People familiar with the discussions revealed that the hedge funds received a sweetened offer yesterday afternoon, an offer that added $250 million to the $2 billion received by the banks. The hedge funds were given a deadline of 6:00 PM yesterday to decide.

The hedge funds even received a plea from Michigan Governor Jennifer Grandholm who asked, "On behalf of Michigan, on behalf of the thousands of people who will be affected if this company is forced into bankruptcy, I am publicly asking these hedge funds to not be greedy but to do what the banks have done and what everyone else around the table has done -- take the concessions."

Several of the hedge funds felt that the deal wasn't good and countered with their own proposals. It was these counter-proposals that gave the Treasury Department no choice. Despite extending the deadline into the evening, the Treasury Department called off discussions around midnight last night as no central authority appeared for the 46 hedge funds wanting more money.

One of the sources stated, "This is the one shot when everybody had a chance to say yes or no ... You had 46 different people here, and they said no."

What's the bottom line? The government set a deadline of 11:59 PM tonight to decide Chrysler's fate. If 100% of the company's creditors do not agree to the plan by the deadline, Chrysler will face Chapter 11 bankruptcy protection. Although bankruptcy wouldn't sound the death knell for Chrysler, this is not a positive development. If the automaker has to file for Chapter 11 protection (which now seems highly likely), then the government will back all Chrysler's warranties (including the FightBus, I guess).

Despite the situation, President Obama remains "very hopeful" that deals can be worked out -- more hopeful than month ago. With the current situation, I wonder how bad it was a month ago?