WIBC in Indianapolis is reporting today that the State of Indiana will no long invest on bonds issued by banks and automakers who have accepted federal bailout money. State Treasurer Richard Mourdock stated that since the government rewrote the rules of bankruptcy in the Chrysler bailout, the state lost $ 5.6 million dollars in investments. The bondholders are supposed to be at the front of the line when a company goes bankrupt. In the case of Chrysler, the government rewrote the rules, the bondholders got 29 cents on the dollar. The unions, who were unsecured creditors, got more. That is illegal according to the laws of bankruptcy, but the government pushed it through anyway.
I am sure savvy private investors are thinking the same thing. Why should you put any money into a company if the laws of bankruptcy (which previously protected your investment to some extent) are no long followed? This sort of bankruptcy manipulation is going to have a very negative impact in investment in this country. Why should any of us invest when we are in danger of losing the value of our investment because of government intervention to protect their pet special interest groups?
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