June 10, 2009
The Supremes Hear, See, and Speak No Evil in Chrysler Deal
The SCOTUS decided not to hear the claim of misapplication of bankruptcy law from the Indiana Fund bondholders in the Chrysler restructuring.
At least four of the nine judges had to have seen cause to hear the case for it to move to the full Court, and four could not be found.
So the Chrysler-Fiat deal will proceed and the secured bondholders will get their 29 cents on the dollar, while the UAW gets more.
Note this spin on the story in an article titled “Why Chrysler’s Bondholders Should Stop Whining” written by Floyd Norris of the New York Times:
That [referring to the article’s title] is the response from many on Wall Street to the Obama administration’s rescue plan for Chrysler. The union is being treated better than the bondholders, and that is said to violate decades of bankruptcy law traditions. If this were a normal bankruptcy, that complaint might be justified. But this one is far from normal.How’s that for logic. It’s all about charity.
The relevant law, it seems to me, is not bankruptcy but charity. Uncle Sam is acting as a philanthropist coming to the aid of a dying corporation. If this were Bill Gates choosing to fund public health agencies in Kenya but not Ethiopia, we might question his judgment, or try to persuade him to change his mind, but no one would argue he had a legal obligation to spread the money around.
This SCOTUS decision will trigger the Law of Unintended Consequences.
(1) Domestic investors will hesitate, some will down-right abstain, from investing money in corporate bonds in enterprises with a heavily unionized workforce.
(2) Foreign investors will add a new negative criterion to their search for investment opportunities in U.S. companies. (Big union equals bigger risk.)
(3) Some current bondholders in heavily unionized companies may arrange their own bailout and sell out when the market recovers more of its losses.
(4) Corporate bond sales in general may suffer from guilt by association.
The men and woman in black covered their eyes, covered their ears, and covered their mouths and perceived no evil in what happened to the Indiana Fund pensioners.
How about that. Guess they weren’t feeling charitable.