The Irony of Fiat

As many of you already know, the Obama administration forced Chrysler into its current bankruptcy, and into the sale to Fiat.  While Chrysler had serious problems before the federal government stepped in, what the Obama administration has done should raise the hair on all of our necks.  There are so many things wrong with this situation, but the primary issue at stake for all of us is how Chrysler's secured creditors are being treated.

Investment 101 teaches us that bonds are a safer investment than stocks (albeit lower returns, etc.).  So, if you were the state of Indiana, and you invested in secured Chrysler bonds as part of your state's pension plan, then you have become a secured creditor for Chrysler.  This means that if Chrysler ever files for bankruptcy, you are first in line to get your money back.  However, with the Obama Administration, not so much.  Chrysler's secured creditors were owed roughly $6.9 billion, and the Obama administration put them in the back of the line - behind the UAW - and has told them they will have to deal with $.29 on the dollar.  This is such a devastating, short sighted and "cronyistic" move.  Indiana took their case to the Supreme Court (after the 2nd Circuit punted the ball), and it appears the Supreme Court is not going to hear the case (even after issuing a temporary stay).  Complicating this picture even further is the fact that members of Obama's team called the lawyer representing Indiana a "terrorist", they've taken other abitrary actions such as mandating a huge cut in their marketing budget, and the funds poured into Chrylser originated from the TARP bailout passed under Bush - which neither administration has used to buy up "toxic assets" as they were intended.  It's arguable that the use of TARP funds for auto bailouts its illegal (and the authority granted to the Treasury unconstitutional).

Aside from TARP being the biggest government finance sham in our history (and aside from it basically granting the executive branch their very own slush fund), the rule of law is being arbitrarily discarded in favor of special interests and political paybacks.  If this sale goes through as is, and the secured creditors get royally screwed (as it now appears they will), we are going to see investment capital flee our country at an alarming rate.  After all, who wants to invest in so-called "safe bonds" (whether it be a state or company) if the federal government can step in and 'dictate' that you will only get $.29 on the dollar as a secured creditor, but non-secured creditors who also happen to be big donors to your party will get much more?  Those investors will take their money to countries that actually honor private agreements.  As the situation with Indiana demonstrates, the flight of that investment capital from our nation, and the "rule by fiat" attitude on the part of our federal government will hurt the pensions, retirements, state & local government funds (and more) where each of us live.  The sad thing is, we've done all this before - in the 1930's.  We prolonged the Great Depression by "economic experimentation", protectionism and "punish investors" policies.  All three ingredients are present today as well, so buckle up and hold on tight.

Oddly enough, one definition for the word "fiat" reads: "an arbitrary decree or pronouncement, esp. by a person or group of persons having absolute authority to enforce it"

A good opinion piece (with many stats and facts) on this issue can be seen here.