Wednesday, October 06, 2010
To Bail Or Not To Bail
People can choose whether or not to use their money to bail out a relative or friend, and that’s good. People don’t have a choice when government uses their money to bail out businesses, and that’s bad.
Bail is a great system as traditionally practiced. When someone’s arrested, he can either stay in jail until his trial when his guilt or innocent will be determined, or he can be bailed out. He’s allowed one phone call to send word out into the community at large that he’s in jail charged with whatever. If he has a good enough reputation, a family member or a friend will show up at the jail and put down however much money to secure his release until trial, and the amount would depend on the seriousness of the charge(s).
On the other hand, if he’s worn out his welcome with family and friends in the community, if his reputation is so tarnished that there’s nobody left who is willing to come forward and help, then he stays in jail. We could call this process the “trial before the trial.” If those who know him best make the judgement, if in their opinion he’s become dysfunctional - by abusing alcohol or drugs, through dishonesty, laziness, violence, or whatever - each relative or friend makes an individual decision about whether they wish to extend themselves for him - or leave him in jail to take the legal consequences of his behavior. It’s a wonderful process. If no one answers his call, the accused stays inside to ponder how things got so bad. A judge might force him to undergo treatment for addiction or mental illness. The accused may resolve to change the way he runs his life and become a better person after dealing with the consequences of his behavior. Or maybe not, and he’ll stay in jail a very long time. Either outcome is usually good for the community at large.
The traditional bail system is a wonderful process. Lately, however, the term has been applied as a remedy for bankruptcy. There’s a whole set of bankruptcy laws for individuals who have managed their affairs badly and cannot pay their debts. I’m no expert, but when they declare bankruptcy, whatever assets they have beyond basic necessities are liquidated to pay off creditors and the rest of their debts are forgiven. Some of their creditors don’t get paid, and that’s a consequence either of bad luck, or for their bad judgement in choosing to do business with an unreliable person. There’s still some choice involved, but it’s before the fact, not after. Once bankruptcy is declared, a judge makes the decisions.
It’s much the same process with a corporation. If it makes bad decisions, if it’s irresponsible, greedy, lazy, mismanaged, or dysfunctional in some other way and cannot pay its debts, it declares bankruptcy and then it has no more choices. All contracts become null and void and a judge decides what should be done from then on. It could be forced to reorganize in some way. If it’s a large corporation, competitors often choose to buy up parts of it and continue to operate them. Some creditors get paid, others lump it, but the overall outcome is usually good for the community at large. Bankruptcy laws apply, but the free market is the ultimate arbiter. Government has, until lately, avoided involvement beyond maintaining courts to function as they were designed. When government goes beyond that and bails out big companies as it has lately, ostensibly to protect the overall economy, it makes things worse. Some companies need to fail, just as some individuals need to sit in jail. Families don’t help by continuing to bail out dysfunctional relatives, and neither does government help by bailing out dysfunctional companies. It only prolongs the agony and the inevitable collapse, which will likely be even more catastrophic than it might otherwise have been if it were allowed to occur early. Failure is a great teacher and there are many who seem not to learn any other way.
Taxpayers don’t have a choice when government bails out businesses, even though it’s their money being spent, or it’s borrowed money being spent that taxpayers, their children and their grandchildren, will be forced to repay with interest. The Democrat Congress and President Bush began the process with TARP in 2008 (Troubled Assets Relief Program), but an even more heavily Democrat Congress and President Obama after November, 2008 elections, have taken the practice much, much farther. Together, they have mortgaged the whole country with crippling debt to bail out their friends on Wall Street and in unions like the UAW (United Auto Workers). If General Motors and Chrysler had been allowed to collapse, union contracts would have been nullified. Their unwieldy pension and benefit packages were major factors pushing the auto companies over the brink. However, since unions are a major constituency of the Democrat Party, government preserved those unsustainable contracts with huge bailouts when the whole mess should have been allowed to collapse.
Americans are fuming and the Tea Party is in revolt. Government took away their choice to bail or not to bail, so they’ll choose instead to replace their dysfunctional government at the polls next month.
It’s going to be a very interesting election.