It should be obvious to most observers that, recent allegations of strong-arm tactics in negotiations with Chrysler creditors notwithstanding, given the current situation the White House shouldn't need to resort to anything so openly thuggish as naked threats issued by the likes of Steven Rattner. Assuming for a moment, and for the purposes of conversation, that the allegations are substantially true (and I believe they are), the fact that a bit of Chicago-style thuggery seems to have been required- and seems to have failed- says a lot about this White House. It also says quite a bit about the wild overconfidence intrinsic in the administration and how entirely unused to being denied their will are the senior members thereof. A more deft executive need not have pushed so hard, or rattled the saber of class warfare so loudly, but then a more deft executive would not have expected so much.

Four banks JP Morgan Chase, Citigroup, Morgan Stanley and Goldman Sachs (all TARP beholden) hold somewhere around 70% of Chrysler's debt. JP Morgan, with something like $2.5 billion of it, was playing the lead in government negotiations and seemed to be playing it pretty tough. But as the big banks started to cave something interesting happened, according to a hedge fund manager and participant in the meetings I spoke with:

The criteria for who sat down at the Chrysler negotiating table were never set out as "TARP recipients here, non-TARP out of the room"- but the distinction was crystal clear to the people outside of the room who were blamed for the collapse in negotiations and the TARP recipients in the room who wouldn't dare cross the government when there are pay limitations literally on the negotiating table in the next room at the Treasury.

Smaller dissenters don't just have the government to worry about, and the government has taken pains to make the fact that it is happy to be dangerous to the interests of holdouts when it wants to be, but many holdouts are also are likely to have important relationships with one or more of JP Morgan Chase, Citigroup, Morgan Stanley and Goldman Sachs. Now you have to risk offending not just the government, but its wards as well.

Anyone claiming that the 363 sale proposal that emerged out of this process meets the requirements of that section has an agenda that does not include compliance with the bankruptcy code. Specifically:

The trustee may sell property under subsection (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate, only if—

1. applicable nonbankruptcy law permits sale of such property free and clear of such interest;
2. such entity consents;
3. such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property;
4. such interest is in bona fide dispute; or
5. such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.

(Emphasis added).1

I would be rather surprised to find that the requirement of 363(f)(3) is met here, or that the process followed in the interim comes anywhere close to meeting the requirements of Chapter 11 generally. But this sort of thing hasn't stopped, for example, Tim Geithner from claiming that the Treasury is legally entitled to set conditions for TARP repayment (it isn't), or for Obama to claim that the government had the power to claw back bonuses (it didn't). There is, in fact, quite a lot of firing before sighting in going on in this administration.

There are three things that are scarier than the actual resort to common thuggery. The ease with which it comes to this administration. The ubiquitous and rank ineptitude that makes a resort to thuggery necessary in the first place- and promises it will become a common tactic in the days to come. And the forgiveness the population regularly affords the administration after one or another of these episodes is, yet again, made public.

The tantrums that follow missed targets sketch an interesting family portrait of a class of politically spoiled children, think Hillary Clinton meets Paris Hilton- totally devoid of real executive experience but somehow still used to getting their way no matter what some silly law book says. I believe I'll take my chances with the "speculators" over these alternatives any day, particularly when the spoiled children have the 82nd Airborne Division in their toy chest.

1. 1. 11 USC 3 § 363(f)

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