Chrysler Bankruptcy or just another bailout.

When we begin to talk about systemic risk, and being not only to big to fail but too interconnected to fail, we barely seem to scratch the surface.
During President Obama's press conference today on the bankruptcy of Chrysler we heard the familiar talking points of shared sacrifice. But under the veil, the real sacrifice is from the tax payer.
Chrysler bond holders would not except the deal the government was pushing an getting less equity in the company than the union. Why would they. Large bond holders purchase insurance on their holdings using a complex derivative instrument called a credit default swap. If the company cannot repay the debt the credit default swap will make bond holders whole. So with a hedge why would you agree to smaller equity stake when you can go to bankruptcy court and get better terms.
Here in lies the rub. One of the largest issuers of credit default swaps was AIG also J.P. Morgan (TARP recipient) is a major player. The US government is on the hook for over $150 billion of them. Many of them that cover both Chrysler and GM. So essentially the government is on the hook for guaranteeing the Credit default swaps and negotiating an equity stake in the new emerged Chrysler with the creditors. And who are the creditors? Many of them are the usual suspects, large money center and regional banks that have already taken TARP funds. Don't expect things to get better anytime soon. GM still has to negotiate with it's creditors.
When institutions get to big or interconnected to fail all that is left to fail is the government and the tax payers are left with the bill.