Obama Signals General Motors Bankruptcy

The Obama message machine began prepping the media for the bankruptcy of General Motors late yesterday. Bloomberg reported last night that the President has decided that bankruptcy is the best process to solve the car maker’s problems:

“President Barack Obama believes a quick, negotiated bankruptcy is the most likely way for General Motors Corp. to restructure and become a competitive automaker, people familiar with the matter said.”

The New York Times reported shortly afterward that:

The government may seek to ease General Motors into what it calls a “controlled” bankruptcy, somewhere between a prepackaged bankruptcy and court chaos, by persuading at least some creditors to agree to a plan that would cleave the company into two pieces, according to people briefed on the matter.

Other reports say that the administration’s preferred bankruptcy approach would be “quick and surgical”.

The challenge the Obama administration now faces in a GM bankruptcy is losing control of the process (hence their desire for a “surgical” strategy), a very familiar dilemma faced by all companies that choose to file bankruptcy. This can happen because the legal proceeding in Federal Court is controlled by a judge, not the debtor (GM), not the creditors, not the employees (or their unions) and not a politician.

A GM bankruptcy might foil all of the brazen political agendas behind the recently exposed Obama auto industry policies if just one Federal judge chooses to exercise their constitutional power to control the process and reach an outcome for the benefit of the creditors and not the politicians. Anyone familiar with relatively large corporate bankruptcies knows that the process can become consumed by inertia as competing interests overwhelm the proceeding while the underlying business dies a slow death.

In that this discussion revolves around what is perhaps the most cynical presidency in decades it is worth noting that the Obama administration may have been aware of these risks all along and has simply used the auto maker crisis (and several billion dollars of tax payer money) to pay back a few hundred million in constituent donations. This would explain why the bankruptcy was delayed until after several billion dollars of taxpayer money found its way to GM and Chrysler.

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