Chrysler Bankruptcy

Yesterday, Chrysler filed for Chapter 11 bankruptcy protection. This is how the Chrysler collapse should have been worked out last December, when the auto maker first went looking for taxpayer cash. Treasury could have saved the American taxpayer $4 billion that we lent the car maker at that time, to which we can now add another $8 billion that President Obama promised yesterday to keep the company going. Now, in all fairness, Mr. Bush should never have given the car makers a "dime" in December.

"In announcing Chrysler's bankruptcy, it was especially rich for President Obama to blast the "creditors" for seeking "an unjustified taxpayer-funded bailout" while offering the UAW a 55% majority stake in Chrysler. He also praised the large banks, Citibank, J.P. Morgan Chase, Morgan Stanley and Goldman Sachs, that hold most of the Chrysler debt (70%) and supported the government plan. But of course Citibank and the other big banks are also recipients of billions of dollars in taxpayer cash and have a strong interest in playing nice with their creditor, Uncle Sam Obama."

"The Chrysler "creditors" at least represent teachers, pensioners and retirees, among others. The Administration is advancing its own social and political agenda through its ever-deeper entanglement with Chrysler and General Motors. That explains why the government is giving 55% of the new Chrysler to the UAW's retiree-benefit trust, a junior creditor, while those ahead of the trust in line get a mere 30 cents on the dollar." Priceless, isn't it? Here you have a President that wants to completely ignore contract law.

I remember President Obama saying that bankruptcy was never a "viable option" for any of the domestic car makers. What happen, President Obama? Why then, did we sink billions and billions of tax payers dollars into a firm that every financial analyst knew could not survive outside of a structured bankruptcy? Questions I don't see anyone in the media asking.

The federal bankruptcy judge assigned to the Chrysler case is used to dealing with complicated high-profile cases. The judge, Arthur J. Gonzalez, oversaw the reorganization of Enron in 2001, which set a record by filing for bankruptcy with $63 billion in assets, and WorldCom in 2002, which topped Enron with $107 billion assets when it filed.

Therefore, bankruptcy, not the Treasury, is the fairest venue for all parties. Come the end of May, we will undoubtedly see GM seating along side of Chrysler before Judge Gonzales.

Source: Wall Street Journal (Opinion Section), May 1, 2009