beat Tony Bennett for the race to be Superintendent of Public Instruction.

Bennett has been aggressive in his efforts to restructure Indiana’s school system in a way that I believe allows more profit opportunities for some private entities. Certainly a lot of out of state money flowed into Bennett’s campaign war chest – which leads you to believe they were looking for a return on their investment. However, Bennett had gone too far. He outraged teachers in a way that made them talk convincingly to those around them. I know a number of reliably, usually unwavering, Republican votes that were cast against Bennett because teachers they knew convinced them that Bennett was bad for schools. If Bennett had not overreached, he too likely would have been safely re-elected. The Republicans haven’t lost a statewide executive branch office since the mid 90s when <strike>Hogsett</strike> <b><a href=”http://en.wikipedia.org/wiki/Jeff_Modisett#State_Attorney.27s_offices”>Modisett</a></b> became Attorney General.

But, these cautionary tales will not be heeded. (Notwithstanding the Journal & Courier’s wistful, almost cute, hope of Gov. Pence avoiding social legislation in its endorsement.) So, for the next several years, I predict the State should increase its budget line item for paying ACLU-Indiana’s court mandated attorney fees. And, as this blog enters its 9th year in a couple of days, I expect I will once again have plenty to write about.

Daniels Administration’s Passive Resistance on Medicaid Funded Birth Control

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Heather Gillers has an interesting article in the Indy Star on the Daniels’ administration’s failure to execute a 2005 law concerning the expansion of birth control available through Medicaid to women at or near the poverty level.

Current law is that pregnant women with income at 200% of the poverty level or less qualify for Medicaid during pregnancy. After the pregnancy, in order to qualify for birth control assistance, they have to be making 23% of the poverty level or less. The 2005 legislation intended to change that system so that, following the birth of their child, women eligible for Medicaid during their pregnancy would continue to be eligible for Medicaid funded birth control (but no other services) for a period of two years following the birth of their child. This is not a novel concept; apparently some 20 odd states structure their Medicaid plans in this fashion. The experience of those states suggests that Indiana would have realized savings in excess of $1 million per year because it would be paying for fewer subsequent births; because second births within two years of the first are more likely to result in medical complications; and the like.

In order to make a change to a state’s Medicaid plan, the state has to apply to the federal government for approval. There were also, apparently, some start up costs involved – such that the state would be about $1 million in the red before the savings started kicking in.

The article says that it’s not entirely clear why the Daniels administration’s application to the federal government was late and inadequate, but that’s apparently what happened and why the changes were never implemented. But, when it’s a snafu at FSSA during the Daniels administration, the first two words that have to jump to mind are “Mitch Roob”, who you might remember from such public sector cautionary tales as “Privatizing Welfare Eligibility Determinations” and “Phantom Economic Development Jobs,” and “Indiana Doesn’t Do Studies, It Does Deals (Just Not Very Well)”. And, indeed, his tenure was from 2005-2008 which seems to be the most relevant time period to this discussion.

The two justifications for this failure seem to be “it’s the Feds’ fault” and “we couldn’t afford it.” The feds dispute that it’s their fault, and, that seems to be a more recent explanation. The start up costs would have been about a million dollars, but would have saved $7 million. (And, the article says that the data is pretty solid on the savings.)

The article also points out that the FSSA knows how to move rapidly on a Medicaid change application when it wants to. The legislation told FSSA to submit the application by Jan 1, 2006. It didn’t submit anything until 2007, and then the submission was inadequate and has been withdrawn and resubmitted and withdrawn again. By contrast, when the General Assembly told the governor to cut off Medicaid funding to Planned Parenthood; FSSA managed that within five days.

Some parts of the Republican coalition are simply not happy with the idea of birth control or family planning in general. But, I don’t really peg Daniels or Roob as holding that view. However, I can definitely see them not being excited about any additional services being provided by Medicaid or the government — even if doing so actually saves the government money. It goes against a dogmatic belief that government can’t (and almost shouldn’t) do anything well; certainly not act in a way that saves taxpayers money. That combined with Roob’s track record in his other government endeavors probably go a long way toward explaining the failure in this case. The administration could have come up with the start up money if it had really wanted to (after all, Mourdock and the Treasurer’s office managed to scrape together $2 million for a doomed legal challenge to the Chrysler bankruptcy restructuring.) So, I doubt lack of money is the real answer.

Primary Challenge for Lugar

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So, there are rumors that the Tea Party types are going to try to a primary challenge against Sen. Lugar. My main knock against Sen. Lugar is that he has been in office for like a million years. Beyond that, he has a tendency to talk a moderate game before going ahead and voting the party line. But, votes aren’t enough for the right wing of his party, apparently. They’re mad about stuff like Lugar’s support for a treaty that reduces nuclear arsenals, mainly because it was something that President Obama supported. Opposition to Sen. Lugar is the sort of thing that gave rise to the Onion headline “Republicans Vote to Repeal Obama-Backed Bill That Would Destroy Asteroid Headed for Earth.”

Most discussions have Treasurer Richard Mourdock as the most likely candidate to challenge Sen. Lugar. Mourdock, of course, is most notable for his wrong-headed decision to waste millions on legal bills to challenge the restructuring of Chrysler in bankruptcy.

Arizona Sheriff in the News

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I see that Maricopa County Arizona Sheriff Joe Arpaio has been in the news a couple of times recently. He is apparently under federal investigation for abusive law enforcement practices.

State Treasurer Richard Mourdock is having him around as a guest speaker for a Mourdock campaign fundraiser. I guess Arizona law enforcement and Indiana finances go together like fish and bicycles. I’m not sure what one has to to with the other, and if I were a candidate for something, I’d probably try to avoid guest speakers under federal investigation, but that’s just me. This is on Mourdock’s own dime, so I won’t take him to task like I did for his quixotic campaign against Chrysler.

As for Arpaio, I’m about as pro-Sheriff as a civil libertarian can get, but this guy seems like trouble. (Also see this from Jon Easter.)

Pete Buttigieg Running for Treasurer

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The Indy Star has a short piece on Pete Buttigieg who is running to be the Democratic nominee for state Treasurer to take on the quixotic Richard Mourdock.

Buttigieg has a politically unwieldy last name and he’s young, 28, but he’s probably smarter than you (and me):

Buttigieg is a graduate of Harvard University and studied economics at Oxford University in England as a Rhodes Scholar. Until recently, he was employed at the Chicago office of the McKinsey & Co. consulting firm, specializing in economic development, energy and logistics. He resigned to launch his campaign.

Sure, we have an anti-intellectual streak a mile wide in this country where we want politicians to go with their gut and not any silly book-learnin’. (See, e.g. Mourdock’s position with Chrysler – to him it just *felt* wrong, never mind that there was no scenario in which his legal wrangling would yield more money to Indiana on its questionable investment.) But, between you and me, I want a guy who’s handy with the spreadsheets when it comes to watching over the state’s money.