bailout

Call it annoying. Call it frustrating. Just call it a mess. The current negotiations, if that’s not too dignified a term, over the future of Chrysler is an apt example of just how tangled all the various threads of our economy-in-crisis are.

Chrysler, as you know, is on its last legs. It will assuredly not survive in its current form. The administration is forcing it into a shotgun marriage with Fiat as quickly as it can, with an April 30th deadline looming on the horizon.

Amongst all the details still to be worked out is the extent of the loss that Chrysler’s bondholders and other creditors will have to take in order for the economics of the deal to work out satisfactorily.

Well, today negotiations broke down because a group of those creditors rejected the government’s position and proposed a totally different one of their own. The government had wanted the creditors to take a loss of about $5.8 billion leaving them with a $1.1 billion stake in the reconstructed balance sheet – they have a $6.9 billion stake right now. Instead of this the creditors want to keep a $4.5 billion stake and take an additional $1 billion in preferred stock. In other words they don’t want to take that much of a loss at all.

I realize this is all the normal pushing and shoving associated with a forced reorganization such as Chrysler’s, but it was the names of the creditors arguing with the administration that caught my eye.

JP Morgan Chase; Citicorp; Goldman Sachs; and Morgan Stanley.

Now we see the entanglement.

On the one hand the government is furiously trying to keep banks like Citicorp afloat by handing over billions of taxpayer money. And on the other Citicorp is obstructing the reorganization and bailout of Chrysler.

Of course we want Citi et al to defend their positions strongly since that will mean they won’t take such a large loss and will thus protect their capital … so they can start lending. But naturally we also want them to take a big loss so that Chrysler can re-emerge as a viable company and we can preserve those auto industry jobs.

And, just to confuse things more: presumably if they take a big loss we will be called in to provide them with more capital to offset that loss … that they took to protect jobs and to limit taxpayer losses on Chrysler.

At the end of the day it seems the taxpayers will have to subsidize Chrysler, whose creditors will have to take some form of a loss, which will be paid for by the taxpayers.

Good luck figuring it all out.

Hopefully someone at the Treasury Department has a plan.

And equally hopefully, somewhere within that tangled web some jobs will be preserved and maybe even a bank bolstered.

Maybe.