By 4 p.m. today, the U.S. Supreme Court must decide if it will hear a case for some Chrysler bondholders. This last effort by pensions in the state of Indiana may hold the future for the bond market as a whole. Historically, secured bondholders have had very safe investments because they are first in line to receive liquidated assets upon bankruptcy. This time, the US government ran the bankruptcy and over-turned 100 years of bankruptcy procedures. Hopefully, the Supreme Court will overrule the previous verdicts and uphold bankruptcy law. If not, then I'm afraid that the bond market will take a huge hit, since most of the market is run off speculation and anticipation.
If secured bondholders no longer are safe, what about the bondholders in U.S. securities? What about the FDIC? I would be willing to assert that if bankruptcy law is being overturned, what stops them from overturning FDIC or declaring Treasury bonds to be worthless? I'm worried about the precedents that we are currently setting in America.
Update: The Supreme Court has put the sale of Chrysler on hold.