The dollars dry up


The sucking sound you hear is the economy
It's all about consequences and the rule of law. Emphasis added.

All contracts are important in some way, but credit contracts are particularly important to a functioning capitalist system. That’s why Article V of the U.S. Constitution prohibits states from interfering with the obligation to pay debts. And Article 1, Section 8 reinforces this point by delegating to the federal government the sole authority to enact “uniform laws on the subject of bankruptcies.”

Under these long standing bankruptcy laws - enacted and enforced by the federal government under the Constitution - a secured creditor is entitled to first priority under the “absolute priority rule.” Other nonsecured creditors have “junior” priority. The purpose of this rule should seem clear. When you offer credit to some one or some thing, and do so on the condition that it is secured by an asset, you should be first in line to collect before those providing credit without such security. Unfortunately President Obama’s actions throughout the Chrysler bankruptcy have trampled over these well worn bankruptcy laws, contract rights, and even the rule of law.

One of Chrysler’s secured creditors was the State of Indiana, or more particularly, pension funds administered by the state. But now that Chrysler has filed for bankruptcy, Indiana and other secured creditors are being forced to the back of the line so that unions can proceed to the front. For every dollar of secured creditors’ claims, they’re receiving only 30 cents. Compare that the the United Auto Workers union, an unsecured junior creditor, who will get 50 cents on the dollar.

Why? It’s not because any contract, agreement or bankruptcy law calls for it, but because the federal government decided it was politically convenient. Of course, we’ve become far too familiar with the government robbing Peter to pay Paul, but in this instance the government is violating the rule of law to do it. The arbitrary whims of Obama’s administration threaten the very foundation of capitalism.

Henceforth lenders will hesitate to provide credit, and eager entrepreneurs and businessmen will struggle to find it, because any credit can now apparently be confiscated by government greed regardless of the law or the existence of a binding contract. Simply put, the price of borrowing will now go up because lenders must account for a new risk - government intervention.

Remember that according to the Grand and Glorious Imperious Leader Obama, we're out of money.

What do you think will happen in a few months when the bills come due?

— NeoWayland

Posted: Mon - May 25, 2009 at 02:04 PM  Tag


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