Court blocks Chrysler sale

Try this for good reading. It explains a lot.

This is from the LA Times

High court keeps Chrysler deal on hold The Supreme Court extends a stay, saying it needs more time to consider the proposed sale to Fiat. By David G. Savage and Jim Puzzanghera 4:15 PM PDT, June 8, 2009 Reporting from Washington -- The U.S. Supreme Court said today that it needed more time to consider complaints about the government-engineered sale of Chrysler to Fiat, raising the potential that they could halt the deal and force it to be renegotiated.

The justices were acting on a request to stay the sale filed by bondholders who said the move was illegal and unfair to them.

Lawyers for the Obama administration warned the court today against standing in the way. They said Chrysler is losing $100 million a day. Without a deal with Fiat, the nation's No. 3 automaker would face liquidation and a loss of 38,000 jobs and 3,000 dealerships, the government's lawyers said.

Until Monday afternoon, the court had been expected to turn away the last-minute challenge to the bankruptcy deal. Three Indiana pension funds had objected, but they lost before a bankruptcy judge in New York and the U.S. court of appeals.

But at 4 p.m., Justice Ruth Bader Ginsburg issued a one-line order that keeps the deal on hold. She did not say when the court would act on the pending appeals. It would take the votes of five of the nine justices to issue an emergency order to stop the deal. Normally, it takes only four justices to agree to hear a case, but an order stopping a case in progress requires a majority vote.

David Skeel, a professor of corporate law at the University of Pennsylvania, said he was "stunned" the Supreme Court acted to delay the sale, though he believes there are legitimate problems with the Chrysler bankruptcy.

"I'm very encouraged that they did decide to at least take a closer look because the one thing that nobody has really done yet is that. Everything has been so rushed from the minute the sale was proposed," he said.

Skeel said Chrysler's bondholders had a legitimate complaint that their claims were treated worse than those of other creditors, particularly the United Auto Workers union.

"Although the senior lenders are getting less than a third of what they're owed, the employees and the retirees are getting a big chunk of what they're owed," he said. "It sure looks like the sale promises [the union] a fair amount more than they would get in a normal bankruptcy."

The challenges to the deal involve only a comparatively small amount of money, but they raise a large legal and ideological issues. Together, Indiana pension funds say they have $42 million invested in Chrysler, less than 1% of its secured debt.

The bankruptcy judge said, in effect, that these small players should not stand in the way of a deal that could save Chrysler and keep the company in business making cars and trucks.

But Indiana's state lawyers say the hastily arranged deal, pressed by the Obama administration, threatens the rule of law. They say it allows government-favored unions to gain at the expense of bondholders and in defiance of traditional rules of bankruptcy.

"The public is watching and needs to see that, particularly when the system is under stress, the rule of law will be honored and an independent judiciary will properly scrutinize the actions of the massively powerful executive branch," Indiana's lawyers said in their emergency appeal.

They urged the high court to block the sale orders and to decide "whether the law permits such whole alteration of bankruptcy law, not to mention the American capital markets, by the executive branch of the U.S. government acting beyond the color of congressional authority."

The challengers also say the Chrysler bankruptcy is "a test case for what would be attempted -- on a much magnified scale -- in the bankruptcy of General Motors."

Since Saturday, a group of consumers advocates and trial lawyers filed separate emergency appeals. They say owners of Chrysler vehicles -- and victims who have had accidents in those vehicles -- should not have their legal rights canceled by the bankruptcy judgment.

Fiat set June 15 as the deadline for completing the deal.

The Obama administration did not express concern about the court's move today.

"We understand this to be an administrative extension designed to allow sufficient time for the court to make a determination on the merits of the request for a stay," said an administration official, who was not authorized to speak publicly and declined to be named.

Some conservatives have complained loudly about the Chrysler bankruptcy, saying the Obama administration was trampling on the long-standing rights of secured creditors to give a better deal to the United Auto Workers. Under deals brokered by the Obama administration, the UAW's healthcare trust would receive 55% of the new Chrysler in exchange for much of the $10.6 billion owed to the fund by the company. Bondholders would get $2 billion in cash in exchange for the $6.8 billion they are owed.

"Upsetting this fixed hierarchy among creditors is just an illegal taking of property from one group of creditors for the benefit of another, which should be struck down on both statutory and constitutional grounds," Richard Epstein, a leading conservative legal scholar, wrote in a Forbes' article entitled "The Deadly Sins Of The Chrysler Bankruptcy."

"In a just world, that ignominious fate would await the flawed Chrysler reorganization, which violates these well-established norms, given the nonstop political interference of the Obama administration, which put its muscle behind the beleaguered United Auto Workers," Epstein said.

Rep. Jeb Hensarling (R-Texas) on Monday introduced legislation that would terminate the $700-billion Troubled Asset Relief Program, in part because some of the money had been used to bail out Chrysler and General Motors Corp. He cheered the Supreme Court's action to potentially derail the Chrysler sale to Fiat.

"I have been concerned about the fundamental constitutional issues of due process and equal protection that cry out for judicial review and fundamental issues related to a misuse of TARP funds crying out for legislative review," he said. "I am pleased that at this juncture, the court has decided to stay the proceedings and I am hopeful the court will take up the matter."

david.savage@latimes.com

jim.puzzanghera@

latimes.com

Its a lose/lose situation.

Prop them up.. = lose

let them fail = lose

All the bravado talk about freedom and working minimum wage is nice, but 20% unemployment could be reachable...

Ditch digging jobs won't be available..

Y'all are making this more complicated than it has to be. The simple fact is that the assets that should be available to give at least partial satisfaction to secured (first) and unsecured (second) creditors are being effectively given away in what appears to be contravention of well-established bankruptcy law.

All of the parties involved--i.e., shareholders, secured creditors, unsecured creditors, employees, executives, etc.--paid their money and took their chances based on what they expected at the time. Now, the rules of the game are being changed after the fact, upsetting those expectations.

It doesn't matter who's getting screwed or who would get screwed worse if something were done differently. The rule of law is the real loser, which means that we are all one step closer to anarchy or dictatorship, whichever you prefer.

Toyman01 wrote: Try this for good reading. It explains a lot. Skeel said Chrysler's bondholders had a legitimate complaint that their claims were treated worse than those of other creditors, particularly the United Auto Workers union. "It sure looks like the sale promises [the union] a fair amount more than they would get in a normal bankruptcy." But Indiana's state lawyers say the hastily arranged deal, pressed by the Obama administration, threatens the rule of law. They say it allows government-favored unions to gain at the expense of bondholders and in defiance of traditional rules of bankruptcy. (finally a politician that stays bought!) They urged the high court to block the sale orders and to decide "whether the law permits such whole alteration of bankruptcy law, not to mention the American capital markets, by the executive branch of the U.S. government acting beyond the color of congressional authority." Some conservatives have complained loudly about the Chrysler bankruptcy, saying the Obama administration was trampling on the long-standing rights of secured creditors to give a better deal to the United Auto Workers. Under deals brokered by the Obama administration, the UAW's healthcare trust would receive 55% of the new Chrysler in exchange for much of the $10.6 billion owed to the fund by the company. Bondholders would get $2 billion in cash in exchange for the $6.8 billion they are owed. "Upsetting this fixed hierarchy among creditors is just an illegal taking of property from one group of creditors for the benefit of another, which should be struck down on both statutory and constitutional grounds," "In a just world, that ignominious fate would await the flawed Chrysler reorganization, which violates these well-established norms, given the nonstop political interference of the Obama administration, which put its muscle behind the beleaguered United Auto Workers," Epstein said.

Where's Bush when you need him?

billy3esq wrote: Y'all are making this more complicated than it has to be. The simple fact is that the assets that should be available to give at least partial satisfaction to secured (first) and unsecured (second) creditors are being effectively given away in what appears to be contravention of well-established bankruptcy law. All of the parties involved--i.e., shareholders, secured creditors, unsecured creditors, employees, executives, etc.--paid their money and took their chances based on what they expected at the time. Now, the rules of the game are being changed after the fact, upsetting those expectations. It doesn't matter who's getting screwed or who would get screwed worse if something were done differently. The rule of law is the real loser, which means that we are all one step closer to anarchy or dictatorship, whichever you prefer.

+1 He is absolutely correct. This is probably the best post in the entire thread. If you understand what Billy is saying here then you understand what separates the USA from a lot of other countries in the world.

How bout this one:

I would rather go down with the ship than give someone else the right to stand at my back with a whip and tell me to bail.

If we let Chrysler and GM fail, the economy will spiral madly out of control just due to the massive number of unemployed. Either way we lose but the possible fall out from lack of faith in the the bond market is a much less scary thing then the certain collapse of the economy due to Chrysler and GM failling.

96DXCivic wrote: If we let Chrysler and GM fail, the economy will spiral madly out of control just due to the massive number of unemployed. Either way we lose but the possible fall out from lack of faith in the the bond market is a much less scary thing then the certain collapse of the economy due to Chrysler and GM failling.

I agree that this would be a huge blow to the problem, however you have the government changing contract law in the middle of a case and choosing winners and losers by breaking the laws they are required to uphold.

I personally bereave that America could come back from a massive collapse however if the federal government gets into the habit rewriting contracts and ignoring their own laws then they have reduced them selves to the level of some crack pot 3rd world republic. Actions such as these will ultimately be worse for our nation than both Chrysler and GM failing.

carguy123 wrote: Where's Bush when you need him?

counting his kickbacks from haliburton, exxon, BP, and blackwater......

or

giggling about how many freedoms he stole from you...

Toyman01 wrote: I would rather go down with the ship than give someone else the right to stand at my back with a whip and tell me to bail.

I can really respect this. I feel the same way about our foreign policy and the treatment of those in Gitmo.

Mean what you say and do what you say.

ignorant wrote:

carguy123 wrote: Where's Bush when you need him?

counting his kickbacks from haliburton, exxon, BP, and blackwater...... or giggling about how many freedoms he stole from you...

I don't know about the Haliburton stuff, but I will say Bush wasn't a cup of tea either. He slipped some stuff by in the dark of night as well. All in the name of "protecting" the country. All politicians have only their best interest at heart reguardless of what platitudes and other smelly stuff come out of their mouths.

anyone willing to trade freedom or justice for security deserves neither.

Re: the legality of the moves.... One thing to consider is that the Fed has a lot of behind the scenes power to do whatever it takes to prevent a depression. They were given these powers back in the '30's. Something to think about. They can do things that seem very, very socialistic to save the economy as a whole (see the bailouts last year).

Also, the LA article mentiones the UAW Healthcare Trust as the means that the UAW will own part of Chrysler (and GM for that matter). I've not read the trust contract, but it may be as binding as the Bond contract may be. While it says Heathcare and UAW- which is, of course, to the benefit of employees instead of secured investors- it also says trust- which is a completely different form of contract.

If it were so black and while as some of you imply, it would not take much of a judge to throw it out. And many, many of the sitting judges were put there via previous Presidents (Bush, Clinton, Bush etc). It's not like they are being puppeted by this administration. That's another reason this appears to be a lot more complex that what we see, or what we believe. What's really sad is that if the SCOTUS does not hear the case, no real information will come out to tell us what really is going on.

Eric

Another angle: the UAW owns 55% of Chrysler, which means (to me) they own 55% of whatever it's valued at. OTOH, the bondholders are GUARANTEED $2 billion of the $6.8 billion. Regular readers of this space will recall that I am no fan of the UAW. It does seem to me that they are, regardless of the administration's actions on their behalf, taking a much larger risk than the bondholders. Like this: the way I read it if Chrysler goes tits up, they own 55% of whatever the wreckage brings but the bondholders get a guaranteed percentage, meaning they STILL get their percentage before anyone else. That means the UAW gets 55% of whatever's left after the bondholders get paid. Seeing as Ceberus paid $7 billion for it and it's valued even lower now, it don't look good.

Let the bondholders have a share instead of the $2B and then piss FIAT off so they back out and THEN let the bondholders twitch on the end of the line!

Anyway.

When this goes to court, what options does the claimant really have?

1: Structured bankruptcy (current deal)

2: Unstructured bankruptcy and liquidation

3: The NA automotive market makes an INSTANT rebound selling every vehicle in stock at $10,000 over MSRP and causing the big 3 to be profitable forever.

bigbrainonbrad wrote: At some point hopefully congress will wake up and realize that they are the one's charged with making laws, and not being a bunch of hacks for the president.

I agree. You'd think that if Congress had realized this years ago we wouldn't have our rights trampled by the so-called Patriot Act and our cell phone companies would be held accountable for being accomplices in massive domestic spying actions that are still going on.

Toyman01 wrote: Having the government rewrite laws and rules in a dark room to suit their wants and agendas with no judicial review or legislative input is wrong any way you slice it. ... As usual the guys at the top are doing what ever they want to to get reelected rather than what is right.

I agree. I felt the same way about this when Haliburton was awarded contracts for the Iraq War on Vague Concepts aka Terrorism. The contracts were awarded as there wasn't any competiton or bid process involved. It was more than ironic that the VP, at the time, was an ex-board member of Halibortion and quite likely still held massive amounts of Haliburton stock.

Back room deals are B.S. from either party.

Didn't we agree to avoid political discussion awhile back?

Sounds like the vultures are circling and getting ticked off because what they thought was a dead whale is looking more and more like a dead rabbit. There's just not enough to go around.

I do feel for the guys who worked decades at Chrysler and who are now faced with losing the majority of their retirement and health benefits. We don't have a viable healthcare or financial safety net for workers who are retired. If they lose those benefits it's poverty for the rest of their life after they had secured retirement like a hardworking and responsible citizen.

Talk about justice all you want but when the little guy takes the fall while the big wigs walk away whistiling...that ain't justice.

In this case political discussion IS the basis of the topic. With the present administration rewriting the laws just to pay off voting blocks you have no choice but to talk about the political component.

Here's a question for some of you- if the SCOTUS does not even hear the case, does that mean that there's no reasonable legal objection to the quick bankrupcy?

While the administration has been involved, we read in them re-writing the laws. But it could be that they just negotiated a settlement.

Considering that the Supreme Court is independant of the Executive branch, that this is a good, final "hearing" of the legality/consititutionality.

Recall, SCOTUS more than once slapped the Bush Admn hands. And there's no good reason for them not to, if this is, indeed, ilegal.

Just pointing that out.

Eric

It isn't that a law is being rewritten, it's re-interpreting existing laws to be completely different without passing or re-writing a law. So, don't like that part of whatever law? Just ignore it and do what you want. That's called a "Living Constitution." Suddenly "Freedom of Speech" means the right of the government to fund homosexual "art" and no longer the right to display a bumpersticker critical of the President. Secured debt now means that you get paid whenever and whatever The O decides you'll get paid after his buddies get paid on their unsecured debt.

Dr. Hess wrote: It isn't that a law is being rewritten, it's re-interpreting existing laws to be completely different without passing or re-writing a law. So, don't like that part of whatever law? Just ignore it and do what you want. That's called a "Living Constitution." Suddenly "Freedom of Speech" means the right of the government to fund homosexual "art" and no longer the right to display a bumpersticker critical of the President. Secured debt now means that you get paid whenever and whatever The O decides you'll get paid after his buddies get paid on their unsecured debt.

Let's not pretend that this is new to the Obama administration. It's been done for the ages. How many times did Bush write his interpertations of laws passed by Congress that he picked and choosed what they paid attention to? This is far from unique.

Much of the argument for this situation can be traced back to lawsuits in the "New Deal" era- and some have opined that the court has consistently upheld the government's ablitity to do what it sees fit to make sure the economy does not collapse- check this article out- Check this article out

Again, while it appears that the govenment sold Chrysler and GM to the UAW, don't forget that they are debt holders, too. Many scream that they are not secured debt holders, but I'm not so sure of that- a contract was signed to put money into a trust to fund X- that seems like a pretty secure contract that must be paid just like any bond. So when both Chrysler and GM could not pay the fund, the UAW ACCEPTED the deal to buy part of the company in exchange for the debt. Bond holders have not. If you've been paying attention in the news, Ford also sold part of it's held shares to the UAW for this trust fund. But since it's not in the courts, it's not "real" news.

And the claim that the UAW is some really powerful political entity- I call a very firm BS on that- first of all, at best, the UAW can help in two states- Michigan and Ohio. Of the two, my state is the weaker in terms of numbers. And Ohio does have a lot of UAW members, but relative to the voting public- not so much. Granted, about a decade ago, the UAW managed to make sure that national voting day is a day off, but the reality is that their 430,000 votes are pretty insignificant- there are 48 other states, many with far more votes available.

Again, if this is really that ilegal and unconsititutional, the SCOTUS will bear that out- they are independant (again, as FIRMLY evidenced by many of it's rulings against the Bush administration).

Although, I would love to see real evidence where people are arrested for anti Obama bumper stickers.

oldsaw wrote: Hey, if you're getting something for virtually nothing, does it matter if you're getting it now or a few weeks/months from now?

What about the clap?

DILYSI Dave wrote: The back door deals surrounding this whole thing basically equate to theft on a huge scale. The fact that DC wants to waive it's magic wand and leave the secured creditors out in the cold while giving large shares of the company to parties who shouldn't have anything is pathetic.

Agreed. Each week it seems like new back door deals are uncovered. The vacature of all pending lawsuits against the companies. The bizare cancellation of dealerships while also preventing them from selling their inventory. Disolution of existing warranties. Rewriting financing contracts on car owners. And, the bond holder issues already mentioned. The more that gets exposed, the ickier it becomes. Kinda like digging out a cesspool.

alfadriver wrote: Many scream that they are not secured debt holders, but I'm not so sure of that- a contract was signed to put money into a trust to fund X- that seems like a pretty secure contract that must be paid just like any bond.

That's not what secured debt means. Secured debt is a term of art that means that there are assets that are transferred to the lender in the event of default by the borrower.

In the consumer context, mortgages and car loans are examples of secured debt. Credit cards and signature loans are unsecured.

So in this case is a bond considered a secured debt or not?

If Chrysler and GM need to die in order for us to save some semblance of a capitalistic nation, I'm OK with that. Freedom includes the freedom to fail.

Eeeeeyup.

All the bravado talk about freedom and working minimum wage is nice, but 20% unemployment could be reachable...

The problem is, I can see it potentially going there either way. So IF it's an inevitability, let's go ahead and get it over with ferchrissake. I'm not saying the fed (including Bushes last horrible failure) didn't have the best of intentions in mind while stealing money out of our pockets to protect jobs, but it's simply not working as far as I can tell.

Seriously, who the berkeley is going to go out and buy a new Chrysler or GM product? (aside from the federal government, of course.)

REPORT: Cheney says Bush left GM bankruptcy for the next guy