Chronicles Of Depression 2.0: #406: 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 didn’t pay a penny.
So why, exactly, is the Treasury substituting government bailouts for chapter 11? Even if you assume Wall Street’s major banks and insurance giant AIG are so important to the national and global economy that they can’t be allowed to fail, that doesn’t 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 they’re taking now that taxpayers are bailing them out. But they’re the ones who took the risk. We didn’t.
The Treasury seems to have lost sight of its real client. It’s client is not the creditors, shareholders, or executives of any of these firms. Its sole client is the American people.
Emphasis added by me.
That last paragraph was what I’ve been trying to find all this time. Bingo!
Robert Reich was former Secretary of Labor under Bill Clinton. I’ve read several of his books. I have mixed feelings both about his books and his government service. But here he’s spot on.
Luigi Zingales has also called for bankruptcies and not bailouts.