| | I need to understand something and I need some who agrees with the government's handling of the Chrysler bondholders situation to explain it to me.
In normal Bankruptcy, the bondholders who purchased the secured debt of a company are the first to get their investment back. That's what "secured debt" means. If there aren't enough funds on-hand, assets are liquidated to cover the debt owed. Only if there aren't enough assets to cover the debt do the bondholders get short return on their investment.
Chrysler's bankruptcy would have been the same, except that the bondholders were forced into a swap-deal of $2B when they were entitled $6.9B. In their own words, they could not "withstand the enormous pressure and machinery of the US government." This is based on criticism from Obama who said the lenders were seeking an "unjustified taxpayer-funded bailout."
So here are my questions:
1) While the Bondholders are financial institutions, the assets from those bonds contribute to mutual funds of many "common peoples'" holdings, perhaps in their 401ks or private retirement funds. This in mind, how does the demand of financial institutions to receive the full value of the bond imply a "unjustified taxpayer-funded bail-out" when the money would directly end up in Americans' 401ks? Instead, it's a double-whammy: Taxpayers overwhelmingly disapproved of the TARP bail-out but were forced into it anyway, then they get docked again in their retirement accounts because of how the bailout was/wasn't spent.
2) Why is government allowed to break those financial contracts, especially when the Constitution forbids State modification of Private contracts (see "Contract Clause")? Even modern interpretations of the Contract Clause are pretty clear. A situation must pass this "test":
(i) Does the state legislation substantially impair a party's rights under an existing contract? Since it means the seizing of private property, the answer is yes.
(ii) Does it serve an important and legitimate public interest? a) The public unanimously disapproved of bailing out failing companies. b) As I've explained many times, the bankruptcy of GM or Chrysler would not lead to a massive economic collapse. The sale of Chrysler to FIAT to maintain American jobs proves this.
(iii) Is it a reasonable and narrowly tailored means of promoting that public interest? Maintaining the strength of our domestic auto business by allowing it to be sold it to an Italian company is not a "reasonable" way to promote the public interest. If the argument is that it will maintain jobs in America, it only goes to prove that my reasoning in the above link is correct, and therefore the contract serves no real purpose but to subsidize the sale of Chrysler to another company, covered by the American tax-payer. Again, it's a burden on the public to subsidize something that would just sell to some other company eventually.
Have I misinterpreted the answers to this test? If yes, how so?
3) If the above test is answered correctly, as I believe it is, please justify why didn't the Supreme Court stop the contract intervention since it is their responsibility to block the Legislative branch from acting Unconstitutionally?
I'm honestly not trying to be an ass. I'm looking for serious answers from people who agree with what is going on here. I am asking these questions because I need to understand more about the reasons people support this. It is the only way I can stop going completely mad over something which only seems so obviously flawed to me and the crazy nut-jobs they talk about on the news. Am I, too, a crazy nut-job for thinking that government is overreaching here or are my feelings well-founded?
-Clive |
| | Posted 6/11/2009 12:33 PM - 10 Views - 2 eProps - 2 comments
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