Automobile Industry Crisis

Floor Speech

AUTOMOBILE INDUSTRY CRISIS -- (Senate - December 11, 2008)

Mr. WHITEHOUSE. Madam President, I rise today to address what I feel is an unfortunate omission from our economic rescue strategy to date. This week, we are considering another bailout which would give $15 billion in so-called bridge loans to America's struggling automakers.

Now, when we debated a bailout program to protect our Nation's financial system back in September, we created legislative branch roles and executive branch roles. We ultimately passed legislation that empowered the Department of the Treasury to invest up to $700 billion. Debate was rushed. The Treasury Secretary came to us on a Friday in September and told leaders of both parties in both Houses that our economy would collapse if we did not take immediate action. With the threat of immediate financial calamity and the apparent good faith of Secretary Paulson, Congress moved quickly to pass the best bill we could. Senator Chris Dodd of Connecticut and my colleague from Rhode Island, Senator Jack Reed, worked heroically, almost around the clock, to negotiate for taxpayer protections and several levels of oversight. In the end, we created a program of congressional and executive roles but no judicial role. We ignored the role that courts can play here or, more correctly, that executive agencies can play when supported by judicial or even quasi-judicial due process. We are about to ignore that role again in the auto bailout.

Why is this point important? This is important because under our American system of government, there are important powers of government that can only be exercised after due process opportunity for a hearing. The famous Supreme Court case of Fuentes v. Shevin is on point. I quote:

The constitutional right to be heard is a basic aspect of the duty of government to follow a fair process of decision-making when it acts to deprive a person of his possessions.

That is citation 407 U.S. 67 at 82.

In other words, some means of restructuring require due process if they involve adjusting people's financial rights and claims. When we fail to provide that process, we unilaterally disarm government's response, taking away its ability to restructure using those means.

The price of this repeated omission has been high. Going back before we even got into this current mess, when there was only a subprime mortgage problem, Senator Durbin of Illinois proposed a bill that would have empowered bankruptcy judges to modify the terms of a mortgage on a person's primary residence. One needed a due process hearing such as that in order to adjust the rights within that mortgage of the banks and the myriad investors who bought strips of that mortgage when it was carved up and sold to the four winds. Our Republican colleagues stymied this provision which we now see could have kept tens of thousands of families in their homes. Because the clarity and finality of a court decision on a troubled mortgage was not available, there was little alternative to foreclosure, and troubled mortgages, by the tens of thousands, cascaded into foreclosure--numbers never before seen in our history. Our fault. Bad design. And every day we don't get it right, every day we don't pass Senator Durbin's bill, that foreclosure problem worsens.

Similarly, as part of the $700 billion Wall Street bailout, we could have addressed lavish and indefensible executive compensation by providing for some judicial power to restructure these packages. Because we didn't, these grotesque liabilities remain on the books of the bailed out entities as obligations to their disgraced management. According to an analysis by the Wall Street Journal, the executive deferred compensation obligations of bailed out Wall Street firms amount to more than $40 billion. Banks participating in the bailout program carried these obligations on their books, and the cash from our bailout is being used to pay them--or will be used to pay them. Taxpayer dollars will end up in the pockets of the scoundrels who tanked those firms. I contend we have to find ways in which the court system, due process, can be brought to bear on this problem. But again, the inaction on that so far is our fault. Bad design. Unilateral disarmament in the face of the Wall Street meltdown.

Now we have the auto bailout plan with its provision for a ``car czar,'' but once again, lacks a role for those due process powers of government. Once we are committed to this deal--once we are in--the only tool we will have at that negotiating table is Uncle Sam's checkbook--that, and the somewhat improbable threat to walk away and tank the auto companies after having put $15 billion into them. So now we will have to negotiate about the companies' continuing lavish executive and board compensation packages and other obligations impeding a fair and rational recovery. As for looking backwards at preexisting obligations, as we say in Rhode Island, forget about it. That requires due process. We have created no process to even invoke government's power to review those. So the effect of all of this is to encourage special interests to play the holdout in the auto negotiations and dare us to tank the companies. It is going to be a high stakes game of chicken and, no matter who wins, the taxpayers lose.

We created this ``hold out'' problem by not providing a judicial role in the restructuring. We could, for example, give the car czar the powers of a judicially appointed conservator or receiver--those are roles I have held--and the power to go to court for an order approving his plan or her plan over the objections of any holdouts. If we did that, it would change the bargaining position of the holdouts. This judicial due process would allow the strong powers of government that require due process to be brought to bear on this mess. We do this in a lot of different contexts.

Bankruptcy courts oversee restructuring all the time and so do other quasi-judicial bodies. For example, the FDIC has the power under current law to place a troubled bank into receivership and wind it down as if in chapter 7, or put it under conservatorship to restructure it as if in chapter 11. The bankruptcy courts and the FDIC possess the tools necessary to cut through whatever Gordian knots may snarl restructuring plans absent that power.
The judicial imprimatur will also increase public confidence in the fairness and the propriety of these plans. There is flexibility about how we do this. We don't have to have it be the FDIC. We don't have to have it be a bankruptcy court to recognize the due process powers of government.

Fuentes v. Shevin again, and I quote:

Due process tolerates variances in the form of a hearing ``appropriate to the nature of the case,'' and ``depending upon the importance of the interests involved and the nature of the subsequent proceedings, if any.''

I hope my colleagues will recognize the importance of authorizing judicially supervised powers in these bailout plans. I pledge to work hard with anyone who wants to achieve this goal. It is vital, I contend, to recognize that directed judicial oversight expands government's powers and authorities to do the things the public and the circumstances demand. It gives us a means to unsnarl the foreclosure mess on Main Street, to restructure obscene executive compensation on Wall Street, and to force good-faith negotiations in Detroit.

We cannot ignore the judicial power in restructuring companies and industries. We must not let that sword sleep in our hands. Times are bleak in Detroit, as they are around the country. The automobile industry stands on the brink of collapse, and the jobs of thousands--some say millions--of workers hang in the balance.

Michigan shares the sad distinction with my home State of Rhode Island in having the Nation's highest unemployment rate, 9.3 percent, in October. Families are struggling in Rhode Island and across the country. That is the background against which we must consider whether to bail out yet another industry. In making such a weighty decision, I implore my colleagues, we must not consider just whether but how we go about doing this.

I contend that we should empower our Government to take steps that we have, to date, foreclosed--steps that exercise the power of Government that can be only exercised after due process of law. I hope we consider that.

Madam President, I ask unanimous consent that the Wall Street Journal article to which I referred be printed in the Record.

There being no objection, the material was ordered to be printed in the Record, as follows:

BREAK IN TRANSCRIPT

Source