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"I don't stand with those who held out when everyone else is making sacrifices," Mr. Obama nonetheless declared, blaming what he called "a small group of speculators" for the car maker's Chapter 11 filing. To hear the President tell it, you'd never know that Chrysler had borrowed, and since frittered away, the $6.9 billion that it owes to those "speculators." The Administration had only offered $2 billion to those secured creditors as part of its proposed restructuring for the car maker. So it's hardly a surprise that many lenders would rather take their chances in bankruptcy court.

Chrysler's finances can now be restructured in a less political atmosphere in the New York courtroom of federal Judge Arthur Gonzalez. This is how the Chrysler collapse should have been worked out last December, when the auto maker first went looking for taxpayer cash. Treasury could have saved the $4 billion it lent the car maker at that time, to which we can now add another $8 billion that Mr. Obama promised yesterday to keep the company going.

The Administration is hoping the judge will do little more than rubber stamp the restructuring deal it has worked out among the Treasury, the United Auto Workers and the Italian car maker, Fiat. It could play out that way, if Judge Gonzalez determines that $2 billion is the highest and best value that can be obtained for Chrysler's assets.

But that is now the legal test that the Administration's plan must satisfy, not the political standard of whether the creditors "worked constructively" in a spirit of "shared sacrifice" that Mr. Obama set out yesterday. And let's hope Judge Gonzalez ignores Michigan Representative John Dingell, who yesterday called the investors "vultures" and warned darkly that they "will now be dealt with accordingly in court." Someone should tell Mr. Dingell that the debt-holders aren't on trial in a bankruptcy proceeding.

It's especially rich for Mr. Obama to blast the creditors for seeking "an unjustified taxpayer-funded bailout" while offering the UAW a 55% majority stake in Chrysler. He also praised the large banks that hold most of the Chrysler debt and supported the government plan. But of course J.P. Morgan and the other big banks are also recipients of billions of dollars in taxpayer cash and have a strong interest in playing nice with their creditor, Uncle Sam Obama.

The Chrysler creditors at least represent teachers, pensioners and retirees, among others. The Administration is advancing its own social and political agenda through its ever-deeper entanglement with Chrysler and General Motors. That explains why the government is giving 55% of the new Chrysler to the UAW's retiree-benefit trust, a junior creditor, while those ahead of the trust in line get a mere 30 cents on the dollar.

A senior Treasury official described the decision to give majority ownership to the union's health-care trust as simple pragmatism -- that keeping the union happy is essential to the long-term health of the car maker. A skeptic might respond that this is precisely the kind of political-business calculation that helped to drive Detroit's auto makers into this ditch.

Meanwhile, over at Detroit's other ward of the state, General Motors, the Treasury was dismissive of a counter-offer that GM's private creditors made Thursday. Earlier this week, the Administration (via GM) made an offer to give those creditors about five cents on the dollar while taking 50% of the equity for the government. And it justified that offer by saying taxpayers needed to be protected for the $16.2 billion Treasury has already lent to GM.

So GM's creditors offered to take 50% ownership themselves in exchange for canceling their $27 billion in debt. The UAW would still get about 40% of GM, but the new private owners would control the firm. And the Treasury's own loans would be kept whole, helping to ensure that taxpayers get all their money back.

"The company can't sustain all that debt," a senior Treasury official told us, explaining why the government's share of the debt load needs to be reduced. That could well be true, but if the Treasury knew that $16.2 billion was too much debt for GM to carry, it had no business lending the company that much in the first place.

The GM drama will play out in the coming weeks before an end-of-May deadline, and it may also end up in bankruptcy court if Treasury doesn't make a better offer to creditors. That would be painful, but an independent judiciary is also the place where the rule of law and sound financial judgment can best prevail. That will ultimately serve taxpayers best as well.


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