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Hard Line Against GM and Chrysler Puts Bailout Firms on Notice

The administration’s display of authority sent U.S. stocks tumbling and raised questions about whether the government would take similar steps against top executives at U.S. banks that are also receiving government bailout funds.

The administration told GM and Chrysler they had failed to come up with restructuring plans that justify the billions of dollars in additional taxpayer funds they are requesting. GM was ordered to devise a new plan, while Chrysler was instructed to reach a deal with Fiat in which the Italian carmaker would take a stake in Chrysler.

The government is currently stress-testing the nation’s 20 largest banks and “maybe three fail the test,” said an executive at a large bank receiving government funds. Obama “could remove the heads of those banks,” the executive said.

“He had to do something dramatic; he had plenty of cause on this one,” the executive said, adding that the outlook for GM was extremely grim.