Obama Has Broken Contract Law

I’ve alluded to contracts broken in the case of General Motors and Chrysler, in several posts, but not until a dinner conversation last night, did I see a need to elaborate on a development that sets a very bad example for the future and should make you wary.  Those posts are:

In a bankruptcy bondholders have first claim on assets.  Scott P Snow, Certified financial planner, certified public accountant, certified investment management analyst explains what happens when a company files for bankruptcy:

…there’s a predetermined priority that dictates the order in which investors are paid back. The pecking order is secured creditors, then regular bondholders, then equity shareholders. Attorneys take their share of the pie first.

Why does it happen in this order?  Because, there is a contract involved and investors make decisions based on the contract.

Wikipedia discusses Contract:

A contract is an exchange of promises between two or more parties to do, or refrain from doing, an act, which resulting contract is enforceable in a court of law. It is a binding legal agreement. [1] That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy.

Take your house, as an example, if you have a first mortgage and a second, and you go into foreclosure, the first mortgage holder, by contract, has first claim on the assets.  If there is anything left it goes to the second mortgage owner.  There is more risk with the second.  That’s why you pay a higher interest rate on the second, to compensate the holder for the extra risk.  What if the government could step in and say the second mortgage holder was more deserving to be paid first?  That would be the end of the first mortgage business!

What President Obama, who has sworn to uphold and defend the Constitution, has done is to break this contract.  He said on April 30, 2009:

While many stakeholders made sacrifices and worked constructively, I have to tell you some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don’t stand with them.

In other words these investment firms tried to enforce their contracts!

I stand with Chrysler’s employees and their families and communities. I stand with Chrysler’s management, its dealers, and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars. I don’t stand with those who held out when everybody else is making sacrifices. And that’s why I’m supporting Chrysler’s plans to use our bankruptcy laws to clear away its remaining obligations so the company can get back on its feet and onto a path of success.

The response from those investment firms wanting their contracts enforced said,

“As American taxpayers, we appreciate the unprecedented efforts taken by the current administration to stabilize the economy and the auto sector; but as fiduciaries to our investors we take exception to being compelled, as Chrysler senior secured lenders, to unfairly shoulder the burden relative to various junior creditors,” Stairway said.

I believe a serious breach in contract law has occurred and it makes all contracts suspect.

You can love your country and have faith that everything will turn out alright, only if the rule of law continues to have force.  That day has ended.

Please enjoy the article and  comment below, email me at landfair3554@comcast.net or follow me @movermike


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