Turned on the radio in my car this afternoon and happened across a discussion about bankruptcy. The radio host was postulating that bankruptcy is a government program that interferes with the free market, in that it can be used to prevent a failing corporation from failing.
Whaddya think? Is bankruptcy socialism?
I respectfully disagree - it's economics, not politics. But my opinion doesn't count. I will happily abide by whatever Lazeez decrees.
Bankruptcy laws are an answer to debtor prisons. Socialism is a form of government. I fail to see how the combined subjects can be discussed without discussing politics. I'll therefore have to second seanski1969 opinion.
Posing that question your way implies that any policy that interferes with unfettered capitalism can qualify as socialism. I'd have to disagree if that's where you're going.
If you confine your argument to government approval of bankruptcy alone? Still can't agree with you. IMHO, there never was nor ever will be any one economic system -- capitalism, socialism or whatever -- that will ever, or can ever, exist in it's pure form. Which means that any economic system will have restrictions or rules that it doesn't necessarily agree with imposed on it. You might have an argument if the said restriction is part of a specific economic system. But as far as I know, bankruptcy isn't a socialist concept. Could be wrong, but don't think so.
Posing that question your way implies that any policy that interferes with unfettered capitalism can qualify as socialism. I'd have to disagree if that's where you're going.
Though he did not say so specifically while I was listening, the guy on the radio implied that anything that interfered with pure capitalism amounts to socialism. I suspect that would include taxation. I have no idea what he thinks about monopolies.
...implied that anything that interfered with pure capitalism amounts to socialism.
It sounds to me the speaker was promoting Austrian economic theory that was developed as a response to the fascist and socialist economic theories. The Libertarians generally espouse Austrian Economic theory while the US generally follows Keynesian economic theory. Comparing and contrasting various economic theories can get very political as many political systems stem from their particular economic theory.
The radio host was postulating that bankruptcy is a government program that interferes with the free market, in that it can be used to prevent a failing corporation from failing.
Actually, in it's purest form, bankruptcy is ultimate capitalism. Hey, you've ran up too much debt, so your company can now be sold for pennies on the dollar - or you can simply go broke.
If a company restructures their debt, then it's also not socialism, it's simply working through a government approved way of attempting to remain in business.
If the government bails them out to the detriment of those who actually had first claim on the assets of that corporation, then it's still not socialism, but pure favoritism and ignoring the actual law. And yeah, I'm specifically referring to GM with this comment.
My personal opinion is the bankruptcy laws were passed after being bought and paid for by rich businessmen so they wouldn't lose everything after they sent their business broke. They're nothing to do with protecting the community as a whole and nothing to do with sharing the wealth with everyone. The laws are simply to protect the money of the wealthy when one of their businesses goes bust for any reason; which is often due to bad decisions or milking the business by the owner. That makes the whole issue a political one, and not economics.
My personal opinion is the bankruptcy laws were passed after being bought and paid for by rich businessmen so they wouldn't lose everything after they sent their business broke.
Speaking to PB's original question , sounds like you think bankruptcy is a capitalistic concept.
ETA: And I agree with PB that the question is economic, not political.
sounds like you think bankruptcy is a capitalistic concept.
No, capitalism was around long before bankruptcy. I think it's a concept thought up by rich crooks to gyp people of money and they got other rich crooks to help them make the laws. If it was a truly capitalist idea then they would be required to pay off all of their debt eventually. No one should be allowed to be associated with any operation filing for bankruptcy if they'd previously been bankrupt and hadn't yet paid off all of the debts in full.
People who get in over their heads with consumer credit can't file for bankruptcy if they're should a few thousand, but have a business short a few million and you can. It's to help rich crooks stay rich.
Bankruptcy where you're at must be different than the U.S. Here enough of the "little people" file for bankruptcy that one tenet of the law exempts workman's tools from any part of the assets given up to creditors. Somehow I find it hard to believe that the millionaire Wall Street tycoon fallen on hard times is going to worry about his circular saw post bankruptcy.
Here enough of the "little people" file for bankruptcy that one tenet of the law exempts workman's tools from any part of the assets given up to creditors.
Do you know whether that provision is nationwide in the U.S., or just in some states?
I made my original comment trusting only memory (always a dangerous idea, especially nowadays). And as I remember it, it applied to federal law. A little internet research confirmed it. It also turns out that tools are not alone. From a list at the above link, the following can also be exempt:
- Motor vehicles, up to a certain value
- Reasonably necessary clothing
- Reasonably necessary household goods and furnishings
- Household appliances
- Jewelry, up to a certain value
- Pensions
- A portion of equity in the debtor's home
- Tools of the debtor's trade or profession, up to a certain value.
- A portion of unpaid but earned wages
- Public benefits, including public assistance (welfare), social security, and unemployment compensation, accumulated in a bank account
- Damages awarded for personal injury
I doubt that if bankruptcy was only for the rich, such exemptions would exist as they appeared geared to individuals of modest means. Which was my original point.
ETA: edited for misspelling.
one tenet of the law exempts workman's tools from any part of the assets given up to creditors.
I'm not sure how universal it is, but some states have that as a provision for where the bankrupt is a tradesperson running a trade business as a sole owner or partnership, but doesn't apply if the business is registered company with any sort of liability limits. Thus a sole owner business like Mike's Mechanical service would have Mike's privately owned tools of the trade protected but not the house or the furniture while Mike's Mechanical Services Limited would have the tools as a company asset that can be sold off while the privately owned house would not be seen as an asset of the business.
A personal home, below a certain value is also exempt in personal bankruptcy law in the US.
Here is a history of US bankruptcy law.
https://www.thebalance.com/history-of-bankruptcy-in-the-united-states-316225
In it's earliest implementations, US bankruptcy law heavily favored not business going bankrupt, but the creditors. In fact there wasn't even an option for a merchant to file for bankruptcy, it was a form of involuntary bankruptcy where the creditors filed against the debtor.
However, current US law is drastically different, and is far less creditor centric.
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My personal opinion is the bankruptcy laws were passed after being bought and paid for by rich businessmen so they wouldn't lose everything after they sent their business broke.
The original bankruptcy laws were INDIVIDUAL and not corporate bankruptcy.
A "corporation" is short for "limited liability corporation." That means that if I open a drugstore as a simple business, and the drugstore ends up losing money, then I owe whatever people the drugstore owned. If I incorporate it first, then I get the profits, if any, but my losses are limited to
what I've put into the business as capital.
That's a limit on the free market, but it's generally agreed that it's necessary for large businesses to get the capital that they need.
The first bankruptcy laws provided for the confiscation of all property to help settle the debts and then the person also served some sort of servitude to settle the rest. Later the servitude changed to be time in debtors prison. The next iteration of such laws included a requirement for them to pay off the outstanding debts over time before they were declared free of bankruptcy.
The modern laws which is what I was giving my personal opinion on all allow for people to go bankrupt while still retaining assets of great value which could be used to settle their debts, and they can now be declared free of bankruptcy without having to pay the debts off.
The modern laws which is what I was giving my personal opinion on all allow for people to go bankrupt while still retaining assets of great value which could be used to settle their debts, and they can now be declared free of bankruptcy without having to pay the debts off.
Because, generally speaking, there is a belief that rendering someone completely destitute in modern society goes against the best interests of society as a whole. In 19th century agrarian America (for example), it would be possible to bootstrap yourself into at least basic sustenance. That's a much harder thing to do in a modern, industrialized society (at least IMHO).
This is not to say our (i.e. the US) bankruptcy laws are reasonable, only to say why assets are allowed to be protected.
Michael I can see why they want to leave a person with a basic home, but why is it the current laws will often see little folk shoe twenty or thirty grand kicked out and the home sold while the laws allow the rich guys shy millions to keep a multi-million dollar mansion? Because the laws are made by people lobbied by people with big money who want laws to protect their big money.
Michael I can see why they want to leave a person with a basic home, but why is it the current laws will often see little folk shoe twenty or thirty grand kicked out and the home sold while the laws allow the rich guys shy millions to keep a multi-million dollar mansion? Because the laws are made by people lobbied by people with big money who want laws to protect their big money.
More likely the millionaire kept their home in that case because it was held by a trust or existed as some other kind of legal entity that both the bankruptcy proceedings and the creditors were unable to get to them.
Joe Blow technically has the capability of doing the same thing as well, but typically lack the legal know-how on how to go about doing so and keeping the entity properly separate from everything else.
It takes a bit of somewhat obscure knowledge and someone with a fair bit of time to keep things straight(which is where being rich has its perks, you have those guys on retainer/payroll to make sure all the boxes are properly checked).
The other game they'll do is the house itself may be held by a third company(that they also control). Company A pays Holding Company B "rent" for use of the house "for business functions" while the Millionaire pays the holding company(themselves) the difference.
That way Company A can go up and the house is safe as Company B "is uninvolved." Likewise, the person can go bankrupt, but because they don't own the property, Company B does(which is likely held in some form of trust), the creditors can't get to it.
It's a little more complicated than that, but they accomplish those results by keeping their money in multiple different pots which exist as their own legal entities. So that if one piece should fall, its going to take a lot of work to take all of them down with it.
Which usually means that's something only a Government could accomplish, and only in specific circumstances.
This is not to say our (i.e. the US) bankruptcy laws are reasonable, only to say why assets are allowed to be protected.
Does that make is socialism?
Having personally filed for bankruptcy in the US, it allows any debtor to acknowledge that they have gotten over their head in their situation while protecting them, and their creditors, from total loss. The only asset we kept out of the equation was the mortgage. We returned cars, phones (okay, AT&T got shafted), settled the credit cards. We tried to give our kids every advantage we didn't have and over stepped. 13 years later, I am still dealing with it after my wife's death and all the associated medical bills. But I'm not on the street and am able to house, feed and support my grandkids.
I wonder whether there's been some misinterpretation here.
'Bankruptcy' means that a corporation has gone bust and is out of business eg Carillion in the UK. However governments have instituted various artifices which allow companies to acknowledge that they can't pay their debts as they stand but they're allowed to go on trading.
Are those artifices what the radio host was talking about? They certainly interfere with the free market, but they preserve jobs and can stop a catastrophic domino effect.
AJ
I wonder whether there's been some misinterpretation here.
What you describe here seems to be what is known as Chapter 11 bankruptcy in the U.S. I allows a company to reorganize it's debt while trying to avoid liquidation. There also exists Chapter 7 bankruptcy (I believe) which is wholesale liquidation to satisfy all debts. As I understand it, both are available to individuals as well as businesses.
'Bankruptcy' means that a corporation has gone bust and is out of business
Under US corporate bankruptcy there are two different chapters of bankruptcy. I don't remember the numbers for each chapter, but loosely, you have:
Reorganization, where the company is allowed to reorganize it's debts, the creditors are given limited relief, but the company continues to exist and do business.
Liquidation, This is what you were thinking of, the business closes it's doors, all of the business' assets are sold and the proceeds are divided among the creditors.
Reorganization, where the company is allowed to reorganize it's debts, the creditors are given limited relief, but the company continues to exist and do business.
That matches the definition of the OP, in which failing corporations are allowed to continue. A previous poster said it's 'Chapter 11 Bankruptcy'.
AJ
At this point we need to remember that a certain Mr Trump's company went bankrupt several years ago. I wonder what the radio host - in his infinite wisdom - was trying to prove.
At this point we need to remember that a certain Mr Trump's company went bankrupt several years ago. I wonder what the radio host - in his infinite wisdom - was trying to prove.
There have been a total of six corporate bankruptcies in businesses owned or controlled (there is a difference) by Mr. Trump over the years. Three of them were casinos, one of them was the casino holding company, one was an entertainment company, and one was a hotel. Five of them were in Atlantic City.
His other FIVE HUNDRED businesses appear to be doing fine, giving him an approximate 98% success rate.
Not the bankruptcy laws. The atrocious bail-outs for the so called "To big to fail" are closer to socialism.
The to-big-to-fail should never haver been allowed to get too big and it would never haver happened in a clean capitalistic environment.
The atrocious bail-outs for the so called "To big to fail" are closer to socialism.
That's definitely not socialism. That's cronyism.
Having the people pay for the greed of few opportunistic bastards (bankers getting millions in bonuses after bail-out), is not socialism or anywhere near it. That's cronyism pure and simple.
Socialism where the people own the means of production, with its attached central planning, is the opposite of free market.
Crony capitalism (where some people are forced to pay for something they don't want) is a corruption of free market economics/capitalism and it's not better than socialism gone wrong.
Free Market Economics (or Capitalism) is based on free will exchanges between people/corporations. In a true free market, if you're not good, you fail. You don't get to ask for a handout from some authority that can send tax payers money into your coffers and you don't learn anything.
Free Market is good. It's best. But also, absolute free market has drawbacks that need to be moderated by some legislation (like environmental stuff) and a good strong court system and a lean set of laws that don't favour anybody.
A read through this threads post makes it clear the subject cannot be discussed without delving into politics.
Reading this thread reminded me that it was capitalist members of what is now called the 1% who bankrolled the Bolsheviks and the founding of the Soviet Union, though I am starting to wonder if what they had in mind was an ultimate goal of something like George Orwell wrote about a few decades later in the book 1984.
Does that make is socialism?
Probably not. Bankruptcy seems to protect individual ownership of property at least to some extent. That doesn't seem to be a Socialist approach, where property is owned by the community or government for the good of all.
More likely the millionaire kept their home in that case because it was held by a trust or existed as some other kind of legal entity that both the bankruptcy proceedings and the creditors were unable to get to them.
There is also the 'Homestead' exemption which allows an individual to keep some, or all, of the equity in their home. Florida is famous for being all (hence OJ Simpson's purchase of a large home their to protect his assets from the Goldman family).
A tradesman's tools are also protected, and if you are in a trade which uses many expensive tools, they can be significant assets.
There is also the 'Homestead' exemption which allows an individual to keep some, or all, of the equity in their home.
I'm pretty sure Bankruptcy is strictly Federal.
https://www.archives.gov/founding-docs/constitution-transcript
US Constituion Article 1 Section 8 (the enumerated powers of Congress) paragraph 3
To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;
I'm pretty sure Bankruptcy is strictly Federal.
Uniform laws, yes, but not uniform exemptions, which the Feds have left up to the states. Exemption laws vary widely from state to state. In some, you are permitted to retain equity in a home or car, workman's tools, and some amount of personal effects.
You can find a reasonable list of the exemptions here:
https://www.nolo.com/legal-encyclopedia/bankruptcy-exemptions-state
Not socialism. Not politics
A legal mechanism whereby those involved in the failed enterprise can close the issues in a binding manner. Government is not involved but for the legal platform.
I believe the bankruptcy judge is a federal appointment, and does make rulings that are binding to the many parties in bankruptcies. That's more than just a platform - it affects many different parties. The parties include the management, the employees who are not management, and the various classes of creditors, which are treated differently, and sometimes there is also a possible buyer to take over the company (and the judge can reject the buyer).
The courtroom is the platform.
And yes the judge has some discretion.
But...that does not make it socialism.
If that were the case then every commercial litigation would fall into that categorization.