Wednesday, November 12, 2008

Let Them Go Bankrupt

The bailout is running out of money. I explained over a month ago why the bailout won't work and suggested a solution that would be less expensive for taxpayers. Here is an update.

It is time to let these companies go bankrupt. Chapter 11 bankruptcy allows companies to continue to operate while they reorganize, and it cost taxpayers nothing. Of course, Goldman Sachs, Treasury Secretary's former company and the source of his wealth, might lose $20-40 billion when AIG goes bankrupt. This explains why the government continues to prop up AIG. Japan tried to prop up sliding stock and real estate prices at the end of the "Japanese asset price bubble" of the late 1980s, and the effort resulted in a decade of stagnant economic growth. Bankruptcy is much quicker and cheaper for the taxpayers.

(The bailout was also used to make a tax change favorable to Fat Cat banks and the A.I.G.’s of the world, but that is a story for another post.)

Bankruptcy laws also should be amended to temporarily allow bankruptcy courts to reform the terms of loans secured by primary residences. This would reduce the number of foreclosures, again at no cost to the taxcpayers.

Let them go bankrupt.

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