Not to create revisionist history, but GM did declare bankruptcy and their Plan of Reorganization was quickly approved by the bankruptcy judge and they came out, freed from a huge amount of their obligations.

What you describe is how bankruptcy is supposed to work. If you recall, it didn't in the case of GM. All the key creditors met together, in small groups, with the company and finally with representatives of the Treasury Department. Remember that committee that was formed with several bankruptcy experts to try to negotiate a plan? They got absolutely nowhere.

After several months of negotiations, there was no progress on a Plan of Reorganization. The secured lenders would only go so far, as would the union. It was a giant game of "chicken" during which time GM slipped damgerously close to insolvency. Had they declared bankruptcy then, it's a virtual certainty that they wouldn't exist today. The creditors simply were not going to give in from their "last and best" positions.

That's when the government stepped in and basically strong-armed the deal that got done. I don't like a lot of the details--the secured lenders got hosed, the UAW got a giant gift, and the taxpayes got screwed. But I have to say that one can disagree with many of the elements of the plan, but without government intervention, the bankruptcy process simply was not going to work. For saving GM, I must give the government credit, even though I strongly dislike many of the elements of the bankruptcy re-organization that was finally negotiated.