The Benefits of Bankruptcy

We’re all sinners. Sinners embrace redemption. It gives them a second chance. A new slate. An opportunity to move on; put the past in the past; attain forgiveness; remove burdens, real and imagined, and move on.

And so it is with bankruptcy. Think of bankruptcy as redemption for fiscal sinners. Redemption for the financially promiscuous. Or just unlucky. Those with a checkered past. Bad credit. Too much debt. No assets. There is historic foundation for bankruptcy laws in the religious concepts of forgiveness and redemption.

Just as the sinner embraces spiritual redemption so should the bankrupt person or entity embrace the redemption offered by the federal bankruptcy courts? Bankruptcy is one of the enumerated powers given the national government by the people and the states in the constitution. See Article 1, Section 8. Learn your constitution. It is a wonderful document. It is our document. It does not belong to the congress. It tells the congress what they can (very few things) and can’t (lots of things) do. It does not belong to the president. It tells the president what he/she can and cannot do. It does not belong to the courts. It kind of tells them what they can and cannot do.

So there are two principal forms of bankruptcy. Bankruptcy commenced by the creditors, those to whom the entity owes funds and has contractually abrogated. Or, the debtor can preempt the process and file for protection from the creditors.

Now this posting is not a promo for bankruptcy. It is not to suggest that the bankruptcy option be chosen frivolously or without due and aggressive pursuit of all other financial options including restructuring debt and longer term work out possibilities. But, having said that, bankruptcy is a viable way to deal with current problems and create a possible solution for a new start from a rebuilt and stronger foundation. It also brings an end to the problem. Oprah likes to call that “closure.”

Propping up a failed concern doesn’t work. Propping up a failed concern misses an opportunity to possibly give it or a replacement a chance. So, the current regime, the one with no participants with any real life experience, has missed the opportunity to give large automobile companies and large insurance companies and large residential mortgage companies and large commercial and investment banks, with the sole exception of Lehman, and large public mortgage companies the opportunity to work on their structural problems; get rid of bad assets and losing operations; tear up bad business and labor contracts and cut deeply into the ranks of bloated management and non productive bureaucracies. All missed opportunities. Instead this inexperienced government has literally poured hundreds of billions of dollars into propping up failed businesses. Businesses that should be gone. Businesses that crowd out new entrants that will provide the very competition that will create the new jobs that will provide the good foundation for future economic growth. Why did they do this? They were afraid to accept responsibility and deal with the consequences of direct action.

It is not too late to force these bankrupt concerns into bankruptcy. Bankruptcy will also become a more frequently addressed alternative for government entities that have engaged in fiscally promiscuous behavior. (Click on the link in the left margin under the caption “Within Our Means” about the state of Pennsylvania.) For all these entities, it is not too late to make the correct choice. It is also not too late for a major but simple change to take place with the too big to fail concerns and new replacement entities. We have posted this simple solution before. A simple piece of legislation that requires all debt, all securities, all notes and claims, all liabilities issued by any entity, person, corporation or government agency/authority to carry, on every page of every document, at the very top and the very bottom, in bold face type at least twice the size of any font used elsewhere on the page, the following sentence, “This obligation is not and will not be guaranteed by the United States of America.” Caveat Emptor. Buyer beware. It is one of TheFundamentals.