"The U.S. government's restructuring plan for Chrysler LLC is sounding alarm bells for those in the business of lending money who worry that the plan could subvert decades of standing legal precedent and investing principles.
Banks, hedge funds and other investors that hold $6.9 billion in secured loans are being asked to release their contractual claims over Chrysler's assets in exchange for a fraction of what they are owed. Many lenders see that as a raw deal, because in the bankruptcy code's priority scheme, secured creditors are supposed to get paid before unsecured creditors such as employees."
What is truly disturbing is that we have a president (Harvard Law, mind you) who shows an absolute disregard for contract law. He either does not understand or, more evil, ignores the simple legal fact that senior lenders get first dibs in a BK case because they paid for it by accepting a lower rate of return on their capital!!!
This has been a well-established contractual practice for many, many years. Now his rhetoric might work for his core electorate in the Cambrini Green or for some union photo-op in Flint, MI, but, boy, would I be scared if I were deploying capital, or if I were saving for retirement.