ignoring the law
Supreme Court Screws Chrysler Bondholders---
August 4, 2010 4:11am CST
The pension fund of the state of Indiana,the Indiana State Teacher's Retirement Fund, and a few other brave souls decided to defy the United States government and challenge the White House's remarkable intervention and engineering of the Chrysler bankruptcy filing. Chrysler went bankrupt for several reasons,but the bottom line is that they had accumulated massive amounts of debt which they could not possibly repay. The process of going through bankruptcy can be complicated for a large company, but there is a method to the madness. In general, the assets are sold off to the highest bidders and the money recovered is then distributed to the creditors. A company raises capital by selling debt.A common way to sell debt is by issuing bonds.The purchasers of the debt are the bondholders.A bondholder is considered a creditor. Not all creditors are created equal.There are a long line of people trying to get their money back, and the bankruptcy law specifically stipulates who has the highest priority.At the front of the line are the "secured" bondholders.At the back of the line are the holders of common shares.Somewhere in the middle are preferred share holders. The White House intefered in Chrysler's bankruptcy. Legally binding contracts were ignored. The secured creditors were given the message, "Sorry but this is how it is and we really don't care what the law is.We are the law and we can do whatever we want." Most of the secured creditors caved in to the pressure from the White House, but a few, such as the Indiana State Pension Fund and the Indiana State Teacher's Retirement Fund decided to assert their legal rights and took it all the way to the Supreme Court. At first it seemed the Supreme Court would do the right thing when Supreme Court Justice Ginsburg issued a "stay" or delay to Chrysler's bankruptcy filing.Then she ruled that the bankruptcy filing could go forward. Did the Supreme Court cave in from White pressure? Whatever happened to our system of "checks and balances"? Supreme Court Justice Ginsburg ruled that the Supreme Court would not hear the case.It is my opinion that White House and Justice Ginsburg did not want the case to proceed because the plaintiffs had a strong enough case to block the inappropriate abuse of power by the executive branch. Why is this story of executive branch power run a muck, a precedent started by Bush and continued by Obama,not blaring from the front covers of the New York Times and Wall St. Journal? Why is this story not on the cover of MyLot.