By Peter FerraraDirector, Entitlement and Budget Policy, Institute for Policy Innovation/General Counsel of the American Civil Rights Union

How is Obama not a socialist? Under his "auto bailout" policy, the government would be taking GM and Chrysler away from the investors, with majority controlling interest for GM placed instead in the hands of the government (with 50% common stock ownership), and the majority interest for Chrysler (55%) to be given to the UAW union. This is exactly what socialism is.

This policy basically involves stealing the company from the investors and giving it to the federal government and the auto union. This is especially clear for the senior bondholders that Obama has now taken to deriding as greedy. These bondholders agreed to lend money to the auto companies on the condition that the debt owed to them would be senior to the debts of others. Senior means they would be paid first out of the company's available revenues.

The problem with stealing as national policy, besides being immoral, is that it is impractical.

But the auto bailout Obama wants them to agree to would pay these senior bondholders somewhere between 5% and 30% of what they are owed, while everyone else, including the unions and the government, would get a much higher percentage of what they are owed. So Obama's deal means they would be last instead of first, as was agreed, to get them to lend the money in the first place. The bondholders were consequently quite right to object to this theft of their money and force the whole deal into bankruptcy court, where the rights of senior creditors are understood and respected.

The issue is not whether these bondholders should sacrifice as part of the auto bailout deal, as Obama claimed last week. None of them are claiming they should get 100% of what they are owed. But given that they agreed to lend their money in the first place on the condition that they be paid back first before others, they should at the very least get back the same percentage as the others. I think that Obama is ignorant of this whole concept of senior bondholders, and, therefore, doesn't know what he is talking about in discussing the auto bailout.

The problem with stealing as national policy, besides being immoral, is that it is impractical. If the rights of these senior bondholders are not respected, then the auto companies will never be able to borrow money again on the promise that the lender will be paid back first out of available revenues. This will worsen the prospects for success of the bailout. It will also mean more costs for the taxpayers, who will have to pay more in the future to cover what the companies can no longer borrow.

This is made all the worse because the entire auto bailout is illegal. The TARP funds funding the bailout were originally authorized by Congress to be used to bail out the banks, not auto companies. So what is involved is stealing from the taxpayers as well. Hopefully, someone will sue in the bankruptcy court on behalf of taxpayers making this argument, and seek to shut the whole bailout down.

Obama's lawless piracy in regard to the auto bailout has broader implications. Investors nationwide and around the world will see that their legal and property rights may not be respected if they invest in Obama's New Amerika. So they are less likely to invest here and promote economic recovery, and more likely to look to invest where the thieves will not accuse themof stealing and immorality for looking to get their own money back.

Peter Ferrara is Director of Entitlement and Budget Policy for the Institute for Policy Innovation, and General Counsel of the American Civil Rights Union. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under the first President Bush. He is a graduate of Harvard Law School and Harvard College.