This Is Getting Interesting…

Senior creditors: Chrysler deal violates 5th Amendment

If the Obama administration expected the senior creditors of Chrysler to fold their tents under political pressure, they may have gotten a rude shock today.  Thomas Lauria, who accused the White House of threatening the creditors with humiliation at the hands of the White House press corps, has filed a motion to halt the administration’s machinations on behalf of the UAW in the Chrysler bankruptcy.  Lauria and his allies claim that the Obama administration has violated the Constitution in their bid to devalue the senior creditors’ holdings on behalf of junior creditors, and have some precedent to support the allegation.

Nice.  I think Lauria’s right – but I’m not a lawyer, so what the hell do I know?

The Supreme Court long ago recognized, however, that a secured creditor’s interest in specific property is protected in bankruptcy under the Fifth Amendment.  Emphasis mine.

Thus, Congress could not pass a law that could be used to deny to secured creditors their rights to realize upon the specific property pledged to them or “the right to control meanwhile the property during the period of default.”

Here, the proposed sale of the Debtors’ assets will leave the Senior Lenders with a diluted pool of assets and no further interests in the operating assets covered by their specific liens. The Constitution forbids this application of a law retroactively to undercut the Senior Lenders’ pre-existing property rights in favor or inferior creditors.

This is exactly why people and institutions invest in senior debt in this country.  Because they know that if anything should happen (like, say – bankruptcy) that they are first in line, under established contract law, to receive their capital, or at least a portion of it, back).  You ramrod this one through, Barry and see how willing people and institutions and foreign investors are to buy the bonds of U.S. corporations in the future.

“the Fifth Amendment commands that, however great the nation’s need, private property shall not be thus taken even for a wholly public use without just compensation.”

Why is the importance of that so hard for Obama and his crack financial team to understand?  I can figure this one out for myself, even before I read these articles, but the self-described “Constitutional Scholar” sitting in the Oval Office either doesn’t care – which is scary, or doesn’t get it – which is even scarier…

I have really come to believe that he truly thinks he can do whatever he wants without thinking about the legality or the consequences because, to quote him – “I won.”