The government wants to change the outcome of well established bankruptcy procedures. This is not about giving away Chrysler to another entity, foreign or otherwise. This is about property rights and may well impact everyone in the country.
Bondholders that are senior (vs. senior subordinated, unsecured, etc.) are entitled to being made whole before any junior creditor. This is screwing investors who accepted lower interest because they would be the first reimbursed even in bankruptcy. This was not necessarily a poor investment based on existing rules. By changing the rules the government is telling all bondholder that senior is the same as unsecured. Imagine the implications for future bond sales by other companies and the effect this will have on borrowing costs. Investors may tend to stay away from any corporate bonds or bond funds, particularly those holding industrial, unionized companies - at least until this is resolved.
The retort to the suit by the government is “this is better for the economy” must not stand otherwise any effective property right you may believe you have is moot. Tthe same argument about your how much you make, where you work, how much free time you have, where you live, etc.
This is not about protecting the common man, this is about protecting every man. It does not matter that the small investors are fighting back, that is their right. Be happy someone is fighting back. J.P. Morgan and other TARP (bailout) recipients hold a lot of automotive bonds, but don’t look for them to join the fight as a bond holder.
1 comment:
It might not be bad if bond investors shy away from companies that have unionized labor...
While the govt would consider this a bad thing, I would consider it an entirely appropriate unintended consequence...
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