Nov. 21 (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.
A representative of Obama's team has already contacted at least one bankruptcy-law firm to say that Daniel Tarullo, a professor at Georgetown University's law school who heads Obama's economic policy working group, would call to discuss the workings of a so-called prepack, according to this person.
U.S. lawmakers yesterday delayed until December a vote on whether to give General Motors Corp., Ford Motor Co. and Chrysler LLC a $25 billion bailout. GM today said it would idle production at four plants an extra week and return some corporate jets to conserve cash.
Automakers could use a judge-supervised bankruptcy to reduce debt and reject expensive contracts. "It creates the environment to deal with GM's problems but limits government financial commitment,'' said bankruptcy lawyer Mark Bane of Ropes & Gray in New York.
Bankruptcy is just one option being examined. Obama told CBS News's "60 Minutes'' on Nov. 16 that government aid to automakers might come in the form of a "bridge loan,'' advanced if the industry could draw up plan to make itself "sustainable.'' The president-elect earlier urged Congress to approve as much as $50 billion to save automakers, using the model of Chrysler's bailout in 1979.
Oh my! They're going to have to "return some corporate jets to conserve cash"! What unabashed arrogance, particularly given that they actually had the temerity to fly to Washington in those very jets to fly to Washington to beg for financial help .
Actually, a provisional "bridge loan" based upon an actual plan provided by the industry is more palatable than bailing them out; the Chrysler loan in 1979 actually did work - for a while.
I'm still adopting a "wait and see"attitude because even though the Chrysler plan worked nearly 30 years ago, Chrysler is trouble again and again they are looking to the government for help; this time, they're joined by GM and Ford.
Propping up a corpse doesn't make it any less dead and this this whole thing has a very peculiar smell. It seems that everyone feels we should "do something" when maybe "doing nothing" may be the best long-term solution - for everyone.