Press corps need some schooling to what bankruptcy is.

Written by Biloxi

News is still buzzing around about how President Obama rejected GM request for more bailout money showed now ex-CEO of GM Rick Wagoner to the door this past weekend and replace with a new GM CEO that is given 60 days to give Obama and the auto task force with a plan. Now there is buzz in the media the questioning of the government interfering in a private industry. Yesterday, in the LA Times, there was a "news analysis" piece with the headline "Obama takes step over the line that separates government from private industry." Here's a snippet:

President Obama's plan to save failing U.S. automakers -- and make them the instruments for creating a cleaner, greener transportation system -- marked a major step across the line that traditionally separates government from private industry.

I find it puzzling that LA Times would assume that the government is stepping their boundaries with a private industry when in fact, the private industry [meaning GM] itself is borrowing bailout money from the government. The government is the bank and the private industry is the lender. As representing a bank, the government has to right to ask for a plan and has a right to accept or deny money to lend.

Anonymous Liberal add this important reminder:

In December, before Obama took office, GM and Chrysler were given federal emergency loans on the condition that they come up with plans to radically restructure themselves in a way that was satisfactory to the government. Obama didn't make that call. Bush did. All Obama is doing is following through on that arrangement. Like the Bush administration, he's telling the automakers on what conditions they will continue to receive federal money. He only has three options: 1) cut off the automakers, 2) give them more money with no strings attached, or 3) give them more money with conditions. He has chosen option 3 (with very strict conditions), which is only reasonable option under the circumstances.

And let's keep in mind that President Obama said that the government has no intention of taking over GM and Chrysler. But the media tends to compare the situation of GM and Chrysler to the government takeover of AIG. AIG was more of a different situation where AIG is not a bank but a very large insurance company in the U.S. and overseas but has various different functions in AIG such insurance, financial services, mutual funds, and so on.

In the case of GM and Chrysler, both automakers amy face bankruptcy. The media needs more schooling on what bankruptcy is. When a company files bankruptcy, a company would file in the federal bankruptcy court for protection under either Chapter 7 or Chapter 11.

In Chapter 7 the business ceases operations, a trustee liquates all of its assets, and then distributes the proceeds to its creditors. In Chapter 11, in most instances, the company in debt remains in control of its business operations as a company in possession, and may be subject to the oversight and jurisdiction of the court. If GM and Chrysler file bankruptcy, they would file under Chapter 11. Both would simply be smaller companies but their debt would be wiped away which will protect the workers, creditors, and suppliers in the end [and thanks to Obama's protection supplier program].

The issue should be the separation of private industry and government. The issue is weaning all of the companies that took bailout money which was supposed be used as loan to get financially healthy to lend to the public, ability for the companies to pay back the bailout money, and go back to business as usual.