Friday, December 12, 2008


I have said it before in this blog, but why can't the federal government offer a line of credit as a part of a Chapter 11 bankruptcy plan? I am not a lawyer, so don't understand the issues that well, but I do understand that we have this mechanism which is set up to specifically deal with Detroit's situation. The benefit of Chapter 11 is the restructuring of all of the obligations the companies have. The drawback in this case is the worry over the companies ability to raise capital in this credit crunch. So, why don't the feds just act as that type of lender and let the bankruptcy court do its thing (and do away with the micro-managing by the government, especially the odious "Car Czar" idea).

There must be something wrong with this line of thought because it is so obvious and yet not being talked about.

What am I missing?


Kevin Spence said...

Call me cynical, but the union contracts would get hammered in bankruptcy court. If I remember correctly, the airline unions took a beating during the AA and united bankruptcies.

I wouldn't be surprised if legislators that have a strong union constituency are pro-government financed and those who don't are against it.

Even if this line of thought is wrong, I think the understanding is that the "Car Czar" will be far more responsive to political pressures than a Delaware bankruptcy judge.

NegAmd said...

Here in America we only make someone the Czar an issue when we intend to mess it up.

It looks like the Treasury is pursuing some form of prearranged bankruptcy for GM and Chrysler with taxpayer funded DIP financing.