Capital markets players have been grumbling that Chrysler’s creditors are being badly treated and that their contract is being ignored. Warren Buffett said last week that there’ll be “a whole lot of consequences” if the government’s Chrysler plan keeps on its current trajectory. If priorities are tossed aside, “that’s going to disrupt lending practices in the future,” he said. “If we want to encourage lending in this country,” Buffett added, “we don’t want to say to somebody who lends and gets a secured position that the secured position doesn’t mean anything.”

This is not a good economic time to disrupt lending to troubled companies. That’s just the kind of lending that the Treasury is trying to unglue with TARP and the plans to sign-up private investors to buy the toxic mortgage assets off bank balance sheets.

But is this gelling capital market opinion on the Chrysler plan right or wrong? Maybe there really isn’t any more value in the government’s last offer than belongs to the Chrysler creditors. If there isn’t, Buffett and lenders are getting themselves unnecessarily worked up.

The trouble is that with the bankruptcy set-up approved this week, no one can tell. There’s no real market check on the Treasury plan, just a pseudo-market test that won’t fool any market player. This pseudo-test, approved by the court last week, led Chrysler’s dissenting creditors to give up.

In the test approved, outsiders can bid the deal away from Fiat and the U.S.,But bidders can bid on only one deal — the same UAW deal that the government negotiated before the bankruptcy. The court agreed to Chrysler’s and the Treasury’s proposal that no one be allowed to bid on the assets alone. But that’s what Buffett and the capital markets grumblers are complaining about: the government, and now the bankruptcy judge, is ignoring creditors’ contracts priority access to a first cut at Chrysler’s assets. The deal on the table gives them no access to those assets.

But there was a way to check the bona fides here to convince Buffett and financial players that the deal was fair: the court could have market-tested the plan. If the court and the Treasury had given Buffett and others the chance to outbid the Treasury for those assets and Buffett didn’t bid more than the Treasury, grumbling would have ended. If Buffett or someone else credible came in with a better bid, the Treasury and Chrysler would then have had to top it.

The best way to think about the bankruptcy plan is that the government is buying Chrysler from the creditors, giving it to the UAW, and hiring FIAT to manage it. Financial markets players are grousing that the UAW and the retirees are doing much better than the secured creditors. The UAW is owed $10 billion and they’ll get a big fraction of that back while the secured creditors take a big hit to their $6.9 billion in loans. But if the Chrysler winners are doing better with the government’s money and not the creditors’ money, that’s not for the creditors to complain about in the deal itself (as opposed to complaining as citizens and taxpayers.)

Bankruptcy law entitles the secured creditors to the liquidation value of the company. With that in mind, the government and the court ought to have set up a true market test: find out how much an outsider would pay for the company’s facilities, shorn of its operations, employees and dealers.

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