The secured creditors of Chrysler are entitled to a higher settlement of their claims against Chrysler than unsecured creditors. This rule on priority is one of the fundamental tenets of our commercial laws. In return for that priority, the secured creditors lent money to Chrysler. Without that security, they either wouldn't have the lent the money, or would have done so at higher interest rates.
But honoring that legal requirement would have meant the UAW, specifically its members' retirement health care benefits, would have had to accept a lower settlement.
So the Obama administration decided that satisfying a key constituent was more important than honoring contractual rights.
The price for the nation will be diminished economic growth going forward, as all investors and lenders now have to demand a higher rate of return on future investments to offset the risk of political expropriation. This higher required return means investors will fund fewer investments and business ventures, which will reduce growth and innovation in our economy.
Since higher growth is the key to improving the standard of living for all Americans, we all became a little bit poorer with this result.
And don't be misled into thinking that if the U.S. Supreme Court didn't overturn the matter, it must be OK. Given the frenzy whipped up by the left and Barack Obama himself on various economic matters that past nine months, it wouldn't be surprising if the justices decided that the astute political move was to avoid upholding the law.
Shame on them for doing so, and even more shame on Obama and the left for deciding that paying off a political ally is more important than following the law and the well-being of the country.
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