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Why the Chrysler Reorganization Is Bad for Capitalism

By ignoring bankruptcy law, the president's auto task force has made other U.S. companies worth less.

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When financial historians look back on the spring of 2009, don't be surprised if this time period stands out as a not-so-bright one in the annals of U.S. capitalism. This is not just because the country, and the world for that matter, is dealing with an extremely severe pullback in economic output. Downturns happen in the normal course of economic growth and occur from time to time as the free market cleans out excesses created in each prior cycle. More distressing is the manner in which the long-standing bankruptcy law was recently usurped so that a group of junior creditors (with strong political connections) of a high-profile automaker were made more "whole" than the senior creditors--all in plain sight and in the name of fairness and sacrifice.

I'm talking, of course, of recent events at Chrysler, and more specifically, of a decision by the current administration that helps more than 100,000 workers and retirees in the short term but may well be harmful to countless others over the long term. The reason? The cost of capital for a whole host of U.S. businesses just went up.

Eric Landry does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.