Are the Chrysler bondholders going to the Supreme Court to
demand their money the good guys or the bad guys? In the particular case that
is at the Court, we aren’t’ talking about Wall Street but about three funds
that hold the retirement funds of teachers and policemen in Indiana. From the
point of view of the law and for people who have invested with them, they are
the good guys. That is what they are paid to do, protect the
assets they have invested. And in the
case of secured bondholders, the law puts them at the head of the line.
But in the current case, we have other issues, like politics. Although the future financial interests of the auto workers union are clearly subordinate to that of the secured bondholders according to the law, politics has a different view. So who should prevail?
The young
President is trying to appeal to a broad range of people but especially the
unions since they are big political supporters.
But should he ignore the law for political ends?
It’s not as easy as you might think. You can have the “greater good” school of thought. Perhaps his ideas help more people. But should the President or anybody in government be deciding who should prevail instead of following the law? Too often people see the government at being like King Solomon who could decide all these tricky issues. But that isn’t our system. If we only follow the law when it is convenient politically, what does it really mean?
Another question
is how businesses are going to be able to raise money to operate in the future if
potential investors see that their legal and contractual protections can be
wiped away for a political result.
The only bonds I have are held indirectly through broadly based index mutual funds. You probably have the same thing. But I’m going to be looking for a lot more assurance as well as a lot bigger return if the rules no longer apply.
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