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The Rule of Law, Chrysler, and The Fed

By Mark MacKenzie

Real Estate Broker/Owner

June 08, 2009 10:30 AM

The Supreme court put the breaks on the Chrysler bankruptcy proceedings today delaying a sale to Fiat and potentially opening up a significant showdown between Chrysler's secured bond holders and the government about the rule of law and TARP.

Not only could this showdown affect Chrysler's sale to Fiat, Chrysler's suppliers, GM's bankruptcy and their bondholders, GM's suppliers, but also Treasury's use of TARP funds to assist both automakers.

The Supreme Court and their ruling, if they make any, and when they make it, could make things very interesting moving forward for all parties involved. This could be one for the history books.

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Lenn Harley

Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA

Real Estate Broker - Virginia & Maryland

What surprised me about this STAY was that Justice Ginsburg is the one to sign it. Of course, they take turns for "up time", but I'm still surprised.

Jun 08, 2009 10:57 AM

Mark MacKenzie

Phoenix, AZ

Lenn: I was surprised to see Ginsburg as well. This is going to be really interesting to watch.

Jun 08, 2009 11:03 AM

Mike Saunders

Retired - Athens, GA

Mark - I am with you and Lenn, surprised that it was Ginsberg. There is a chance that the Supreme Court will side with those evil greedy Indiana Police that are unwilling to sacrifice the pension they were promised.

Jun 08, 2009 11:14 AM

Mark MacKenzie

Phoenix, AZ

Mike: As I mentioned, IF this even becomes acase that the Supreme Court will hear, the ramifications could be profound on every party involved, not only with Chrysler, but with GM as well.

Jun 08, 2009 11:30 AM

Mike Saunders

Retired - Athens, GA

Mark - I am hoping that the Supreme Court sides with the Indiana Police Pension Plan. If secured creditors can be tossed aside and be given a secondary position to unsecured creditors by presidential fiat, I don't see a lot of investment in U.S. corporations.

Jun 08, 2009 11:33 AM

Kathy Toth

Ann Arbor Market Center Keller Williams - Ann Arbor, MI

Ann Arbor Real Estate Experts - Kathy Toth Team

I just wonder how long it will take for the Court to decide. There is a time limit on the Fiat offer. I think they have until June 15th though I'm not sure on this one. I know the Court can accomplish this but the question is WILL they.

Jun 08, 2009 11:42 AM

Mark MacKenzie

Phoenix, AZ

Mike: I absolutely agree with you on this. My only question is IF this happens, a.) how long does it take and b.) will this also change everything for GM as well. Certainly a lot of implications.

Kathy: From what I have read Fiat is not going anywhere. The deadline appears to be an attempt to cram this BK through. Fiat apparently does not have to make much if any of an investment in Chrysler in order to obtain ownership.

Jun 08, 2009 12:00 PM

Lenn Harley

Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA

Real Estate Broker - Virginia & Maryland

For Fiat, this could be a case of "the gift that no one wants". If the "gift" of Chrysler is so laden with post bankruptcy burden, i.e., the union demands and a market that is absolutely dead, Fiat may have time to think twice.

What I find so fascinating about this entire "bankruptcy" matter is that when the opportunity was there for Congress to permit bankruptcy judges to modify mortgage balances in bankruptcy for upside down home owners, they decided to "preserve the sanctity of the contract". Yet, when it suits the government they use the bankruptcy court to ignore bankruptcy laws and put unsecured creditors ahead of secured creditors.

The hypocracy is astounding.

Jun 08, 2009 09:35 PM

Hugh Krone

Weichert Referral Associates - Hamburg, NJ

Realtor, Sussex County NJ

Mark, I am featuring this one in silent majority

Jun 08, 2009 11:26 PM

Mike Saunders

Retired - Athens, GA

Lenn - the double standard for corporations and individuals, at least for tax and liability purposes, is staggering! And yes, the hypocracy is astounding.

Jun 09, 2009 12:00 AM

Mark MacKenzie

Phoenix, AZ

Lenn,

You make a great point, something that I have thought this on several occasions. Not only in terms of the bankruptcy "law" but also in terms of favorable tax treatment for the banks and corporations. But I guess we have to remember that it's all about credit and jobs, right? ;)

As if banks are going to make irresponsible loans (again) and companies are going to create jobs that are unprofitable.

Hugh: Thank you so much, that is a great honor.

Mike: The individual American tax-payer continues to get stuck with the bill.

Jun 09, 2009 12:41 AM

Es r

CSR - Huntington, TX

Well the Supreme Court did nothing. So now the precedent is that the President is above the law. We are in for one hell of a ride. Basically they affirmed Obama's right to overrule existing law.

Here is the legal problem. The government argued that since the bondholders would have lost more had Chrysler been liquidated, then they had few rights to stand on when the government made it's decision with regard to the UAW and such. basically as long as the bondholders got a little more than they would have in a worse case scenario, they lost all their rights.

The Supreme Court has given the President the right to pick who gets what as long as everyone gets a slightly better deal than they would have otherwise.

In my opinion, when government money is used, the government should be compelled to stick to the spirit of the law, if not the letter of the law. Obama seems to think that he can judge worthiness beter than the law can. It is so wrong.

Jun 09, 2009 05:19 PM

Mark MacKenzie

Phoenix, AZ

CF,

This "ruling" leaves me about as disappointed as when President Bush did an end-around Congress last Fall and used TARP money for Chrysler and GM after Congress had voted against such a "bailout" when the UAW failed to make any meaningful concessions that would have made them "competitive".

If ever there were a case that the Supreme Court should rule on, I would think that the GM and Chryler BK's would have been one of them.

I don't understand how they don't want to hear this case as it sets a precedent for future BKs with bondholders.

Jun 10, 2009 12:48 AM

Bob Southard

Atlas Realty Service, LLC - Kennesaw, GA

e-Pro - Cobb,Cherokee,NorthFulton,Paulding,Bartow

Unbelievable...

Jun 10, 2009 02:46 AM

Rob Arnold

Sand Dollar Realty Group, Inc. - Altamonte Springs, FL

Metro Orlando Full Service - Investor Friendly & F

Even if Fiat does end up closing the deal, I think the end of Chrysler is upon us. There are simply too many car manufacturers producing cars that nobody wants to buy. Outside of their Jeep brand and maybe a few others, the name Chrysler is synonymous with mediocre cars.

Jun 10, 2009 07:20 AM