Delay, Not Denial
Before critics of Indiana State Treasurer Richard Mourdock get too excited over the U.S. Supreme Court’s decision to not block the sale/merger of Chrysler with Fiat, it’s important to look at a couple of facts.
- This was not a decision based on the merits, this was based on procuedure.
- The Court said no in this case had a right to a stay. And the decision was based on traditional procedural law, and whether the Plaintiffs had met that burden.
- This ruling only applies to the Chrysler case. Anyone thinking that challenge to GM’s bankruptcy would not succeed if based on the merits should think again.
Finally, the same people who complain about how much Mourdock spent challenging the bankruptcy are also the same people who supported the legal challenges to Indiana’s Voter ID law a few years ago. That law was upheld as Constitutional.
You can read a copy of the SCOTUS opinion below.
SCOTUS Opinion on Chrsyler Bailout Lawsuit
June 10th, 2009 at 7:23 am
If the court’s ruling was based on procedure instead of legal merit, what was wrong procedurally? With genuine respect to the need for proper procedure and the shorter-term economic stakes, doesn’t this decision put years and years of bond investing and bankruptcy law on it’s head if your expect to be at the front of the line if a company goes kaput? Isn’t that part of the allure of buying industrial bonds, their suppossed greater security in bad times?
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Please. I don’t understand. Thank you.
June 10th, 2009 at 7:55 am
You’re right that the Supreme Court decision shouldn’t be regarded as being anything much. The Indiana funds, having lost at the two courts below and seeking an extraordinary measure — a stay from the Supreme Court — had a huge burden to satisfy, and they didn’t. But it doesn’t necessarily follow — from the Supreme Court decision — that their position is wrong.
The bankruptcy court’s decision is clearly written and, I think, persuasive. I recommend reading it if you’re interested in this case. I’m not sure how much weight the Second Circuit Decision has or whether it should be considered a decision on the merits or, like the Supreme Court decision, merely a decision that a stay of the sale isn’t warranted.
But this wailing and gnashing of teeth about how the first priority investors are getting screwed in contravention of years of bankruptcy law is so much hype until someone can point to a scenario where the first priority lien holders get more money in the absence of the Fiat deal. Liquidation will get them less. The Fiat deal is available only on the terms described. Nobody has pointed to another option.
So, what’s the upside here? Indiana spikes the Fiat deal, liquidation ensues, and the Indiana funds get less?
June 10th, 2009 at 9:48 am
Thank you for posting the decision. I read it last night on another website, but once again, you’re the only local media person to have it readily-available.
Please don’t insult our intelligence with the Voter ID thing. Why do you continually bring that up and gloat? You were paid for your services promoting the SOS’s position, even if modestly, and if you continue to bring that up, you should, in good conscience, mention that you were once compensated for your voice on this issue.
As in, NBC reporters mentioning GE is their parent company, whenever there’s a GE angle to a story.
I know many folks who were not on the same side in these two issues. I’d expect more even-handedness from a man with your vast education. It was a cheap comparison.
Murdock should’ve done what every business in America does when it’s confronted with potential legal action: a cost-benefit analysis.
That analysis would’ve done the raw math, which indicates he should not have taken the case. The amount of money to be won or saved, was minimal, given the potential cost of litigation. The analysis would also involve precedent and principle, both important regardless of cost, and that’s a draw.
But in these difficult times, I’d have come down slightly on the cost-saving side. If the case had gone to the full SCOTUS, the fees would’ve doubled.
And why was Murdock buying these kinds of bonds in the first place? Maturity dates indicate he made most of the decisions recently. What bonehead didn’t know the auto industry was in trouble, for the last several years? Absent a brilliant promised return, he should never have gotten into the bonds. He should’ve been investing only in ultra-safe government securities. Period.
I’m waiting for someone in the media to ask that question. I guess I’ll wait a long time.
June 10th, 2009 at 9:57 am
TA,
Just so you know. I never got paid anything from the state regarding promoting the voter ID law. It was a freebie for the taxpayers. Feel free to FOIA the SOS office if you doubt me.
Abdul
June 10th, 2009 at 10:19 am
SCOTUS ruled that it shouldn’t rule. Why couldn’t Murdock get other state treasurers to join him?
June 10th, 2009 at 10:22 am
Many other state treasurers may not have invested in distressed automotive industry debt. And, maybe they have run the numbers and found that there is no upside to “winning” a legal challenge to the Fiat deal given the likely return from a liquidation.
June 10th, 2009 at 10:30 am
The voter id challenge was not paid for with public dollars. Big difference.
June 10th, 2009 at 10:32 am
Anon,
The state had to spend time, effort and resources defending the Voter ID suit.
June 10th, 2009 at 10:44 am
“Think again” is completely correct, any cost benefit analysis would have stopped Murdock dead in his tracks. The pension funds lost approx $6 Million dollars. If he had won his case, here’s what have happened:
1) Chrysler would be liquidated, which means that the Indiana bonds would probably get even less than before, even possibly getting nothing.
2) Legal fees for the process including a Supreme Court hearing would likely be $3-4 Million, which means now the pension funds have lost 9-10 million instead of just 6.
3) The lose of all of those Chrysler jobs would be a huge payroll hit to Indiana. The State would lose the income taxes from that payroll, the sales tax from those people not being able to buy anything, and then the State would have had to pay unemployment to all of those workers. My very conservative estimate the other day was that in the first year alone a Murdock victory would cost the State $125 Million in the above mentioned costs. That doesn’t include collateral damage of parts makers and dealers going out of business either.
Murdock was an absolute fool.
June 10th, 2009 at 11:06 am
This lawsuit had as much to do with GM as it did with Chrysler.
It was a warning shot to insure a more equitable deal at both GM and Chrysler for investors and employees.
Each company is a major employer in Indiana, has huge payrolls, pays health and retirements benefits to thousands of retirees, in addition to state pension funds large investments in this industry for better or worse.
It is in EVERYONES interest to have two very viable and competitive companies emerge from this restructuring or EVERYONE will lose.
June 10th, 2009 at 11:12 am
It isn’t everyone’s interest — those with entrenched pockets will lose if there are two viable and competitive companies. One or none would be better.
June 10th, 2009 at 2:07 pm
No outside counsel was hired, to my knowledge, to defend the Voter ID suit. There’s no way the SOS’s “time effort and resources” totaled $2.3 million or more.
Abdul I’m glad to stand corrected on the compensation thing. I could’ve sworn you said you got paid, but it was a small amount. Nonetheless, you were a spokesperson for the Voter ID law, so, as such, your opinion on the issue is slanted. I’m still trying to figure out why a news talk show host would do such a commercial, paid or not.
Someone please answer the central question”: why was Murdock invested in auto bonds at all? Stupid move.
June 10th, 2009 at 2:13 pm
TA,
I was a “spokesman” for voter ID to the extent they used my voice in voice-over work and my image with a bunch of other folks.
And if you recall, it wasn’t so much about promoting voter ID, as it was letting people know it was the law and what they needed to do to comply with it. It was the equivalent of doing a seat belt PSA>
Also, I am a talk show host but I have an opinion I express regularly. Everyone knows this so it’s no big secret.
June 10th, 2009 at 5:04 pm
And your opinion is well-known Abdul, and mostly appreciated.
Still the comparison was a cheap shot.
June 14th, 2009 at 8:44 pm
Professor of Finance at IU's Kelly School of Business, Steven Jones, had a Sunday Star letter that was both illuminating and reaffirming. His contention is that Chrysler's Chapter 11 bankruptcy is not to be “strictly enforced” as in Chapter 7, to make sure “senior creditors be paid in full before jurior creditors receive anything.” Instead, Chapter 11 is, “…to reorganize the debtor (Chrysler) into a new economically viable firm…Thus, the court's recognition of the UAW as a key vendor…”. (Very condensed version).
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Professor Jones also has concerns in the same ballpark as my original post: “So the Chapter 11 reorganization was defly manuipulated to the benefit of a particular creditor class, in a manner that will make it more expensive to raise secured debt in the future, expecially in heavily unionized industires.”
Professor
June 15th, 2009 at 1:44 am
Professor of Finance at IU's Kelly School of Business, Steven Jones, had a Sunday Star letter that was both illuminating and reaffirming. His contention is that Chrysler's Chapter 11 bankruptcy is not to be “strictly enforced” as in Chapter 7, to make sure “senior creditors be paid in full before jurior creditors receive anything.” Instead, Chapter 11 is, “…to reorganize the debtor (Chrysler) into a new economically viable firm…Thus, the court's recognition of the UAW as a key vendor…”. (Very condensed version).
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Professor Jones also has concerns in the same ballpark as my original post: “So the Chapter 11 reorganization was defly manuipulated to the benefit of a particular creditor class, in a manner that will make it more expensive to raise secured debt in the future, expecially in heavily unionized industires.”
Professor