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Why Is Bankruptcy So Expensive

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by Felix Salmon
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Feb 20 2009 12:03pm EDT

Why Is Bankruptcy So Expensive?

Matt Miller asks a really good question:

Can anyone explain why GM and Chrysler say they'll need $100 billion and $25 billion in financing respectively if they have to file bankruptcy, but far far less if they stay out under the latest hat-in-hand plans they've brought to DC? The enormous difference in magnitudes feels like it's part of Detroit's rhetorical blackmail to get the fix it wants (i.e. not bankruptcy), but maybe I'm missing something.

If Matt's missing it, I'm missing it too. Given that bankruptcy is likely to be more successful at bailing in the companies' creditors than the current round of negotiations, how could it end up substantially more expensive for the goverment?

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