The Sham This Time

clipped from www.thetruthaboutcars.com Though much of the criticism of the Obama administration’s plans for Chrysler and GM has centered around government excesses, threats to the capital markets and the rule of law, it’s interesting that Prof. Skeel worries more for what it may portend in terms of bankruptcies in general. The Chrysler sale looks like the latest of a series of government interventions that have run roughshod over ordinary legal rules, and it appears to be paving the way for a similar strategy in a General Motors bankruptcy. Much of what the government is doing allowing Chrysler to file for bankruptcy, promising to guarantee its warranty obligations is admirable. But the use of a sham sale of the sort the New Dealers thought they had forever eliminated will cause mischief in future bankruptcy cases. Not only may the government go back to this well, but in the future private parties will conclude that sham sales are a legitimate tool in their own cases.