For bond buyers who have confidently placed their belief (and money) behind the full faith and credit backing of some city, state or sovereign issuer; and
For those bond buyers who believe that what a bond indenture says is sacrosanct and protected by the law:
Perhaps it is time to invest in something a little more reliable and regulated like the inventory in a pawn shop!
For example if a trader refused to acknowledge a trade that they entered into they might win that battle, but because other traders will no longer do business with them they will have lost the war.
Is it a stretch to say that represent a type of eminent domain applied to the investment world (see eminent domain definition below)?
Many bondholders were furious, and rightfully so. There is anecdotal evidence that there was threats and strong-arming that eventually had them back down. Here is a clip of the transcript of a radio interview of Thomas Laurie, the attorney representing the Chrysler creditors at the time:
Lauria: "Let me tell you it's no fun standing on this side of the fence, opposing the President of the United States. In fact, let me just say, people have asked me who I represent. That's a moving target. I can tell you for sure that I represent one less investor today than I represented yesterday. One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under the threat that the full force of the White House Press Corps would destroy its reputation if it continued to fight. That's how hard it is to stand on this side of the fence."
This administration's actions in designing the GM bankruptcy was gangster-like and an outrageous disregard of bankruptcy law. The Obama administration essentially confiscated the assets of the bondholders and gave them to the union; wealth distribution at its finest! If this is what it took for GM to remain alive, should it be alive..." (Source)