Chrysler is heading to bankruptcy, and its workers to an even more uncertain future, because a group of hedge funds, most of which bought the Chrysler debt on the cheap because of the growing concern about bankruptcy, refused to take a haircut from the face value of the debt down to what it is probably really worth. Remember that many bought the debt dirt cheap to start with, so even with the offered haircut they may have been making a good return, just not the rich return they hope to get if they can talk the bankruptcy judge into giving their debt a better deal than the government thought they should get.
Obama had this to say in the announcement of the bankruptcy:
[A] group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout.... They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them. Mufson & Tse, In Chrysler Saga, hedge Funds Cast as Prime Villain, Wash. Post, May 1, 2009.
Wall Street came to the defense of its own. "It sounds like people are being bullied right now" , said a partner at a law firm that represents hedge funds. I hope that the bankruptcy process does not let the hedge funds achieve the "double the return" game they are hoping for--write all the debt down to the value it would have without any government bailout or guarantees, and pay them that.