Obama And The Speculators

The bargaining process between the White House and the holdout Chrysler creditors looks a lot like a game of chicken. NPR White House correspondent Scott Horsley looks at what the negotiations tell us about Obama's economic vision.

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And from Cleveland to New York, where a lawyer from Chrysler told a packed courtroom yesterday that she's confident the carmaker can survive this week's bankruptcy filing. Chrysler is hoping to emerge as a leaner, more competitive company in as little as 30 days. And one reason for hope is the Obama administration's willingness to help finalize Chrysler's merger with the Italian carmaker Fiat.

NPR's Scott Horsley reports.

SCOTT HORSLEY: President Obama heaped praise this week on those who made concessions in bargaining to help pave the way for the Chrysler/Fiat partnership, and he blasted those who would not play ball, preventing an out-of-court settlement and forcing Chrysler into bankruptcy.

President BARACK OBAMA: In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices and they would have to make none.

HORSLEY: For a president who rarely demonizes anyone, it was tough talk, but calculated tough talk.

Mr. DAVID SKEEL (University of Pennsylvania): There's some echoes in that of the kind of language that Franklin Roosevelt used in the 1930s.

HORSLEY: David Skeel is an expert on bankruptcy law at the University of Pennsylvania. He's been watching over the last month as the president's task force tried to strike a deal with Chrysler's stakeholders, including creditors who are owed nearly $7 billion.

The task force offered two billion, which works out to about 29 cents on the dollar. By Wednesday, most of the creditors had agreed, but there were some holdouts, so the government sweetened its offer to about 33 cents, still not high enough to bring everybody onboard.

Mr. SKEEL: The government and the lenders were playing a fairly lengthy game of chicken and the lenders expected that the government would blink.

HORSLEY: If so, they were wrong. Now that Chrysler's in bankruptcy, the expected payout is back down to 29 cents on the dollars, substantially less than creditors could have gotten with the out-of-court settlement.

Meanwhile, the government's plan gives a majority stake in Chrysler to the Autoworkers Union, which would ordinarily be at the back of the line. Skeel says that's another beef for the unhappy creditors.

Mr. SKEEL: The argument they're making is the government is asking us to take a huge haircut, but we have these lower priority creditors who are going to walk away with substantial value, and that's just not consistent with the ordinary priority rules.

HORSLEY: But it is consistent with the vision that candidate Obama outlined during the presidential campaign. Fifteen months ago, at a General Motors plant in Jamesville, Wisconsin, Mr. Obama called for a renewed social compact that rewards work as much as wealth.

President OBAMA: The promise of Jamesville has been the promise of America, that our prosperity can and must be the tide that lifts every boat, that we rise and fall as one nation.

HORSLEY: And when the U.S. tilts away from that, Mr. Obama said, government has a responsibility to restore the balance. That's the basis for his progressive tax proposals, and Skeel thinks it also informs his creative handling of the Chrysler case.

Mr. SKEEL: This isn't just about economics. It's clearly about politics and social engineering as well. And the underlying message of all of this is that the end justifies the means.

HORSLEY: A bankruptcy judge could still block the Chrysler deal, but with most of the creditors onboard, that seems unlikely. Mr. Obama calls Chapter 11 one step on the path to the automakers' revival.

President OBAMA: If we can embrace the idea that we're all in it together, from the union hall to the boardroom to the halls of Congress, then we will succeed not only with Chrysler; we will not only see our American auto industry rise again, but we will rebuild our entire economy.

HORSLEY: Mr. Obama says he wants the government out of the car business as quickly as possible. But it's clear when it comes to using the government's power to reshape the economy, he's just getting started.

Scott Horsley, NPR News, Washington.

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