It's good to be the king -- until you start tripping over your own robe.
So King Barack the Mild is finding as he tries to dictate the terms of what amounts to an out-of-court bankruptcy for Chrysler and GM. He wants Chrysler's secured lenders to give up their right to nearly full recovery in a bankruptcy in return for 15 cents on the dollar. They'd be crazy to do so, of course, except that these banks also happen to be beholden to the administration for TARP money.
Wasn't TARP supposed to be about restoring a healthy banking system? Isn't that a tad inconsistent with banks just voluntarily relinquishing valuable claims on borrowers? Don't ask.
Kingly prerogative also conflicts with kingly prerogative in the case of GM's unsecured creditors, who are the sticking point in agreeing to a turnaround plan by the drop-dead date of June 1. His retainer, Steven Rattner, has delivered word that the king's pleasure is that these unsecured creditors give up 100% of their claims in return for GM stock.
It may also be the king's pleasure, he advised, to convert at some point the government's own $13 billion in bailout loans into GM stock.
There's just one problem: Why on earth would GM's creditors -- who include not just bondholders but the UAW's health-care trust -- want any part of this deal?
Boy it seems like it would have been a better idea to have GM go through the normal bankruptcy proceeding billions of taxpayer dollars ago.
The US government..... making bad policy from horrible ideas since 1787.