Tuesday, June 9, 2009

A Glimmer of Hope for American Capitalism

Well well well. I was wondering when a group of bond holders would have the courage to hire an attorney and go to court over their rightful position in line as creditors. Looks like the U.S. Supreme Court will take a peek at some Indiana bond holders and their case in the Chrysler bankruptcy proceedings. See this Reuters article for details:

http://www.reuters.com/article/newsOne/idUSTRE55608Q20090608

I am truly amazed at how well thought out the founding fathers of our great country were when they drafted our Constitution. They put in a system of checks and balances to make sure that no one branch of the federal government runs a muck with their power.

The classic chess match is at hand my friends. This is our system of checks and balances at work. The rule of law says that these creditors are first in line in the Chrysler bankruptcy. The executive branch of government takes a totally different opinion. They mistakenly believe that they can decide who gets what percentage of the New Chrysler. We shall see who is right. I believe that American Capitalism is at stake with the outcome.

The stakes are very high. If major corporations cannot go to the bond marketplace to raise capital, then we have a serious problem. What type of bond investor would put their hard earned dollars in a corporation, if the executive branch of government can come in and move you down the food chain?

Bond investors are not stupid. You do not have to tell them twice. If the Supreme Court rules against the Indiana bond holders, then Houston, we have a problem. If you think we have a financial credit problem now, then wait to see what could happen if the executive branch wins this argument. Credit for major corporations will dry up. Major corporations would have to raise their yields to attract investors which would in turn increase their borrowing costs. The end result is a huge drag on corporate earnings. More bankruptcies are sure to follow.

Keep the faith. I do believe that the Supreme Court will do the right thing for the Indiana bond holders while at the same time, provide a glimmer of hope for American Capitalism. They should rule in favor of the Indiana bond holders and stop this runaway freight train of cronyism. Let us all pray that they do.