Posted 7:04 AM by steve

Much has been written (link) about the Obama Administration's 'assault on property rights' and the 'enforceability of contracts' as applies to Chrysler secured creditors who had to accept pennies on the dollar.

But I'm not sure that is what is actually taking place.

Yes, the secured creditors were pressured, but not in a way that suggests that the Obama Administration is ignoring bankruptcy law. As I understand the situation, the Obama Administration used its position as the 'lender of last resort' to threaten to withhold additional funding unless creditors agreed to its terms. The creditors were 'forced' to accept those terms only to the extent that every other option was seen as less desirable; they could have said no and taken their chances with a bankrupt company that had no money to continue operations but chose not to do so.

I'm not a big fan of the government providing bailout funds to car companies, banks, newspapers or, for that matter, any other business or industry. But having done so, the federal government - as any lender would - has the right to dictate the terms by which it is willing to provide financing. I'm also not a fan of the Obama Administration using its leverage to reward favored groups, such as the labor unions, at the expense of other interested parties, but that is a policy difference and not a legal matter.

That is what seems to be case here. The federal government said it was willing to put billions more into Chrysler, but only if the secured creditors gave up their preferred position.