Washington —The Bush administration considered requiring bankruptcy filings by General Motors Corp and Chrysler LLC months before they actually did so, a new document shows.
The New Yorker magazine on Monday posted a 57-page economic memo written by Lawrence Summers to President-elect Barack Obama in December 2008 that disclosed new details of the Bush administration's thinking about how to save the two struggling automakers.
The Dec. 15, 2008, memo outlined options the Bush administration was considering, including two that would have resulted in a faster bankruptcy filing for GM and Chrysler as early as January 2009. Chrysler eventually filed for bankruptcy in April 2009, while GM filed for bankruptcy in June 2009.
One approach was to provide funds in the form of debtor-in-possession (DIP) financing as part of court restructurings, rather than as a bailout with no immediate strings attached using the $700 billion Troubled Asset Relief Program.
"Under this approach, the administration would announce a willingness to extend TARP funds as a DIP loan once a company has filed for bankruptcy. Given GM and Chrysler's current cash positions, it is overwhelmingly likely that one or both would be forced to file before or immediately after the New Year," Summers wrote.
The Bush administration "currently estimates that the companies would require $100 billion of DIP financing. We believe that number may be inflated," Summers wrote.
On Dec. 19, 2008, President George W. Bush agreed to lend GM and Chrysler $17.4 billion, without requiring the companies to file for bankruptcy. He advanced $25 billion to the companies and their auto finance arms before leaving office a month later.
Summers served as co-chairman of Obama's auto task force and was director of the National Economic Council.
Summers warned against an immediate GM or Chrysler bankruptcy in early January 2009.
"If forced to file immediately, GM and Chrysler would fall into the first category, resulting in potentially severe disruption to the entire industry. With a couple of weeks planning, they could achieve an orderly filing," Summers wrote.
The Obama administration loaned GM $6 billion in April and May 2009, before it forced GM into bankruptcy. In bankruptcy, the Obama administration gave GM $30 billion in debtor in possession financing.
The Obama administration has completely exited Chrysler and has recovered $11.2 billion of its $12.5 billion bailout, while it still holds a 26.5 percent stake in GM as part of its $49.5 billion bailout.
At current stock prices, the Treasury would lose more than $12 billion on its bailout.
The Treasury Department estimates it will lose $23.6 billion on its $85 billion auto industry bailout.
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