When the banks and brokerages got Tarp money and then paid out those huge bonuses, it upset a lot of people. Whose money was being paid out? It seemed rather obvious, it was TARP money.
The automotive bankruptcies have a similar problem. In this case, the bond holders are being short sheeted. The government gives 9 billion dollars to Chrysler to keep it alive and then tells the bond holders to shut up and accept the buyout plan. The bond holders can very well contend that any money accepted from Uncle Sam’s bailout gift, was money they were also entitled a share of. Now the government says Fiat gets to buy Chrysler and the bond holders had better accept the deal.
There is a rush to push this bankruptcy through the courts. If the deal doesn’t go through fast, it won’t go through at all. The bond holders have the right to demand that they be paid in full, or sell the company’s assets and get their pound of flesh. These assets might sell for a lot more than the government is willing to admit. Some of this is prime real estate. Either way, the bond holders deserve their day in court. On top of that, these bond holders have already been burned by GM and Chrysler, why would they want paper that is subordinate to the debt they already hold?
What could happen here could become a real mess for the government. The courts could rule in favor of the bond holders. The US government wants to gift money to the car makers, to keep them in business. Haven’t they, by their actions, become a cosigner guaranteeing the car makers debt obligations? Why shouldn’t the bond holders be entitled to bail out money and maybe quite possibly payment in full?
The administration is talking cram down mortgages and now they are going to stiff bond holders. Isn’t it time for the courts to rise to the occasion and take back their power? Government has to be held accountable for trying to change rules of law that define our legal system (ie modifing original loan agreement terms). So far, nobody has dared to get in the way except a few bond holders. Look for a Supreme Court ruling on this litigation. It could be a real eye opener.
Fiat’s going to buy Chrysler? Give me a break! I think that once they explain to the Italians that you can’t put 4 wheels on a Gucci handbag (it's too small), the deal will fall through.