"I refuse to let Detroit go bankrupt." Barack Obama
He said that during the election last year. At the time, it was extremely popular, it sounded a lot like the liberal battle cry, which never has much to do with facts, "We love trees, we love puppies and we want to help people."
And, they won.
What Mitt Romney, the reasonable adult with actual business experience, said was that we should let failing businesses (or cities) go through bankruptcy proceedings.
That wasn't popular. It got boos, hisses and sneers from the liberal media.
And, Romney lost.
Since Detroit's demise, that got we thinking about bankruptcy. Maybe people don't understand what it means to "restructure under bankrupcty law." So, let's figure it out.
Bankruptcy is like rehab for the over-spender.
Let's say that Tina, our favorite shopper, owes $1,000 to her creditors. But, Tina only has $100. If Tina wanted relief from her creditors, she could file for bankruptcy. Her creditors would get the $100. Say she owes Neiman Marcus $800, Target $150 and Famous Foootwear $50.
Using the percentages of the amount owed, Neiman Marcus would get $80, Target would get $15 and Famous Footwear would get $5.
They would then forgive Tina's debt, they would ban her from ever returning to their stores and they would write off Tina's debts as a loss.
Now comes the restructuring. Tina has some serious work to do. She has to go cut up all of her credit cards, she has to re-program her GPS cause she is not going back to Neiman Marcus. She needs to send a note to all of her favorite friends at Auntie Anne's that she won't be around for a while.
Tina has received relief from her creditors, she has restructured her spending habits, she can't do this again.
Ok, what if Tina's daddy (or sugar daddy, you pick) just paid the $1,000? Would Tina have learned anything? No! Tina would be right back at the food court loading up on carbs before another round at Neiman Marcus!
It is the same with companies. When a company seeks protection from creditors under bankrupcty proceedings, somebody comes in and tries to figure out how they got so screwed up in the first place, like Tina. They pay off the debts, they figure out new ways to do business without making such a mess out of it in the future.
The company comes out of bankruptcy proceedings (hopefully) stronger and can go back to business.
But, what if the sugar daddy government just pays off the debts for Chrysler or Detroit? Chrysler and Detroit take the money and keep right on screwing up. Since they keep right on doing business in the same way that got them into such a mess in the first place that they needed a bailout - they eventually GO BANKRUPT. Then, they need to "restructure by going through bankruptcy proceedings."
The difference is, billions of tax payer dollars were wasted the liberal way. The conservative way would have allowed the private sector to handle its problems with its creditors. Oh! Like this:
"Detroit's bankruptcy is between the city and its creditors." Jay Carney, yesterday at a White House press briefing.
That is an interesting change in position, isn't it? When you are running for re-election, "We aren't going to let Detroit go bankrupt." When you have wasted another billion or so of taxpayer money, then Detroit's bankruptcy is between the city and its creditors.
The government stinks at fixing things. The private sector does it a lot better.
Has anyone figured that out yet?