On the auto industry Chapter 11 idea, one aspect I did not consider, but that needs consideration, is the impact on CDS protection of GM, Ford and Chrysler debt. If the restructuring is done in such as way that most of their debt is still good and gets paid off, it may not be terrible, but the bankruptcy filing will undoubtedly trigger the CDSs and lead to them being settled. Even if they only pay out a few cents on the dollar, keep in mind that there are trillions of dollars worth of CDSs out there. I have no idea how much of that is on the (not so) big three, but would guess it is substantial. You do not actually have to have any exposure to the company to buy the CDS, so the amount can easily exceed their respective debt. Letting them simply fail would be much worse on the CDSs as then the payout will be significantly higher, but the knock on CDS effect of Chapter 11 versus a cash infusion needs to be considered.
For another take on this, and why Chapter 11 will not work, you can read the article below. I, however, think that if the government is back-stopping the process, Chapter 11 will not significantly impair sales beyond their already dismal status. Best to get it done now when there are no sales to be had anyway, so that they can reemerge bankruptcy by the time the economy rebounds.
http://www.zacks.com/stock/news/16024/What+to+Do+About+Detroit?
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