This didn’t get much coverage from the mainstream media today, so I’ll run with the Reuters report from last night.  After hemming and hawing over an additional request for massive taxpayer funds from GM, Barack Obama has decided that a structured bankruptcy is the best course of action after all:

President Barack Obama has determined that a prepackaged bankruptcy is the best way for General Motors Corp. to restructure and become a competitive automaker, Bloomberg reported, quoting people familiar with the matter.

Obama also is prepared to let Chrysler LLC go bankrupt and be sold off piecemeal if the third-largest U.S. automaker can’t form an alliance with Fiat SpA, Bloomberg said, citing members of Congress who have been briefed on the subject and two other people familiar with the administration’s deliberations.

Obama on Monday gave GM 60 days to come up with deeper cost and debt reductions than the biggest U.S. automaker had proposed in a viability plan submitted last month.

But a “quick and surgical” bankruptcy the Obama administration described as an option appears to be inevitable, the people familiar with the matter said in the Bloomberg report.

Yesterday, new GM CEO Fritz Henderson said the same thing, which helped Wall Street to a significant down day on the DJIA.  It appears that the $14 billion we taxpayers invested in GM went for naught.

Politically, though, this won’t hurt Obama.  The decision to bail out Detroit came from the George “I had to kill free market principles to save the free market” Bush in November.  GM and Chrysler both took huge sums of money from the Treasury during Bush’s administration.  If those funds get lost in the bankruptcy that should have taken place instead of the bailout, then we will have to blame that on Bush, not Obama.

The question will be what the Obama administration does to “structure” the bankruptcy, rather than just have GM go through the normal court process.  Clearly, the automakers will have to restructure pension, health benefits, and compensation agreements with labor.  If Obama allows that to happen, however, he will enrage the union bosses who backed him for the presidency, especially if it looks as though Card Check will not make it out of Congress.  If Obama doesn’t allow for that restructuring, though, the bankruptcy will wind up doing nothing but wasting time and closing off the last opportunity for GM to get itself off the mat.

Given the direction of this administration so far in this crisis, I’m going to bet they take the politically prudent path, rather than the financially sound path.

Tags: Barack Obama