Wednesday, November 19, 2008

Bankruptcy as the Natural Order of Things

Those who believe that the federal government (in reality, the taxpayers) should bail out the moribund so-called Big Three automakers would do well to read this article by Andrew Grossman at The Heritage Foundation. Rather than rally around the typical "Workers-of-the-World-Unite" rhetoric about all the potential lost jobs and about how General Motors is an American institution (since when are liberals nostalgic about American history?), we need to recognize the situation for what it is and act accordingly.

Here is just one of the tidbits to be gleaned from Grossman's article:

Chapter 11, however, is usually used to reorga nize a business that, but for insolvency, is poten tially profitable. It embodies the recognition that, in some cases, creditors fare better when a business continues as a going concern rather than being liquidated. These businesses are likely to be able to pay off more of their debts if they are reorganized to address their problems instead of being picked apart by creditors. What they need is breathing room from the threat of debt collection and broad power to rearrange their operations. The Big Three, though they could stand to shed some assets, surely fall into this category.

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