I think we've just witnessed the end of capitalism. The U.S. government (remember "We The People"?) has just taken money from Chrysler debtholders in the name of saving jobs for American union workers. Not only is this freely giving away money to the long-failing auto industry, but the government plans to pay for it with our tax dollars and the future tax dollars of our children…
In case you missed the story, three Indiana pension funds (holders of Chrysler bonds meant to pay income to retirees in retirement) protested the way the U.S. government ran rough shod over secured lenders in the Chrysler deal. So the pension funds went to the Supreme Court for help. They got shoved away.
If you're not familiar with bankruptcy laws, so-called "secured" lenders were normally the first to get paid back money loaned to a company if the company had to file bankruptcy. Unsecured lenders don't get anything until the secured lenders get everything they are legally promised.
For example, imagine a company's assets amounted to $150 million after a bankruptcy proceeding. It owes its secured lenders $125 million and the unsecured $100 million. The secured lenders get their $125 million, and the unsecured get $25 million. This has been the way bankruptcy has been settled for centuries. Secured means just that – secured.
But not anymore.
In the case of Chrysler, the secured lenders are getting only 30% of what they're owed. The other stakeholders – all the unsecured ones – like the union, the banks with unsecured loans, and even shareholders – are getting as much as the bondholders. Normally, they get nothing until all of the secured debt is paid back. Not a dime. But not this time. Not today.
Why should you care? For one simple reason. You're at risk for the same thing happening to you – the government stealing right out of your pockets. Your retirement savings may soon be taken away while the government is stealing from other bondholders. Heck, if you have your money in a pension fund or a company 401(k) right now, you're at risk. I'll bet you're being stolen from and don't even know it...
