Tag Archives: Bankruptcy

Simple Economics IV: Nationalization

Once again, I find myself explaining concepts discussed in the media but rarely ever explained by the media. Today’s discussion is “nationalization” of the banking industry.

Or, how about “bankruptcy?” In a bankruptcy of a business, the debt and assets of the company are assumed by the government, who then restructures the company and if necessary, sells of the company’s debts to cover the liens against the company. Then the company is either released to continue or else is sold outright to some buyer who wants a good deal.

If this sounds at all familiar, that’s most likely because this is precisely the remedy proscribed by Dean Baker, Paul Krugman and almost every single other serious minded economist whose looked our current situation. To the extent that the federal government is involved in the day to day operations of businesses in bankruptcy, yes, it is nationalization. But this kind of thing happens all the time to all kinds of businesses without a peep of objection from the Republicans in Congress. In fact, it even happens to local banks all the time, which is one reason that we have a thing called the FDIC.

But it doesn’t happen to the big boys who have the money to pay off politicians and drive the conversation in the most objectionable direction possible.

Interesting side note: guess what the Republican, Dick Shelby proscription is for the Detroit automakers? If you guessed “nationalization,” you’re right!

Weird Editorializing in the RBJ

Figure this one out:

In September and the first half of October 2005, would-be bankruptcy filers locally and across the country clogged bankruptcy clerks’ offices as they raced to file petitions in time to beat a midnight Oct. 17 deadline when the Bankruptcy Abuse Prevention and Consumer Protection Act took effect. Long sought by the banking and credit card industries, the 2005 act put tighter restrictions on bankruptcy filers.
After it became law, filings here and across the country fell precipitously and only gradually climbed back to pre-reform levels.

Doesn’t seem to have all that much to do with the article at hand, which is simply reporting that there is a slight up-tick in bankruptcy filings in Rochester. And if I’m reading it correctly, doesn’t it basically sound like it’s trumpeting the success of the Backruptcy Abuse Prevention and Consumer Protection Act, while in the second half of the last sentence, conceding that the panic that law caused only temporarily effected any change? Kind of like saying “I slapped my kid a good one. And boy, it took him a long time to forget about it. But he did.”

Maybe Will Astor aught to leave the editorializing to the editorial page.