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Government To Control GM’s Bankruptcy

From an elated New York Times:

U.S. Hopes to Ease G.M. to Bankruptcy


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.

Instead of signing on every creditor as is typically required in prepackaged deals, administration officials are using as leverage the promise of taxpayer financing. Many regard the government as the only lender willing to step up with money — in bankruptcy or out.

They’re going to have tremendous power,” said Lynn M. LoPucki, a law professor at the University of California, Los Angeles. “They can call off the money and the whole thing fails.”

G.M.’s new chief, Fritz Henderson, also said that the pressure from the government pushed the automaker closer to bankruptcy.

“By no later than June 1, if we’re not able to accomplish this outside bankruptcy, we’ll be in bankruptcy,” he said at a news conference in Detroit on Tuesday. “It’s pretty clear. The government was unequivocal.”

The effort is a new role for the government, which has not pushed companies into bankruptcy in the past as much as it has stepped in when all else fails

The administration appears to be drawing in part from a playbook used with troubled banks, with the goal of creating a new, healthier G.M., but leaving behind its liabilities and less valuable assets, perhaps for liquidation. More often referred as the “good bank-bad bank” model, the approach can infuriate those with claims against the bad bank.

Under a plan being worked out by the administration, G.M. would file for prearranged bankruptcy, according to these people. It would then use a sale authorized under Section 363 of the bankruptcy code to quickly sell off the desirable assets to a new company financed by the government. These good pieces might include Cadillac and Chevrolet, as well as assets the company needs to run the business.

Less desirable assets, brands like Hummer and underperforming factories, would be left in the old company. Proceeds from the sales, including stock in the new company, would be given to the old G.M., helping to settle claims.

The plans are still being discussed, and the details are subject to change, people familiar with the talks said…

The administration hopes to win support from some of G.M.’s creditors, notably the United Automobile Workers, which would be forced to pare its health care benefits and whose pension obligations would probably remain in the old company…

The government’s plan to dictate terms as the provider of G.M.’s bankruptcy financing — known as a debtor-in-possession loan — is not without risk.

“You’re introducing politics into the process,” said David A. Skeel, a law professor at the University of Pennsylvania…

As General Motors goes, so goes the nation.

Note, too, that Mr. Obama will finally allow GM to declare bankruptcy, but only if the government holds all of the cards.

This always was about power.

The power to punish the capitalists, and to reward his supporters in the unions and the “green” lobby.

This article was posted by Steve on Wednesday, April 1st, 2009. Comments are currently closed.

4 Responses to “Government To Control GM’s Bankruptcy”

  1. Rusty Shackleford says:

    Now, just stay still while I EASE this in. It won’t hurt a bit though you may feel a slight pinching sensation.

  2. Liberals Demise says:

    Oh yeah…….ease GM into bankruptcy!!! (what’s with the foot on their neck?)

    I think Dinglebarry is running a Loan Shark operation with taxpayers money.
    Instead of taking the money back with interest, he just takes the business over.
    Criminal enterprise with the governments blessing, get it?
    (Don Obama)

  3. pdsand says:

    I thought GM was too big to fail? If we recall, that is the point of this whole “crisis”!

  4. MinnesotaRush says:

    So … how many billions of dollars ago could we have let these folks (who know how to run a car company A LOT better than the gov’t) do their own bankruptcy??? How is it that these government wizards decide to throw billions at something and then force what should’ve happened in the first place to happen??? (rhetorical question, obviously)

    And folks still think they are the answer and end to all?!?!? Geeeeeeeeesh!!!

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