Heck with the taxpayers. Go with whatever the lobbyists want on bailout bill.
Intense lobbying by banks and bankruptcy experts softened a key provision in the auto-bailout bill that would require government loans be repaid ahead of banks and other lenders. But the current language leaves unclear just who would collect first in the event of a bankruptcy filing -- taxpayers or existing creditors.
The banks' prime concern centered around a plan to make the U.S. government's $14 billion in rescue loans senior to other loans. They argued that this clause violated the Fifth Amendment of the U.S. Constitution, which prohibits the taking of private property without "just compensation." [I think this is unquestionably correct.]
Controversy erupted after a draft bill Monday stated plainly that the government loans would be "senior and prior to all obligations, liabilities, and debts of any such holding company or company that controls a majority stake in the eligible automobile manufacturer."
Historically, the only way a secured lender can be forced to take a backseat to another lender is in bankruptcy court, where a judge hears from the secured lenders and determines if those creditors are protected with additional collateral or other measures.