I'm not even sure why we are trying to avoid bankruptcy anyway - If GM went into Chapter 11, wouldn't the common and preferred shareholders get wiped out, and most of the old debt holders become the new shareholders? GM would have a much easier time getting back into shape if less of their cash flow was not paid out to debt holders. I don't know what that means for credit default swaps on that debt, we would have to see how the cds contracts are written - and I know that some of the debt holders (supplier companies) can't afford to trade their debt for stock, but most would be able to.
Would bankruptcy really cause job loss? Massive job loss in the auto industry is a given, I think it could be done in a more gradual fashion if most of the debt was converted to stock.
I think that Pelosi is just flushing our tax money down the drain.