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Many observers charge that the US government, in its attempts to clean up the auto industry mess, has used strong-arm tactics to force speedy bankruptcies for Chrysler and General Motors (GMGMQ.PK). In doing so, the rule of law and our country's reputation as a safe place to do business may have taken a very bad hit that will resound for years.

The State of Indiana, representing its state retirement plans which hold secured Chrysler bonds, has filed suit in the Chrysler bankruptcy case. Indiana claims laws were broken when the US Government gave the United Auto Workers (UAW) 55% of the ownership of the post bankruptcy company, far in excess of the UAW's secured interests. Indeed, the deal the government struck with the Chrysler assets appears to go against all existing legal precedents and statutes. The secured bondholders were thrown from the train in favor of the mostly unsecured union claims.

The fact that President Obama was widely supported by the UAW brings some clarity to the situation. Political spoils, however, should not extend to rewriting bankruptcy laws on the run.

I have spoken with many legal authorities in recent weeks. Not one of them could explain how the UAW could have ended up with such big pieces of the post-bankruptcy auto industry. "Politics" was the only consistent answer I received.

Here's the problem. Who will ever loan GM or Chrysler money again? Indentures are no good, precedents are no good, and laws are no good. The answer is no one will loan these dinosaurs money again, except perhaps in some form of equipment trust certificate arrangement. That means the United States government will be in the auto business for a very long time. And that means US taxpayers will be asked again and again to ante up to support the UAW.

Here's hoping that Indiana can get their case to the Supreme Court. If the case gets there, things might get very interesting. If it doesn't, the shotgun wedding that was performed by the United States Government will stand and fairness and the rule of law will fall.

Disclosure: I do not own any GM or Chrysler securities.