A Tortured Rationale

The President suggests Cheney is right.

Explaining his decision to put a stop to the CIA’s practice of “enhanced interrogations” of terrorist detainees, President Obama told a press conference Wednesday that “I am absolutely convinced it was the right thing to do — not because there might not have been information that was yielded by these various detainees that were subjected to this treatment, but because we could have gotten this information in other ways.” Such as?

In his memoir, former CIA Director George Tenet recalls that “In his initial interrogation by CIA officers, [9/11 mastermind Khalid Sheikh Mohammed] was defiant. ‘I’ll talk to you guys,’ he said, ‘after I get to New York and see my lawyer.'” Mr. Obama must be under the impression that the CIA used waterboarding as a first resort.

The President also cited Winston Churchill, who, he said, refused to torture German detainees even when “London was being bombed to smithereens.” But Churchill did authorize the firebombing of Hamburg and other cities, the human toll of which numbered in the hundreds of thousands. Does Mr. Obama consider that a more ethical approach to our enemies?

Still, the President’s reference to Britain was unwittingly instructive, since the British treatment of IRA detainees during the “troubles” of Northern Ireland was one of the benchmarks the Bush Administration used in distinguishing between harsh treatment and actual torture. A 1978 ruling by the European Court of Human Rights found that “stress positions,” “hooding,” and sleep deprivation did not, in fact, constitute torture.

President Obama was then asked whether he had read the memos recently mentioned by former Vice President Dick Cheney as evidence of the effectiveness of enhanced interrogations. Yes he had, he said, immediately adding that “they haven’t been officially declassified and released, and so I don’t want to go into the details of them.” The fact that he didn’t rebut Mr. Cheney’s point about what the interrogations yielded suggests that the memos would prove the former Veep’s point. Mr. Obama should release all the memos and let Americans judge for themselves — though perhaps that’s precisely why he won’t release them.

The President wrapped up by saying “there have been no circumstances during the course of this first hundred days in which I have seen information that would make me second-guess the decision that I’ve made.” We sure hope he’ll be able to say the same about the next four years.


Full article: http://online.wsj.com/article/SB124113499670175211.html

Abu Ghraib Guards Say Memos Show They Were Scapegoats


Charles Graner and Lynndie England posed a few years ago at Abu Ghraib prison in Iraq. Both were sentenced to prison for their role in detainee abuse.

When the photos of detainee abuse at the Abu Ghraib prison in Iraq surfaced in 2004, U.S. officials portrayed Army Private Charles A. Graner Jr. as the ringleader of a few low-ranking “bad apples” who illegally put naked Iraqi detainees in painful positions, shackled them to cell doors with women’s underwear on their heads and menaced them with military dogs.

Now, the recent release of Justice Department memos authorizing the use of harsh interrogation techniques has given Graner and other soldiers new reason to argue that they were made scapegoats for policies approved at high levels. They also contend that the government’s refusal to acknowledge those polices when Graner and others were tried undermined their legal defenses.

Graner remains locked up at Fort Leavenworth, Kan., about halfway through a 10-year prison sentence for detainee abuse, assault and dereliction of duty. His lawyer said this week that he is drafting appeals arguments centered largely on the revelations in the memos and a newly released congressional investigation into the interrogation practices.

President George W. Bush “was so disappointed in what happened, yet the whole time he knew what was going on,” said Graner, answering questions through his wife, Megan, who also worked at Abu Ghraib. He is the only one of about a dozen soldiers tried for abuses at the prison who remains incarcerated.

Graner and other defendants — including Lynndie R. England, who was photographed holding a naked detainee by a leash — were blocked by military judges from calling senior U.S. officials to the stand at their trials in 2004 and 2005. The government would not acknowledge any policy or procedure that could have led to what the world saw in the photographs.

Some of what the guards at Abu Ghraib did, such as throwing hooded detainees into walls, echoes tactics authorized in the Justice Department memos, such as “walling,” in which interrogators were allowed to push detainees in CIA custody into a flexible wall designed to make a loud noise.

But the Abu Ghraib photographs also depicted some actions, such as punching or stomping, that bear no relation to the techniques described in the memos, as well as others that were improvised by guards, such as forcing detainees to masturbate or to form human pyramids while naked.

Charles Gittins, a Virginia lawyer who represents Graner, said he has been fuming since reading the memos. He said he has long believed that there was no way Graner and the other Army reservists invented techniques such as stress positions, leashing and the use of dogs, and he says the documents confirmed his suspicions.

“Once the pictures came out, the senior officials involved in the decision-making, they knew. They knew they had to have a cover story,” Gittins said. ” ‘It was the bad apples led by Charles Graner.’ ”

Gittins said he hopes to convince the Court of Appeals for the Armed Forces that top officials improperly influenced the court and kept evidence from the defense.

According to the memos and congressional documents, U.S. officials reverse-engineered techniques from U.S. survival training courses designed to teach troops how to endure capture and interrogation. Justice and Defense department officials approved the use of dogs, nudity, stress positions, sleep deprivation and other techniques.

Those tactics, according to the documents, were put into use at the facility at Guantanamo Bay, Cuba, and in the CIA’s secret prisons, and eventually were adopted in Afghanistan and Iraq after then-Defense Secretary Donald H. Rumsfeld’s approval was forwarded from officials at Guantanamo to Capt. Carolyn Wood, a military intelligence officer. She told investigators that she then sought approvals in Afghanistan for the tactics and brought them with her to Iraq and Abu Ghraib. Senior officers in Iraq also approved the methods there.

Though considered illegal under the Uniform Code of Military Justice, the tactics were put into official use in late 2003. They have since been banned in a new Army Field Manual on interrogations.

Janis L. Karpinski, a former Army Reserve general in charge of prisons in Iraq who was demoted and left the Army as a result of the Abu Ghraib scandal, said she was stunned silent by the administration memos.

“I could have cried,” Karpinski said. “I always had a sense of betrayal because it’s just disgusting. I’m sure those photos scared the hell out of them,” she added, referring to Bush administration officials. “Here, in living color, you have a photographic rendition of your memos. Is that what they wanted it to look like? Guess what, that is what it looks like.”

It is unclear whether low-level soldiers who were convicted of crimes can retrospectively use the Justice Department memos to their advantage. Gary Myers, a New Hampshire lawyer who represented Ivan L. “Chip” Frederick on abuse charges, said that unless the soldiers knew about the policies specifically, the memos might be irrelevant in a courtroom. Still, Myers said he is going to use the recent developments to try to get Frederick’s dishonorable discharge removed from his record.

“If what was suggested as license was itself illegal, relying on illegal documents or opinions is not in my mind a defense,” Myers said. “What we know now is we had at the time a rogue government that created an environment where this sort of conduct was condoned, if not encouraged. But it doesn’t do anything for you when you hold it up against the maltreatment statute of the [Uniform Code of Military Justice], which is law, passed by the Congress.”


Full article and photo: http://www.washingtonpost.com/wp-dyn/content/article/2009/04/30/AR2009043004077.html?hpid=topnews

Engines of Main Street

You Can’t Help Detroit if You Hurt the Dealers


A customer at a Chrysler Jeep dealership in Doylestown, Pa.

My family has been in the automobile business since 1921, when my grandfather opened a Ford dealership in Hope, Ark. My father sold cars, I sold cars, and my sons are in the business. We’ve been fortunate to build our enterprise at home and overseas even as that original dealership in Hope is still going strong.

Not surprisingly, I am closely following the Obama administration’s plans for restructuring and renewing our nation’s auto industry. I have proudly served presidents of both parties, including as White House chief of staff in the Clinton administration, and I think my family’s history gives me a somewhat different perspective from that of most Washington observers.

The auto industry needs a viable plan for long-term, durable success as the administration strives to revitalize our nation’s economy. The president’s task force has rightly focused on resetting the balance sheets of General Motors and Chrysler, and working with labor, management and retirees to make these iconic American companies more competitive globally. The task force aims to retool GM and Chrysler as quickly and cleanly as possible; there are no painless solutions, but it is trying hard to be fair.

I commend the progress being made. Success is possible if all stakeholders work together. I take issue with those who say bankruptcy may be necessary as the best option among bad choices. Bankruptcy should be our last resort, not our first.

The relationships between automobile manufacturers, suppliers and franchised dealers are more complex and interconnected than those of any other U.S. industry. No one knows what will happen if a shock like bankruptcy is imposed. Just the declaration of bankruptcy by a manufacturer could further damage the already dysfunctional credit markets. It could also wipe out the dealerships at the heart of many local communities and economies.

Remember, automotive dealers are automakers’ only customers. Dealers buy cars and trucks from manufacturers; consumers buy from dealers, who spend billions annually advertising the vehicles they sell, plus more than $300 million to train sales personnel — all at no cost to the automakers.

Auto dealers understand that the U.S. franchise network must be streamlined, consistent with the geographic characteristics of today’s marketplace. Yet without a strategic plan to ensure that the remaining dealerships can thrive, a rapid “rationalization” could wipe out dealers and further weaken manufacturers, with negative repercussions throughout the economy, especially in the Midwest.

Dealers rely on the credit markets to finance 95 percent of consumer auto sales. America’s dealers also need credit, known as floorplan vehicle inventory credit, to buy vehicles from manufacturers. Yet since the financial crisis began, dealers — especially those with domestic brands — have had a much harder time securing this financing.

Pushing GM or Chrysler into bankruptcy would worsen the situation. Lenders look to the manufacturers to buy back inventory if a dealer goes out of business. What banker would lend to a GM or Chrysler dealer if the manufacturer had declared bankruptcy? And if dealers no longer order vehicles, the result would be terrible for manufacturers. Dealers are already holding off on purchases for fear that customers won’t buy autos made by a bankrupt automaker.

A better approach would be for the task force to be as evenhanded and supportive of auto dealers as it has been of other stakeholders, such as by guaranteeing the $20 billion in inventory financing loans that dealers — and by extension, auto manufacturers — depend on to keep vehicles on sales floors. It would be bad, but manageable, if dealerships were forced to close. But if dealers were also stuck with millions of dollars’ worth of car inventory they couldn’t move, it could break them and cause further instability throughout the economy.

Making it impossible for automotive dealers to stay in business would have implications nationwide. Auto sales account for nearly 20 percent of all domestic retail sales. The franchised automobile dealer is one of America’s strongest engines of economic development. U.S. auto dealers have invested more than $200 billion in their businesses. They employ and train more than a million people in communities nationwide and pay billions in annual state and local taxes.

The vast majority of auto dealers are cornerstones of their communities — men and women who sponsor Little League teams, who lead and donate to civic organizations, who support the places they live and the people they employ. Who will fill the void if these hardworking, dedicated, locally focused entrepreneurs are obliged to shut down?

We need a careful approach to streamlining the dealer network, not abrupt, forced closures. Strong dealer networks are not a burden to the auto industry; they are its lifeline. Indeed, dealers and their employees are part of the solid foundation that President Obama spoke of recently — the rock upon which all Americans must work together to rebuild our economic future. An improvident resolution could jeopardize all that.

The writer is chairman of the RLJ-McLarty-Landers Automotive Group and president of the Washington-based international advisory firm McLarty Associates.


Full article: http://www.washingtonpost.com/wp-dyn/content/article/2009/04/29/AR2009042904017.html

Photo: http://www.nytimes.com/2009/04/25/your-money/25money.html?scp=3&sq=Chrysler%20dealer&st=cse

The Surgeon and the Torture Memos


Having trained medical students, I’ve come to recognize a familiar pattern of behavior when young doctors hold a scalpel for the very first time. Most people — actually anyone who has experienced even a paper cut — are hesitant to slice through flesh. Aspiring surgeons are no different. Their first efforts are tentative and almost always memorable.

“Really, me?” I asked, the first time I was handed the knife. I cupped my hand as if to accept a communion wafer but was taken aback by the scalpel’s weight, a sure sign in my mind of the instrument’s gravitas. Like doctors-in-training before and after me, I wrapped my fingers around the handle in a kind of death grip and winced as the belly of the blade touched the patient’s body. And as much as I’d like not to admit it, my hand shook, so great was my fear of pushing too hard and slicing too deep.

In the end, my first attempt at a surgical incision left barely a line on the patient’s skin. The mark was so tentative and so puny that even my cat wouldn’t have deigned to claim the scratch as her own.

These days I have to try hard to remember the surge of adrenaline and the extent of my fear that very first time. After years of training, cutting began to feel second nature to me, the scalpel merely an extension of my fingers. So when a friend earlier this week told me that she could never imagine cutting into another person and wondered how young doctors learn to do so, I had to stop and think before I could respond to her.

“Habituation,” I finally said. “You get used it.”

That response, and the idea of becoming habituated, has been haunting me ever since. Is it possible for all of us to become habituated to the horrific?

Two weeks ago, the Justice Department declassified four memos regarding the interrogation techniques approved by the Bush Administration and used by the C.I.A. with senior level Al Qaeda members. The details of these documents made my skin crawl; there are cool descriptions of dousing detainees with water at 41 degrees, forced nudity, slamming detainees into walls and waterboarding.

But my mind kept wandering back to one thing: the seemingly ordinary professionals who were responsible. These were lawyers, psychologists, physicians, judges, and military and C.I.A. personnel, not just a rogue group of marginalized military grunts. In fact some of these individuals seemed hardly different from, well, me. A few were even the kind of hometown denizens I might admire.

Take, for example, Jay Bybee, former assistant attorney general and now a judge on the United States Court of Appeals. In addition to his busy job, Mr. Bybee is a father to four children and has managed to serve as both a cubmaster for the Boy Scouts and an assistant coach for youth baseball and basketball. I am lucky if I can pack lunch for my two kids and get to work on time.

The reason I keep thinking about my response to my friend’s question is that I know it is possible for even sensitive souls to become habituated to a range of grisly tasks. I am someone who has learned — become habituated — to performing a whole host of unusual and, depending on your point-of-view, potentially gruesome undertakings: poking sharp objects into other people, removing organs and extremities, and switching parts between the dead and the living. And as I implied to my friend, even cutting the flesh of another human being can become just another part of your day job.

What renders a surgeon’s work different and humane, however, is not just the individual doctor’s desire to do the right thing by his or her patients (though I seriously wonder if Jay Bybee thought he was doing the right thing by his fellow Americans when he listed the 10 acceptable interrogation techniques, waterboarding among them). It is the surgeon’s commitment to and steadfast compliance with his profession’s code of ethical conduct. It is a constant awareness of the extraordinary trust that patients and the public place in their physicians, a trust that entails transparency and accountability in the patient-doctor relationship.

As I see it, the problem now with these documents is not that our trust in those accountable has been shattered. It is that the rest of us are beginning to show signs of becoming habituated to such transgressions.

Americans have been aware of brutal interrogation techniques for several years now: the first pictures from Abu Ghraib were shown five years ago this week, and the declassified documents in fact hold little new information. And while our current president speaks of moving forward, and not looking back at this chapter of our history, can we afford to turn away?

In doing so, we accept how we have become habituated. We risk seeing the brutality not as an atrocity but as part of who we are. We become the surgeon who might have shook when first taking the knife in hand but who now dares to cut with eyes closed.


Full article and photo: http://www.nytimes.com/2009/04/30/health/30chen.html?hpw

Maine Senate Backs Same-Sex Marriage

Maine could be the next New England state to embrace same-sex marriage after the State Senate voted Thursday to legalize the practice.

The Democratic-controlled Senate voted 21 to 14 for a bill that would allow gay couples to marry starting later this year. The measure appears to have even broader support in the House of Representatives, which will take it up on Tuesday.

Gov. John Baldacci, a Democrat, used to oppose same-sex marriage. But since the bill was introduced in January, he has said he is keeping an open mind.

“He said at the beginning of this process that he was going to listen to debate on the question,” said David Farmer, Mr. Baldacci’s spokesman, “and make his final decision once the bill reaches his desk.”

The vote was the latest victory for gay rights groups in New England, which are campaigning to get same-sex marriage approved in all six of the region’s states by 2012. Massachusetts and Connecticut already allow same-sex marriage, and the Vermont Legislature approved it last month.

The New Hampshire legislature is likely to send a same-sex marriage bill to Gov. John Lynch in the coming weeks, though Mr. Lynch, a Democrat and an opponent, might veto it. A bill has been introduced in the Rhode Island legislature but is unlikely to be acted on this year.

If the Maine Legislature approves same-sex marriage, opponents will try to collect enough signatures to suspend the law until a public referendum can be held — probably in June 2010 — asking voters if they want to overturn it. But Mary Bonauto, the lawyer who argued the case that led to the legalization of same-sex marriage in Massachusetts, said gay rights groups would wage an exhaustive campaign against a so-called people’s veto.

“I think we have better than a fighting chance on that,” Ms. Bonauto said.


Full article: http://www.nytimes.com/2009/05/01/us/01maine.html?hpw

With New Software, Iranians and Others Outwit Net Censors

The Iranian government, more than almost any other, censors what citizens can read online, using elaborate technology to block millions of Web sites offering news, commentary, videos, music and, until recently, Facebook and YouTube. Search for “women” in Persian and you’re told, “Dear Subscriber, access to this site is not possible.”

Last July, on popular sites that offer free downloads of various software, an escape hatch appeared. The computer program allowed Iranian Internet users to evade government censorship.

College students discovered the key first, then spread it through e-mail messages and file-sharing. By late autumn more than 400,000 Iranians were surfing the uncensored Web.

The software was created not by Iranians, but by Chinese computer experts volunteering for the Falun Gong, a spiritual movement that has beem suppressed by the Chinese government since 1999. They maintain a series of computers in data centers around the world to route Web users’ requests around censors’ firewalls.

The Internet is no longer just an essential channel for commerce, entertainment and information. It has also become a stage for state control — and rebellion against it. Computers are becoming more crucial in global conflicts, not only in spying and military action, but also in determining what information reaches people around the globe.

More than 20 countries now use increasingly sophisticated blocking and filtering systems for Internet content, according to Reporters Without Borders, a Paris-based group that encourages freedom of the press.

Although the most aggressive filtering systems have been erected by authoritarian governments like those in Iran, China, Pakistan, Saudi Arabia and Syria, some Western democracies are also beginning to filter some content, including child pornography and other sexually oriented material.

In response, a disparate alliance of political and religious activists, civil libertarians, Internet entrepreneurs, diplomats and even military officers and intelligence agents are now challenging growing Internet censorship.

The creators of the software seized upon by Iranians are members of the Global Internet Freedom Consortium, based largely in the United States and closely affiliated with Falun Gong. The consortium is one of many small groups developing systems to make it possible for anyone to reach the open Internet. It is the modern equivalent of efforts by organizations like the Voice of America to reach the citizens of closed countries.

Separately, the Tor Project, a nonprofit group of anticensorship activists, freely offers software that can be used to send messages secretly or to reach blocked Web sites. Its software, first developed at the United States Naval Research Laboratories, is now used by more than 300,000 people globally, from the police to criminals, as well as diplomats and spies.

Political scientists at the University of Toronto have built yet another system, called Psiphon, that allows anyone to evade national Internet firewalls using only a Web browser. Sensing a business opportunity, they have created a company to profit by making it possible for media companies to deliver digital content to Web users behind national firewalls.

The danger in this quiet electronic war is driven home by a stark warning on the group’s Web site: “Bypassing censorship may violate law. Serious thought should be given to the risks involved and potential consequences.”

In this cat-and-mouse game, the cat is fighting back. The Chinese system, which opponents call the Great Firewall of China, is built in part with Western technologies. A study published in February by Rebecca MacKinnon, who teaches journalism at the University of Hong Kong, determined that much blog censorship is performed not by the government but by private Internet service providers, including companies like Yahoo China, Microsoft and MySpace. One-third to more than half of all postings made to three Chinese Internet service providers were not published or were censored, she reported.

When the Falun Gong tried to support its service with advertising several years ago, American companies backed out under pressure from the Chinese government, members said.

In addition, the Chinese government now employs more than 40,000 people as censors at dozens of regional centers, and hundreds of thousands of students are paid to flood the Internet with government messages and crowd out dissenters.

This is not to say that China blocks access to most Internet sites; most of the material on the global Internet is available to Chinese without censorship. The government’s censors mostly censor groups deemed to be state enemies, like the Falun Gong, making it harder for them to reach potential members.

Blocking such groups has become more insidious as Internet filtering technology has grown more sophisticated. As with George Orwell’s “Newspeak,” the language in “1984” that got smaller each year, governments can block particular words or phrases without users realizing their Internet searches are being censored.

Those who back the ragtag opponents of censorship criticize the government-run systems as the digital equivalent of the Berlin Wall.

They also see the anticensorship efforts as a powerful political lever. “What is our leverage toward a country like Iran? Very little,” said Michael Horowitz, a fellow at the Hudson Institute who advises the Global Internet Freedom Consortium. “Suppose we have the capacity to make it possible for the president of the United States at will to communicate with hundreds of thousands of Iranians at no risk or limited risk? It just changes the world.”

The United States government and the Voice of America have financed some circumvention technology efforts. But until now the Falun Gong has devoted the most resources, experts said, erecting a system that allows the largest number of Internet users open, uncensored access.

Each week, Chinese Internet users receive 10 million e-mail messages and 70 million instant messages from the consortium. But unlike spam that takes you to Nigerian banking scams or offers deals on drugs like Viagra, these messages offer software to bypass the elaborate government system that blocks access to the Web sites of opposition groups like the Falun Gong.

Shiyu Zhou, a computer scientist, is a founder of the Falun Gong’s consortium. His cyber-war with China began in Tiananmen Square in 1989. A college student and the son of a former general in the intelligence section of the People’s Liberation Army, he said he first understood the power of government-controlled media when overnight the nation’s student protesters were transformed from heroes to killers.

“I was so disappointed,” he said. “People believed the government, they didn’t believe us.”

He decided to leave China and study computer science in graduate school in the United States. In the late 1990s he turned to the study of Falun Gong and then joined with a small group of technically sophisticated members of the spiritual group intent on transmitting millions of e-mail messages to Chinese.

Both he and Peter Yuan Li, another early consortium volunteer, had attended Tsinghua University — China’s Massachusetts Institute of Technology. Mr. Li, the son of farmers, also came to the United States to study computer science, then joined Bell Laboratories before becoming a full-time volunteer.

The risks of building circumvention tools became clear in April 2006 when, Mr. Li later told law enforcement officials, four men invaded his home in suburban Atlanta, covered his head, beat him, searched his files and stole two laptop computers. The F.B.I. has made no arrests in the case and declined to comment. But Mr. Li thinks China sent the invaders.

Early on, the group of dissidents here had some financial backing from the International Broadcasting Bureau of the Voice of America for sending e-mail messages, but the group insists that most of its effort has been based on volunteer labor and contributions.

The consortium’s circumvention system works this way: Government censorship systems like the Great Firewall can block access to certain Internet Protocol addresses. The equivalent of phone numbers, these addresses are quartets of numbers like that identify a Web site, in this case, google.com. By clicking on a link provided in the consortium’s e-mail message, someone in China or Iran trying to reach a forbidden Web site can download software that connects to a computer abroad that then redirects the request to the site’s forbidden address.

The technique works like a basketball bank shot — with the remote computer as the backboard and the desired Web site as the basket. But government systems hunt for and then shut off such alternative routes using a variety of increasingly sophisticated techniques. So the software keeps changing the Internet address of the remote computer — more than once a second. By the time the censors identify an address, the system has already changed it.

China acknowledges that it monitors content on the Internet, but claims to have an agenda much like that of any other country: policing for harmful material, pornography, treasonous propaganda, criminal activity, fraud. The government says Falun Gong is a dangerous cult that has ruined the lives of thousands of people.

Hoping to step up its circumvention efforts, the Falun Gong last year organized extensive lobbying in Congress, which approved $15 million for circumvention services.

But the money was awarded not to the Falun Gong consortium but to Internews, an international organization that supports local media groups.

This year, a broader coalition is organizing to push for more Congressional financing of anti-filtering efforts. Negotiations are under way to bring together dissidents of Vietnam, Iran, the Uighur minority of China, Tibet, Myanmar, Cuba, Cambodia, Laos, as well as the Falun Gong, to lobby Congress for the financing.

Mr. Horowitz argues that $25 million could expand peak usage to as many as 45 million daily Internet users, allowing the systems to reach as many as 10 percent of the Web users in both China and Iran.

Mr. Zhou says his group’s financing is money well spent. “The entire battle over the Internet has boiled down to a battle over resources,” he said. “For every dollar we spend, China has to spend a hundred, maybe hundreds of dollars.”

As for the Falun Gong software, it proved a little too popular among Iranians. By the end of last year the consortium’s computers were overwhelmed. On Jan. 1, the consortium had to do some blocking of its own: It shut down the service for all countries except China.


Slipping Through the Net

Computers, indispensable in peace, are becoming ever more important in political conflicts and open warfare. This is the second article in a New York Times series on the growing use of computer power as a weapon.

Full article: http://www.nytimes.com/2009/05/01/technology/01filter.html?hpw

The Chrysler Bankruptcy

When President Obama outlined his plan to restructure Chrysler under bankruptcy-court protection, we shared his view that keeping a company “afloat on an endless supply of tax dollars” was no solution to the cratering of even iconic American companies.

We also admired his supreme confidence that the Chrysler bankruptcy will be a quick, official and controlled process. We just wished we were as confident as the president.

If the process is prolonged, the costs and complexity would likely ensure that the company would never emerge from bankruptcy proceedings, with dire implications for employment and economic recovery.

For the administration, the Chrysler bankruptcy filing became inevitable when a holdout group of the carmaker’s lenders rejected the government’s final offer to settle their debts, for about 33 cents on the dollar. The United Auto Workers union had already agreed to concessions to help keep the company afloat, as had large banks who hold most all of the company’s debt. Chrysler and the Italian carmaker, Fiat, had also agreed to a partnership that would enable Chrysler to tap into Fiat’s technology, designs and management.

By pushing the matter into bankruptcy court, the administration is assuming that the judge will also reject the holdouts’ demands. That would allow for a quick restructuring while keeping intact the previous agreements with the union, the big bank lenders and Fiat. In short order — 30 to 60 days by the administration’s estimate — Chrysler would emerge from bankruptcy with all the pieces in place to become in Mr. Obama’s words, “stronger” and “more competitive.”

There are reasons to hope it will work out that way. In particular, a judge may be unwilling to favor the dissident bondholders when other significant stakeholders have been able to come to agreement outside of court.

But short “prepackaged” bankruptcies generally succeed when all of the difficult issues are resolved ahead of time, requiring only a judge’s official approval. The judge in the Chrysler case may not see the remaining issues in the same cut-and-dried way that the administration does. Quickie bankruptcies like the one the administration envisions for Chrysler have also never been attempted for a company as big and multifaceted as a carmaker. If the Chrysler bankruptcy case does not proceed apace, the administration will need a new plan — and fast — to avoid pouring taxpayer money into a restructuring that may never yield the desired result.

If the bankruptcy succeeds, there is no guarantee that the Chrysler and Fiat partnership will succeed. A recent report by Fortune magazine detailed the likelihood of culture clash in a Chrysler-Fiat combination, given the companies’ complexity and different national identities. Remember the disastrous Daimler-Chrysler marriage?

It will also take some time, probably at least a couple of years, before the Chrysler and Fiat partnership yields any new cars. In the meantime, Chrysler’s own brands like Dodge and Jeep have been badly damaged by the company’s failing fortunes.

The Chrysler bankruptcy filing is a bold move for the administration, a refusal to blink when confronted with what it perceived as unreasonable demands. The object of the game — a strong and competitive Chrysler — is far from achieved.

Editorial, New York Times


Full article: http://www.nytimes.com/2009/05/01/opinion/01fri1.html/