Anyone who does business in our country, or even has an interest that business be conducted, needs to be deeply concerned about the process by which the Chrysler bankruptcy has transpired.
It is always true that there is a priority among the creditors of a business. The predictability of how our legal system addresses the creditor’s rights is one of the elements that makes the system work. A senior lender, for example, makes loans knowing that it will have liquidation preference over the junior lenders. In return for this preference, the senior is able to accept a lower return.
Now the order of things has been overturned by decree of the Obama administration. The secured senior lenders have been forced to accept 28 cents on the dollar versus 43 cents on the dollar for the UAW’s more junior claims.
While this was being forced on the secureds, they were berated by the President for being greedy. Greedy, I suppose, for expecting that the rule of law should be followed rather than political expediency.
And exactly who is going to be lending money in the future, without having any reasonable expectation that law will be followed?
George Will expressed it very well in the May 13, 2009 Washington Post. In part he said “The Obama administration’s agenda of maximizing dependency involves political favoritism cloaked in the raiment of “economic planning” and “social justice” that somehow produce results superior to what markets produce when freedom allows merit to manifest itself, and incompetence to fail. The administration’s central activity–the political allocation of wealth and opportunity–is not merely susceptible to corruption, it is corruption.”
