Wednesday, December 10, 2008

Prepackaged bankruptcy would be better for Detroit, but...

Although it does look like a short-term "bridge" bailout for Detroit will in fact occur, it is true that a prepackaged bankruptcy would be a better deal, for the simple reason that it would allow Detroit to blow away debt and other obligations which are dragging down the companies. This would let Detroit move forward in a lean and more agile way. Unfortunately, arranging the details for a prepackaged bankruptcy of the complexity of GM and Chrysler is unlikely in the near-term.

Personally, I still believe that Detroit can in fact squeak by without either government aid or bankruptcy, but some amount of "backstop" aid will help to beat back the bears and hedge funds on Wall Street who amazingly think that it is actually okay to manipulate the markets and drive companies into the ground.

The good news is that radical restructuring is now virtually assured. I had been expecting it to take a couple more years, but it looks like the short-term bridge bailout will actually require that the companies come up with a plan to restructure sufficiently by March so that a "car czar" can determine whether they are viable enough to get further bailout aid.

-- Jack Krupansky

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