GM is Sold for Too Much??

The bankruptcy judge, Judge Robert E. Gerber, approved the sale of GM on Sunday.  Under Section 363, GM sold its "healthy" assets to a new company owned 60 percent by the federal government and 17 percent owned by  a health care trust for the benefit of UAW workers.  Our government has put $50 billion into the company and billions more into suppliers, lenders and GM's former credit company GMAC.  It took the Judge 95 pages to justify short-circuiting a Chapter 11 process that usually involves the votes of creditor and claimaint committees on a specific plan.  Section 363, usually reserved for selling unwanted assets or closed plants, has become a loophole for reorganizaing an entire company outside the full Chapter 11 process.  The dangers of a 363 sale are obvious.  The company can be sold for too little (benefitting the new owners and hurting the residual creditors) or, in a bizarre twist, for too much (hurting the new owners and benefiting the residual creditors).  The The former situation is more likely:  The company could have been sold for a higher price (to other purchases or the same pruchaser) given an open bidding process and more time or the company was worth more sold in smaller pieces, liquidated, over time. The Judge is  the gatekeeper.  In the later situation in which the company is sold for too much is rare and bizarre: Why would new owners agree to pay to much???  Yet we may have such a case bizarre case in both the Chrysler and GM bankruptcies.  The company is sold for too much because the government is the buyer and it is spending taxpayer dollars, not based on finanical returns but based on political returns.  In other words, Section 363 is particularly useful if the government wants to buy a company fast in bankrutpcy to satisfy political constituencies.  Here is Judge is not a gatekeeper; he could care less.  A good deal is a good deal for the creditors. The only complaint that some creditors can have is that they were not included in that part of the purchasing group that received a bargain equity price thus recieving a larger piece of the largess of the government payout than the creditors in the residual shell corporation did (ie the UAW gets more of a windfall than they do).  The Judge's answer was, "Shut up  and be happy, you are still better off than you would have been had the government not stepped in with cash."   Coupled with the price is the government's power to force the quick sale; the government threatened to pull the plug on any additional funds necessary to keep the company operating if the Judge did not act within 40 days of the bankruptcy filing.  "Sell to us for a premium price within 40 days or we walk."   The Judge had no rational choice but to approve.  His decision should have taken a paragraph to write, not 95 pages.       

The policy question is whether we want the federal government to do this, use Section 363 to nationalize private companies in bankrutpcy.