Friday, November 21, 2008

OBAMA CONSIDERING AUTO MAKERS' BANKRUPTCY

Bloomberg - President-Elect Barack Obama's transition team is exploring a swift, prepackaged bankruptcy for automakers as a possible solution to the industry's financial crisis, according to a person familiar with the matter. Obama's team has already contacted at least one bankruptcy- law firm . . .

In a prepackaged bankruptcy, an automaker would go into court with financing in hand after reaching agreement with lenders, workers and suppliers on what each would give up and on the business plan to be followed. The process might take six to 12 months, compared with two to five years if the automakers followed an ordinary Chapter 11 proceeding and worked out agreements under a judge's supervision. . . .

House Speaker Nancy Pelosi said yesterday that Democrats reject bankruptcy as an option. . .

Democratic leaders have demanded that the recently approved $700 billion bank-rescue fund be tapped for the auto aid. Their plan stalled with opposition from Republicans and President George W. Bush's administration. . .

"There are other alternatives" to a bridge loan for automakers, Senate Financial Services Chairman Christopher Dodd, a Connecticut Democrat, told reporters yesterday. "The prepackaged bankruptcy is not an idea without constituency here."

The domino effect could be "scary," said bankruptcy lawyer Martin Bienenstock of Dewey & LeBoeuf who teaches corporate reorganization at Harvard Law School and the University of Michigan Law School.

Bankruptcy would trigger failures of auto parts suppliers and dealerships, he said. Securitized auto loans and their insurers would fail, creating ripples through the credit markets, he said.

"The difficulty is assuring the American people that the bailout money won't simply defer the company's failure for six to 12 months," Bienenstock said.

1 Comments:

At November 21, 2008 5:33 PM, Anonymous no more three hundred million dollar bonuses for Iococa said...

These are the guys who stonewalled alternate technology, deferred production of smaller more fuel efficieny vehicles and sued California to block cleaner emission standards. They are incapable of change. In three months they'll be back at the gov't. teat for more. Time to weaan the corporados.

 

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