If Chrysler LLC lands in bankruptcy court as early as next week, everyone will blame the bankers -- whether they deserve it or not.
I say this not because it would be entirely fair, either, unless "fiduciary responsibility" and the duty of lenders to determine whether a Chrysler allied with Italy's Fiat SpA would have a shot at survival now are quaint notions that no longer apply. In normal times, lenders are supposed to decide where credit-worthiness ends and recklessness begins.
But these are not normal times and bankers, as one of them quipped privately to The Detroit News, "are the most hated people in America."
The Great Recession reordering the Detroit auto industry is using politics and unprecedented government intervention to fix long-simmering business problems. That becomes more clear each day, as politicians, the Obama Treasury Department and the automakers themselves carefully paint the bankers as the proximate cause of Detroit's imminent collapse.
Treasury has said so. Michigan's governor has said so. Members of Congress have said so. General Motors Corp. said so Thursday in a news release announcing massive production cuts when it, inexplicably, revived the prospect of "an uncontrolled shutdown with severe negative consequences" if bankrupt Delphi Corp. and its "lenders" don't reach a "successful resolution."
The implication is clear: If Detroit's downward spiral accelerates into an outright collapse, the agents of its destruction will be the bankers -- many of whom stayed afloat in the dark days of last fall thanks to infusions of taxpayer dollars.
"The lenders are the issue right now" at Chrysler, Rep. Gary Peters, D-Bloomfield Township, and a member of the House Financial Services Committee, told me Thursday. "We're down to less than a week with bankruptcy looming and this is when you get movement from the parties. The banks are negotiating hard."
Four major banks hold most of Chrysler's nearly $7 billion in secured debt, which the government wants lenders to write down substantially in exchange for the Auburn Hills-based automaker receiving a $6 billion infusion from the feds. The same is true at GM, but bondholders so far are rebuffing deep concessions and looking to a potential bankruptcy to recover more.
Do the lenders, many of them smaller hedge funds, have a fair point? Or doesn't it much matter in this post-meltdown world, where atonement for the sins of Wall Street comes in altruism essentially demanded by the times, a shaky economy and the command-and-control of the Obama Treasury Department?
Peters, Chrysler's first-term congressman, rejects complaints from bankers saying they could recover far more of their outstanding debt in a liquidation of Chrysler than they would get from Treasury-brokered offers. And, pointing to a recent debt downgrade by Moody's Investor Service, he says shareholders would not have legitimate grounds to sue for breach of fiduciary responsibility.
A Chapter 11 bankruptcy filing remains the hammer intended to bring lenders, the United Auto Workers and management into agreement because the process is protracted, punishing and, he says, unpredictable. Yes, it is.
It's also ugly for what it could do to companies, communities, retirees and organized labor, which is escaping the opprobrium heaped on the lenders this week even though presidentially mandated concessions from the UAW remain outstanding.
This is no accident, folks. Whatever your personal prejudices, UAW President Ron Gettelfinger is a canny deal-maker whose sense for political brinksmanship and public relations is rivaled by few, particularly among the bankers and auto executives in this drama.
He has played the politics of Detroit's impending disaster beautifully, preparing to take more concessions just when doing so will a) put maximum pressure on lenders and b) cast the union as part of the solution, not the problem, because c) Team Obama is determined to protect his people as best it can.
The bankers? Let's just say they're not as adept as Gettelfinger. It's telling that Washington and Detroit amped up the pressure on their lenders the same day that the president met with the heads of credit card companies -- mostly to brow-beat them over outrageous fees and interest-rate hikes even as short- and long-term rates hover at historic lows.
Like it or not, bankers earned the popular outrage. But capitalizing on it cuts both ways -- like when you need their help to keep Detroit out of the ditch.