More Talk Of An “Orderly” Bankruptcy At GM (GM)

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The Bush White House let it leak out yesterday that it was looking at Chapter 11 as a possible way to deal with GM (GM).

The news is an acknowledgment that suppliers, creditors, and the UAW are not likely to agree to negotiate their rights away once they see GM get a government check. Why give up anything when there may be more money to spread around in the near future?

The Administration took another swing that the Chapter 11 issue. According to the AP, Henry Paulson asked "If the right outcome is reorganization or bankruptcy, then isn’t it better to get there through an orderly process?"

Since Paulson runs the financial end of the federal government without any input from Bush and is likely to be the "car czar" until a permanent one is appointed, his opinion should carry more weight than anyone else’s.

Paulson is a shrewd negotiator. He did not get to be CEO of Goldman Sachs (GS) by being a buffoon. Around the corner, the Treasury Secretary can see that the parties who leech off the car companies are not going to go away quietly. They are going to have to have their greed beaten out of them, which is something a bankruptcy judge can do with ease.

Bush will give GM and Chrysler money to last until March. That is just long enough for the auto executives to hang themselves by coming up with inadequate restructuring plans that are not likely to take into account the fact that the domestic vehicle market will be worse in 2009. Over the next three months, government accountants can dig though the borrowing structure of the companies, their supplier bills, and all the UAW contracts. They can determine how low the cost structure of GM can go.

And, then when spring comes, they can turn that information over to a bankruptcy judge.

Douglas A. McIntyre