DrMyers’s Blog

April 30, 2009

Day 101: Bankrupt or A New Lease on Life?

 

 

chrysler_logo1

Yesterday news stations around the country dug through their stock piles, and played everything from Obama’s inauguration speech, to seeing the Commander in Chief running alongside the new family addition.  Conservative stations rallied around many missteps made by the young administration, while more liberal stations cracked open the Champaign, and heralded the President as the “New Deal” of the 21st Century.  Report cards were given in an interactive report between news pundits and watchers.  Finally, the President gave a speech, being very honest about his opinion of the work accomplished by his administration, but far from content or satisfied.  The milestone of 100 days seemed to scoot by, only with the shadow of the flu lingering steadily over head…that was until today!

Day 101 marked a loss of profits for Exxon Mobil, which sent economic advisers into an analytical frenzy, while Wall Street took comfort in a lower jobless claim.  Then, shareholders at Chrysler were offered a deal that they had to refuse.

Shareholders were offered over a 60% loss, which the minority overwhelmingly weighed their distaste, causing Chrysler to file for bankruptcy.  For months, Chrysler maneuvered around bankruptcy, grasping with the fact that as of November 2008, their sales had fallen over 34%.  Speaking with its competitors, Chrysler was included in the “Big 3” auto bailout, where American Taxpayer Dollars were pumped into the auto makers, with hopes that it would stimulate faith in their product, and faith in their leadership.  

The American Government stepped in even more, and from the White House, newly elected President Barack Obama, obligated the Government to stand behind the warranties given by Chrysler.  A very bold move, but a move that gave the appearance that the recent actions could work, as the long going negotiations with Fiat continued, and a deal seemed to be eminent.  With the President issuing his statement today, how does this bode for GM, Ford and the trust within the American people?  When first mentioned, approval ratings for the Auto Bailout under Former President Bush, waned at best, while Americans who had been forced into bankruptcy within their own lives, were forced to watch the government step in, and as of today, not save Chrysler from going down the same route.  Why did Chrysler not want bankruptcy, and how will this affect our already shaky economy, and our pocket books?

Maybe we should ask, “What is Bankruptcy?”  Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay its creditors.  Plain and Simple!  You owe it, you can’t pay it, you now declare to the government that you are unable to meet your obligation.  One would ask, why on earth Chrysler would, or any other of the auto makers, be hesitant to simply tell the truth.  As the “Big Three” sat on Capitol Hill, they asked for tax payer dollars because of their inability to pay their debts, while the tax payers were struggling to pay their own debts.  The only reason, one could imagine that a company would avoid bankruptcy could be found in the following statement.  In Chapter 7, a debtor surrenders his or her non-exempt property to a bankruptcy trustee who then liquidates the property and distributes the proceeds to the debtor’s unsecured creditors. In exchange, the debtor is entitled to a discharge of some debt; however, the debtor will not be granted a discharge if he or she is guilty of certain types of inappropriate behavior(e.g. concealing records relating to financial condition).  In Chapter 11, unless appointed for cause, the debtor acts as trustee of the business.   This means, if within the bankruptcy investigation, Chrysler if found to have varying types of inappropriate behavior, the Federal Government would have been enablers, by using American Taxpayer Dollars, to keep the improprieties of auto leaders covered, by keeping their business running without an outside examination of their practices and books.

One may ask, “Who else will admit their problems were too great for the American Taxpayer to save”, and one may wonder if conservatives were right, if the American Government put taxpayers at risk by interfering within the free market economy.  What is evident is that this decision will likely set the tone for similar discussions with bondholders of General Motors Corp — which is now on the clock to restructure its operations by the end of May, which taxpayers also have a vested interest in.

 

President Barack Obama

President Barack Obama

 

Today, President Obama ensured that he is confident that his auto taskforce will be able to work with GM in restructuring their operations and making it a more viable company.   The President also reassured America that he agreed with Chrysler’s decision to file for bankruptcy, and that it would reemerge stronger because of it.  

It is unmistakable that the number 100 can mark monumental success in grade and age, but when dealing with the tax payer dollars and a shaky free market society, Barack Obama just took a course in “Challenges in Negations 101” taught by the American People.  Perhaps Alexander Hamilton said it best:

In framing a government which is to be administered by men over men the great difficulty lies in this: You must first enable the government to control the governed, and in the next place, oblige it to control itself. 
~Alexander Hamilton


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