Michael Barone posted an article at Real Clear Politics yesterday about the Chrysler bankruptcy.  He talked about bankruptcy lawyer Tom Lauria, who has gone public about the pressure the White House has put on one of his clients to agree to terms in this backruptcy that were detrimental to that firms investors.  The sticking point is that the agreement that President Obama wants would give the secured creditors of Chrysler about 33 cents on the dollar while giving the unsecured creditors (the United Auto Workers retirees) 50 cents on the dollar. 

One of the basic principles of bankruptcy law is that secured creditors (who loaned money only on the contractual promise that if the debt was unpaid they’d get specific property back)  get paid off in full before unsecured creditors get anything.  Michael Barone states in his article:

“Think carefully about what’s happening here. The White House, presumably car czar Steven Rattner and deputy Ron Bloom, is seeking to transfer the property of one group of people to another group that is politically favored. In the process it is setting aside basic property rights in favor of rewarding the United Auto Workers for the support the union has given the Democratic Party. The only possible limit on the White House’s power is the bankruptcy judge, who might not go along.”

This is illegal.  It is against the law.  The administration has already begun to denouce the bondholders who have not gone along with this proposed illegal agreement.  This is an abuse of Presidential power and needs to be dealt with quickly.  Hopefully the bankruptcy judge will choose to follow the law and the Constitution (which he and the President have sworn to uphold).