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.


Anonymous said...

Here is something that I can agree with you on even as a liberal. The bailouts which Bush started were obscene and I strongly disagreed from the begining. I find it a little strange that Palin is somewhat of a figurehead of the Tea Party and yet she supported these bailouts.

Anonymous said...

"The bailouts which Bush started were obscene",

Your forgot to mention, and I know it was just a casual mistake, that Obama has tripled what bush spent and as far as Bush is concerned, that is why we as conservatives voted out the GOP and put the Dumocrats in charge. I know it was just a casual oversight on your part but thanks for the unbiased thoughts Skippy. I bet, like all us conservatives, that you are just as pissed off at Obama now as you are at Bush...By the way, when will it Be Obama's fault anyway?

p27tfs said...

IS VERY GOOD..............................

Anonymous said...

A couple of items. Once a corporation files for bankruptcy, it becomes a "Debtor in Possession" which means the management team of the bankrupt company has significant leeway to direct the reorganization. They are granted an exclusivity period to come up with a plan of reorganization. Creditors can try to get the exclusivity period lifted, but what practically happens is that the creditors and debtors negotiate a resolution.
On TARP, the "bailout" money to the banks was more than entirely paid back. The US will show a profit on TARP except for the bailout to the automakers, which really wasn't what TARP was intended for.
As a tool to provide temporary stability to the banking system, TARP was an amazing success, and it didn't cost a dime as the losses incurred with AIG and other banks were more than made up by the profits from Goldman, JP Morgan, Wells Fargo and others.
The bailout in this article is the bailout of unionized workers and the circumvention of the Absolute Priority Rule in bankruptcy.

Anonymous said...

It always takes longer to fix something than to break it. We spent 8 torturous years watching our economy get smashed to bits under Bush's assinine policies which catered to his mega-rich friends and left the market unregulated. A disaster. Who in their right minds would expect the next president to clean up that mess in their first two years? The fact that Obama was able to avoid another great depression was amazing.

Jim said...

"left the market unregulated"

Which Bush policy(s) left the market "unregulated?"

You say the economy was "smashed to bits under Bush's assinine policies"

What Obama policy(s) have cleaned, or are cleaning up Bush's "mess?"

Anonymous said...

rubsur"Which Bush policy(s) left the market "unregulated?"

Jim, are you for real? ALL his policies left the market unregulated. Which of his policies put regulations on the market that put enough control on them to not totally screw up the economy like they did?

It is undeniable that the economy is better off now then Bush left it. What is your explanation for this? Is the mess just magically cleaning itself up? Is it just some wacky coincidence that things started turning around when the pampered little elitist Bush boy left office? He screwed up almost every business venture in his life and continued doing the same as president.

I thank my lucky stars that we have a president that is more concerned with everyday people than with oil barons, the Saudies he held hands with and with all the other mega rich elitists in his daddys circle of friends.

Anonymous said...

feIt is great to see conservatives finally coming around on the corporate welfare issue. All the liberals I know have long decried the favored treatment that corporations have received at the expense of the non rich. Make them pay their taxes, cut the loopholes, regulate their conniving, cheating asses, and let them fall as they may.

The government has been throwing money at corporations for as long as I can remember and letting them get away with way too much.