As a bankruptcy lawyer, I’ve been bothered by the news that the U.S. Treasury Department is putting Chrysler Corporation into bankruptcy. The bankruptcy reorganization statute is written assuming conventional corporate governance, with management supervised by a board of directors representing the shareholders who have voted them in. It’s also written assuming that the government may become involved as a creditor owed taxes, for example, but never as management.

Labor is the employees who work for the corporation. They also may be creditors if their salaries aren’t paid, for example, or their pension plans are rejected, but they don’t get special treatment beyond what the statute itself provides.

What’s happened in the Chrysler case is that the government now is management, and the government is exercising management’s discretionary powers within Chapter 11 to determine how labor is treated, and whether a merger with Fiat is desirable, among other things. Discretion is important, because management traditionally exercises discretion to benefit the corporation, and eventually, the shareholders. They have a fiduciary duty to do so under the law. That’s all been hot-wired here by the Obama Adminstration’s Treasury Department to get an outcome the statute never contemplated.

It’s not just a change in degree. It’s a fundamental change in kind, in corporate governance itself, and in the property rights and priorities created by the statute. Business expectations are created by laws. Risks are calculated, in part, by laws. And Treasury has completely distorted all these expectations without blinking an eye. In economic terms, this sort of government meddling in the affairs of large corporations to create winners and losers is “fascist”, but it’s also the destruction of long-settled expectations based upon the rule of law. It may well be unconstitutional.

And we’re backing into this profound shift to fascist government intervention without debate, without reflection, justified by an alleged “emergency” crisis, and to protect a favored special interest, the labor unions in a way the law, and the fiduciary duties to shareholders and creditors it creates, never contemplated.

The laws of economics will govern the eventual failure of these strategies, and they’ve never before succeeded. It’s as if our federal government is intent on deliberate employing economic strategies that are doomed in a futile effort to protect special interests. Another word for that is “suicide”.

Chrysler asked for this government bailout, so its managers and labor unions also share the blame for the current situation. But the existence of flawed capitalists don’t mean that capitalism itself is flawed. Look for litigation over these strategies after they’ve all failed.