In the next 48 hours, Chrysler is expected to file for bankruptcy because,
according to press reports , a significant minority of its
creditors object to the Obama administration’s planned takeover in which the
government and unions would own a majority stake. The Obama administration hopes
to persuade the court to ratify and rubber-stamp its plan. But the bankruptcy
courts should exercise independent judgment instead, as they do in any typical
The expected Chapter 11 bankruptcy filing of Chrysler LLC is
an action that probably should have happened months ago. It could
have spared all involved the chaos of the ”political bankruptcy” we have seen
unfold. The process of a judicial bankruptcy will bring a needed check to the
Obama administration reorganization plan that heavily favors unions, at the
expense of bond and debt holders.
The hedge funds that refused to be strong-armed into the
Obama plan should not be blamed for asserting the interests of the investors
they represent; investors that could include pension funds that serve
middle-class families. The bankruptcy court should be allowed to be impartial
and not be pressured to automatically take the plan offered by the Obama team.
It should weigh the interests of all involved, using Chapter 11 precedent, and
decide accordingly what each party is entitled to, as bankruptcy courts normally
The merger of Chrysler and Fiat the government has pushed is
pure “industrial policy” of the type that led to stagnation in Japan and other
nations where it has been practice. It may not be the most viable choice for
Chrysler to specialize in smaller cars. Rather, a merger combination between
Chrysler and General Motors with a concentration on larger vehicles such as SUVs
may be the best option. This alliance had been discussed for years but was
shelved because of concerns it might run afoul of antitrust laws.
The Obama administration should lift any antitrust barriers
to effective reorganization — and suspend planned increases in the Corporate
Average Fuel Economy standards that would be detrimental to Chrysler and other
carmakers – but otherwise stay neutral as to the form the reorganization
The relatively smooth process of recent large Chapter 11
bankruptcies, such as that of mall owner General Growth Properties, shows that
far from being “disorderly,” judicial bankruptcies are far more orderly than
taxpayer bailouts in unwinding and reorganizing insolvent companies. The
judicial bankruptcy process should be given a chance to work in the case of
Chrysler and any other companies that follow suit.
See also, my article in the American Spectator  comparing the bankruptcy of
General Growth Properties to that of the automakers.