The article from today's Wall Street Journal describes the temporary stay issued by the SCOTUS, which essentially blocks the sale of most of the Chrysler assets to Fiat and potentially overturns the plan of reorganization that was strong-armed by the Fed prior to the bankruptcy filing. Three Inidana pension funds are seeking a SCOTUS decision on the government's involvement in "arranging" the pre-packaged bankruptcy and the way the plan was structured among the creditors.

Essentially, the claimants argue that the government doesn't have the legal authority to force the creditors to agree to a plan prior to a bankruptcy filing as well as the argument that certain creditors who had only junior standing were treated more favorably than senior creditors. The stakeholders who are alleged to have been treated more generously than their position in the capital structure would justify include the UAW and the government itself.

The game of "chicken" occurs because there is no funding available--unless the government decided to continue to pump money into Chrysler to keep it afloat--to keep Chrysler operating until SCOTUS hears and rules on the case. If SCOTUS agrees to hear the case, unless it is on some sort of highly accelerated pace, it looks like Chrysler will have to cease doing business and be liquidated. The whole GM bankruptcy would likely be similarly threatened.

Here's a situation where SCOTUS has a huge influence on an event that would effect the U.S. economy in a massive and negative way. This case is every bit as important as the litigation surrounding the Florida vote in the 2004 presidential election.

An article describing the situation can be read at...

http://online.wsj.com/article/SB1244...ml#mod=testMod

I've thought all along that the UAW was treated too generously at the expense of senior lenders. But if SCOTUS agrees to hear this case, both the Chryler and GM bankruptcies would have to occur without the "pre-packaging" and more importantly without any debtor-in-possession financing that would permit both companies to continue to operate while the creditors went back to the table and re-opened negotiations on a Plan of Reorganization. Almost certainly, both companies would have to go out of business. If that happens, the U.S. economy and the financial markets are going to enter a tailspin the likes of which we haven't seen since 1929.

If SCOTUS decides to take the case for adjudication, it would likely have a disastrous economic result. If they choose not to hear the case, it will be a fairly significant avoidance of exercising their responsibilities to uphold the rule of law. Wow! Talk about making law from the bench...without even hearing a case. The precedents set by not hearing the complaint will be tough to overcome in future bankruptcy cases. The legal rights of various classes of creditors might be changed without a court case.