There’s no Coup de Ville at the bottom of this Crackerjack Box

Upon the application of certain secured bondholders, including a group of Indiana pension and construction funds that hold Chrysler bonds, the US Supreme Court, by Judge Ruth Bader-Ginsburg, ordered a stay of the sale of Chrysler’s assets to Fiat. Judge Ginsberg’s ruling delays the sale while the Court decides whether it will actually hear the appeal by the bondholders. The bondholders, who are being crammed down into accepting a deep discount on their secured debt are opposing the sale of Chrysler’s assets to Fiat. As part of their opposition to the deal, these secured bondholders have raised an intriguing question in that they ask whether the executive branch of the US Government has exceeded its constitutional jurisdiction in acting to back the Chrysler/Fiat deal under the guise of Congress’ authority granted by ARRA (American Reinvestment and Recovery Act) and TARP (Troubled Asset Relief Plan). While this bailout legislation was initially enacted as a mechanism to inject capital into a financial system that had seen financial institutions effectively shut down their lending capabilities due to the extreme write-downs that mark-to-market accounting rules had on their capital reserves, it was soon called upon to perform other functions. Nevertheless, the bondholders argue that the bailout legislation that has given the Federal Government its expansive authority was designed to aid the financial and banking sector in an attempt to thaw the credit crunch, not as a means for the Federal Government to broker, finance and sheperd a deal for an automaker using the Federal Bankruptcy laws to shed its intolerable debt and unwieldy operating cost structure. The investors in these Indiana funds are teachers, firefighters, and other such Main Street people that loaned their money to Chrysler and were issued secured bonds. The President has stated that these bondholders should accepted the diluted payment being offered to them, that is, to essentially take a sucker-punch for the good of the team. The White House intends to accomplish this underpayment by using the very same bailout legislation that, only a few months ago overpaid AIG employees and repaid Goldman Sachs’ AIG market risk. Is this the way the law was intended to be applied? Can we manipulate our constitution in this way? The answer is yes, most likely we can.