Robert Reich: The Real Difference Between Bankruptcy and Bailout

While I am on the topic of the auto industry, bailouts, this gem from Robert Reich:

When a big company that gets into trouble is more valuable living than dead, there used to be a well-established legal process for reorganizing it – called chapter 11 of the bankruptcy code. Under it, creditors took some losses, shareholders even bigger ones, some managers heads rolled. Companies cleaned up their books and got a fresh start. And taxpayers didnt pay a penny.

So why, exactly, is the Treasury substituting government bailouts for chapter 11? Even if you assume Wall Streets major banks and insurance giant AIG are so important to the national and global economy that they cant be allowed to fail, that doesnt mean they have to be bailed out. They could be reorganized under bankruptcy protection. True, their creditors, shareholders, and executives would take bigger hits than theyre taking now that taxpayers are bailing them out. But theyre the ones who took the risk. We didnt.

The Treasury seems to have lost sight of its real client. Its client is not the creditors, shareholders, or executives of any of these firms. Its sole client is the American people.

Hat tip: Get the Flick.


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