DEALTALK-Whirlwind auto deals raise conflict questions

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By Jui Chakravorty Das and Kevin Krolicki

NEW YORK, July 9 (Reuters) - The Obama administration's dash through the bankruptcies for General Motors Corp GMGMQ.PK and Chrysler is nearly done, but the debate about the government's conflicted role in reshaping the American auto industry has only just begun.

While the administration has been praised for its rapid reorganizations of GM and Chrysler, it has also been blamed for placing itself and its officials in situations with conflicts of interest.

The U.S. government stepped in to save GM by becoming its largest creditor and majority investor, positions that inevitably clashed with its role as regulator and referee of its pending deals with outside investors.

"Whenever you have a group that is regulator, owner and funder, there is a massive conflict of interest," said David Logan, associate dean at the University of Southern California's Marshall School of Business.

One of the most controversial moves came when the White House-appointed task force pushed Chrysler's secured lenders to accept 29 cents on the dollar owed for $6.9 billion in loans.

It did so by negotiating first with a group of banks led by JPMorgan Chase & Co (JPM.N). Banks in the group had received federal bailout money under the Troubled Asset Relief Program, prompting criticism the U.S. Treasury Department had wielded undue leverage to get the banks to accept a low payout for the debt.

That drew a complaint from hedge funds that also held Chrysler secured debt.