Chrysler is entering bankruptcy, which—along with its wayward big brother GM—it should have done a long time and billions of wasted dollars ago. That is the good news. The bad news, and a troubling glimpse into how the President sees capitalists, is that he has decided that those investors who didn’t like the deal he and his car czar were offering are nothing more than speculators. Here is how Politico.com described it:

The White House had offered Chrysler’s lenders a deal to take roughly 33 cents on a dollar to write off the company’s debt. Most took the deal, but a few holdouts said it wasn’t good enough — and their refusal to go along pushed the company into bankruptcy. 

Now Obama is calling them out. “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,” Obama said. 

Some of the hedge funds, Obama said, demanded returns twice as high as other lenders were getting.

“I don't stand with them,” Obama said. “I stand with Chrysler's employees and their families and communities. I stand with Chrysler's management, its dealers and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars.” 

First, let’s get one thing clear: All investors are, to one degree or another, speculators. They are taking a gamble that when they invest in a business, their investment will pay off. Does that mean they are nothing more than gamblers? No, certainly not. Unlike the multitudes who flock to Las Vegas or Atlantic City or some nearby “riverboat” each year, these investors make informed and educated decisions and do everything they can to take chance out of the equation. They do, however, share one trait with the poker and roulette set: They are in it to make money.

In this, capitalists tend to take on a rather Darwinian cast. They are not in it for the “social good” and they are not in it for the communities. They are in it for the money. So, unlike the banks—which are already under intense federal pressure and scrutiny—these investors made the rational business decision that they would get a much better return on their investment if Chrysler entered bankruptcy, sold off some assets and reorganized. That is important: reorganized, not liquidated. It should be noted that thanks to Obama, those employees and their families will soon own a lot of the post bankruptcy Chrysler, so I am not exactly sure how much they are suffering. Maybe they are crying on the inside. As for the millions of Americans who own and want to buy Chrysler cars, the government is backing the warranties and most of the dealerships will remain open. Only the production will stop until the new owners and the bankruptcy court gets their respective acts together. Again, I am not sure what the trouble is there, either.

President Obama has to learn that not everyone is enchanted with his ideas and not everyone is going to take his deals. That is because—love them or hate them—these investors and hedge fund managers actually know more about business and finance than anyone in the White House. In particular, they know what they have invested and they know what they need to get out of that investment in order to remain healthy themselves. They also know that if getting that return on investment means driving the company in question into bankruptcy, which is a perfectly viable alternative to allowing it to slowly bleed to death.

That is capitalism at work and there is nothing in the world wrong with it.

What is wrong is a government that seems obsessed with the notion that certain companies are “too big to fail.” Wasn’t Chrysler too big to fail? Wasn’t that the rationale behind all that bailout money, that bankruptcy would be a terrible thing? Of course, that was when Obama was in it for the unions. If he saved the company, he saved union contracts that a bankruptcy judge would certainly have set aside. After working hard to sell the idea that an automaker going into bankruptcy would be an economic calamity of biblical proportions—real wrath of God stuff—now the President is telling us that, "No one should be confused about what a bankruptcy process means. This is not a sign of weakness but rather one more step on a clearly charted path to Chrysler's revival."

You could see the flip-flop coming: At one point Obama used the threat of a “managed” bankruptcy (which this would be) to try to force the automakers to restructure their businesses in a manner that he approved of within a certain time frame. They couldn’t do it. Then he has these negotiations, where he tries to impose his vision of how the company should be and number of the players balk, preferring to take their chances in bankruptcy court, which is no longer a calamity, but is now little more than a “step on a clearly charted path” to revival. It will be interesting to see if a federal bankruptcy judge goes along with it as well.

The President has just discovered that the market will work with or without his approval: After all the money spent to keep Chrysler out of bankruptcy court, that is where it is going. In spite of his recent words on the topic, not to mention the conditions he’s placed on the process to protect his friends in the UAW, this bankruptcy is a spectacular failure for the President, who could not push his agenda through the business reality of Chrysler’s situation and the needs of these investors. So in response, he seems to be gearing up for a turf war with the very people who derailed his plans: Wall Street investors.

The Bottom Line

It will be big government against free market capitalism—against people the president derisively calls “speculators”—for control. If the White House wins, how will this change the way businesses of all sizes find investment capital? Investors of all stripes are already leery due to the recession; anything the President does to assert control as a result of, or in retaliation for, what happened with Chrysler would only make things worse.

Watch what happens in the coming weeks. It should be interesting.