TARP oversight boss Elizabeth Warren: Mexico has a better bankruptcy code

[Winehole23]

AIG bonus scandal adds insult to injury of 'pension dumping'

The Salt Lake Tribune

Updated: 03/30/2009 11:56:30 AM MDT

http://extras.mnginteractive.com/live/media/site297/2009/0330/20090330__cmtblumner_0331%7EP1_200.jpg (http://www.sltrib.com/portlet/article/html/imageDisplay.jsp?contentItemRelationshipId=2373842 )Robyn Blumner



Let's be frank. There are contracts and then there are contracts. Those retention bonus contracts held by American International Group executives in its financial products division were apparently inviolate. No matter how many smart lawyers Treasury Secretary Tim Geithner consulted, the contracts were bulletproof and a default could lead to punitive damages.
Then there are the kind of employment contracts that most of the rest of us have. They're not explicitly spelled out in a sign-on-the-dotted-line kind of way, and there are certainly many fewer zeros, but they are promises made in exchange for one's labor nonetheless. The difference is that these "contracts" are eminently fluid and disposable.



Here's the employment contract we all had in mind when joining the workforce: Work hard, be loyal and in exchange you can expect job security, steady income gains, health insurance and a dignified retirement.
But those ideas are so nostalgic today as to be naive.



In the last 10 years, worker productivity increases have not translated into corresponding wage growth, jobs are less secure, employer-sponsored health benefits have steadily eroded. And as to a pension, what's that?
Actually, the defined-benefit pension is one of the only employment promises that employers of non-unionized workplaces are legally obligated to keep. Federal law is supposed to protect pension rights and guarantee that pensions are adequately funded.



For the dwindling number of private sector employees who still enjoy one, it's a comforting thought. Too bad it's not true.


Do you hear that sawing sound? That's what federal bankruptcy courts are doing to the three-legged stool of retirement, as companies divest themselves of the "legacy costs" of their defined-benefit pension plans.
Our government wouldn't let AIG go bankrupt, bolstering it with $182.5 billion in bail-out money. That protected those million-dollar retention bonuses. But work-a-day people have not been so lucky.



In industries from steel to airlines and even auto parts, companies have used federal bankruptcy law as a tool to keep operating while walking away from retirement promises made to people who gave their entire working lives to the enterprise.



Fran Hawthorne documented the trend in her 2008 book Pension Dumping . She says that companies think there is no cost in doing this to retirees, but it's "killing morale."



United Airlines is among the biggest, nastiest system-gamers so far. In 2005, a bankruptcy judge approved United's plan to terminate its pension plan, affecting about 120,000 current and former employees.



The Pension Benefit Guaranty Corp., the federal program that insures private pensions, took over United's liabilities. But due to federal limits, airline employees had their pensions reduced by $2 billion.



Then United paid its creditors, emerged from bankruptcy and CEO Glenn Tilton rewarded himself with multimillions of dollars in compensation -- including pension benefits.



This ability to fleece employees while others walk away with a nice payday is essentially part of the law.


Harvard Law Professor Elizabeth Warren told the PBS series "Frontline" that the bankruptcy code, adopted in 1978, allows companies to give certain creditors promises that "lock up all the assets of the business so that if the company ultimately fails . . . the sophisticated guys will walk out with everything, and the employees and pensioners will be left with nothing."



Warren says that, in Mexico, when a company goes bankrupt, obligations to employees and retirees get first priority. And, she says, more countries follow the Mexico model than the U.S. model, by choosing to protect workers over banks and other secured creditors.



Sounds good to me.



Now that we have a Democratic Congress and president, let's see some new protections passed. A measure that would give workers some pension rights in bankruptcy court was introduced by Democrats in Congress in 2007, but died. Illinois Sen. Dick Durbin, a true friend to workers, will try again this year.



AIG executives got millions of dollars for promising to stick around for another year or so. Well, defined-benefit pensions are retention bonuses for average people, only they gain value over the long haul of a career. They should be untouchable too.

[Winehole23]

Related:

TARP Auditor: "We Do Not Seem To Be A Priority For The Treasury Department" (http://www.huffingtonpost.com/2009/03/31/tarp-auditor-we-do-not-se_n_181229.html)



http://images.huffingtonpost.com/gen/71943/thumbs/s-WARREN-large.jpg






Elizabeth Warren, in charge of oversight of the financial industry bailout, told a congressional panel Tuesday that the Treasury Department has not been cooperating with her efforts to oversee the project.


"We do not seem to be a priority for the Treasury Department," said Warren.
She added that the administration's failure to ask for more accountability has led to a situation that is difficult to oversee. "This problem starts with Treasury," she said.
Warren is testifying before the Senate Finance Committee. We'll update with video when it's available.


Warren argued that "continuous subsidization without vigorous oversight is exactly what got us into this." She complimented the administration's oversight of the auto industry, but contrasted it with the lack of the same with regard to the banks.

[Winehole23]

Also related, a bit more closely:

http://www.boston.com/news/nation/washington/articles/2009/03/30/pension_insurer_shifted_to_stocks/?page=full

[LnGrrrR]

Warren says that, in Mexico, when a company goes bankrupt, obligations to employees and retirees get first priority. And, she says, more countries follow the Mexico model than the U.S. model, by choosing to protect workers over banks and other secured creditors.


Here's where a conservative comes on to say that anything that slightly favors workers over the corporate entity is 'anti-free market'.

[Winehole23]

Here's where a conservative comes on to say that anything that slightly favors workers over the corporate entity is 'anti-free market'.Redistribution to workers at any point is axiomatically socialistic, while redistribution to financial hosebags in the face of worldwide financial panic was compulsory and prudential, apparently...

[DarkReign]

Im going to take a break from this forum. I have been on hiatus for some time (busy, busy at work) but it seems my vacation should be extended.

People need to be tried and hung in this country. Right out in the open, preferably over street signs. Until that happens, I will manically laugh from afar at our plight.

We so deserve this. We all do. Even the good guys in this world, we all deserve this. We deserve to get raped, beaten and robbed.

Its penance for being collective jackasses so willing to trust leadership and doctrine. The blind sheep has finally wandered into the slaughter house. So be it.

[coyotes_geek]

Warren says that, in Mexico, when a company goes bankrupt, obligations to employees and retirees get first priority. And, she says, more countries follow the Mexico model than the U.S. model, by choosing to protect workers over banks and other secured creditors.

First, as screwed up as things are here in America I'm still not ready to use Mexico as the example for what we should aspire for our economy to be.

Second, all protecting workers over the banks and other secured creditors does is heavily discourage banks and other secured creditors from investing in business. Lenders are the ones taking investment risk. Not the workers.

This point being an entirely different issue from executive compensation which is obviously well out of kilter.

[Winehole23]

Second, all protecting workers over the banks and other secured creditors does is heavily discourage banks and other secured creditors from investing in business. Lenders are the ones taking investment risk. Not the workers. Do the workers create value for the firms and the shareholders during their lifetime of work?

I'm not so sure protecting pensioners from losing their asses in bankruptcy is a bad idea, or that it makes companies unattractive to invest in. If the place of pensioners in bankruptcy proceedings makes you uneasy, maybe you're not very confident about the profitability of the company to begin with.

[coyotes_geek]

Do the workers create value for the firms and the shareholders during their lifetime of work?

Obviously they do. And the majority of compensation they receive is immune to business risk. If the company goes under, they lose their jobs, and I don't dispute that really sucks for them, but it's not like the company can go back and ask them to return some of the money they got in their paychecks. They put no money in, they just miss out on the opportunity to continue taking money out. Lenders on the other hand did put money in, and if things go wrong they lose that money they put in, plus whatever investment income they were promised when they agreed to loan the business the money it needed.


I'm not so sure protecting pensioners from losing their asses in bankruptcy is a bad idea, or that it makes companies unattractive to invest in. If the place of pensioners in bankruptcy proceedings makes you uneasy, maybe you're not very confident about the profitability of the company to begin with.

Given the current environment where lenders are incredibly risk averse, is telling them that in the event of a failed business enterprise they have to get in line behind a pension ponzi scheme going to make them more likely, or less likely to invest?

[LnGrrrR]

Second, all protecting workers over the banks and other secured creditors does is heavily discourage banks and other secured creditors from investing in business. Lenders are the ones taking investment risk. Not the workers.


Told you. :)

[Winehole23]

Given the current environment where lenders are incredibly risk averse, is telling them that in the event of a failed business enterprise they have to get in line behind a pension ponzi scheme going to make them more likely, or less likely to invest?Sounds like this goes more to timing than to principle, but I see what you mean. There's no actual policy at issue here, so all the facts are speculative. There might be a way to rejigger the equities in favor of pensioners that doesn't unduly compromise the attractiveness of the risk. I don't know. I see no reason to presume this should be the case, and I certainly see no reason to presume that the current scheme couldn't be improved on.

If Mexico is not the model, something in that direction might be. Freezing out pensioners in bankruptcy is eminently not fair and bad policy IMO.

[CosmicCowboy]

No big deal. They still have social security. :lol

[coyotes_geek]

Told you. :)

I want to borrow a bunch of money from you so that I can hire somebody else to go make a bunch of money for me. If everything goes okay, I can pay my employee and also pay you back with interest. If things don't go okay I want to give all your money to my employee and tell you "tough luck". So, are you interested?

[LnGrrrR]

I want to borrow a bunch of money from you so that I can hire somebody else to go make a bunch of money for me. If everything goes okay, I can pay my employee and also pay you back with interest. If things don't go okay I want to give all your money to my employee and tell you "tough luck". So, are you interested?

If an employer guaranteed certain things to employees, should he/she/they be let off the hook if the lender is taking a loss?

Every business is a risk. Lenders know that when they lend to an individual/group to start a company, that they may ultimately take a loss. If the person they choose to support makes outrageous promises to employees, then I don't see why they should be shafted.

If there is an agreement both to the employees AND to the lender, then divide up any remaining equity/cash/leftovers among the parties equally.

[Crookshanks]

This shouldn't be an either/or situation. There has to be a way to make things more equitable for the workers without totally sacrificing the incentive to invest.

It made me very angry when all those people at Enron and Worldcom lost their pensions; and I think it sucks when a person works his whole life for a company and then is told "tough luck", the company is bankrupt.

I think this all stems from the same sin - GREED. NONE of these Executives is worth what they are being paid and I wonder where it all got out of hand. A few years ago, when I was still in San Antonio, A T & T laid off about 4,000 workers. But that same year, the CEO was given a 7 million dollar bonus - how is that right? He evidently wasn't doing a very good job if the company was in such bad shape that it had to lay off 4,000 people!

There has to be a middle ground - but I fear people are not willing to work it out.

[clambake]

in the other thread you complained about the WH setting limits on executive pay regarding bailed out companies.

now, look at your above post.

[coyotes_geek]

If an employer guaranteed certain things to employees, should he/she/they be let off the hook if the lender is taking a loss?

Every business is a risk. Lenders know that when they lend to an individual/group to start a company, that they may ultimately take a loss. If the person they choose to support makes outrageous promises to employees, then I don't see why they should be shafted.

If there is an agreement both to the employees AND to the lender, then divide up any remaining equity/cash/leftovers among the parties equally.

Every business is a risk, and the employees share very little of it. Those who are going to shoulder the most risk are the ones who need the most protection in bankruptcy. There shouldn't be an equitable split of the leftovers because there wasn't an equitable share of the risk. You can agree or disagree whether or not that's fair, but it's irrelevant. For companies that rely on borrowed money to continue operating the lenders get to dictate the terms. Because without the lenders, those companies don't exist. Don't like it? Find a way to run your company without having to borrow money. Or even better, if you're a pension fund, be the one to loan your company the money. That way you and your pensioners come first.

[Winehole23]

in the other thread you complained about the WH setting limits on executive pay regarding bailed out companies.

now, look at your above post.Different issue, different take. We're talking about pensions and bankruptcy, not CEOS and bailouts. Crookshanks may be conventionally conservative in most respects, but she is not a doctrinaire free trader that I've seen.

Why do you twit her for her lack of right-wing orthodoxy when you could commend her instead for her brave independence of mind? Her take might be closer to yours than you think, clambake.

[johnsmith]

^^People hate you in real life don't they?

[coyotes_geek]

Sounds like this goes more to timing than to principle, but I see what you mean. There's no actual policy at issue here, so all the facts are speculative. There might be a way to rejigger the equities in favor of pensioners that doesn't unduly compromise the attractiveness of the risk. I don't know. I see no reason to presume this should be the case, and I certainly see no reason to presume that the current scheme couldn't be improved on.

If Mexico is not the model, something in that direction might be. Freezing out pensioners in bankruptcy is eminently not fair and bad policy IMO.

It's not about fair. It's about reality. In a bankruptcy situation the company's survival depends on being able to produce wealth rather than consume wealth. Unfortunately for pensioners they are a non-revenue producing liability in that situation. Sure, there was a time when they added value to that company, but now they're just an expense to a company whose survival depends on reducing expenses.

The solution to this is to get rid of these ponzi scheme retirement plans entirely. Get rid of pensions entirely and go strictly with 401k's or some other system where whatever money is taken from each individual employee is set aside in an account where only that employee can touch it. If we're too nervous about trusting the stock market (which is certainly justified) then take money out of people's checks and buy nothing but treasury notes and stick 'em in a dedicated account for that employee.

That way you're giving employees 100% of their compensation for today's work today instead of giving them some percentage today and an IOU for the remainder some time down the road. That keeps the employees from being dragged down with the company if bankruptcy occurs, and reduces the likelihood the company is ever faced with bankruptcy resulting from pension obligation costs which they can't control.

I have a 401k. My retirement benefit is delivered to me by real money placed in an account with my name on it. It's my money, I'm physically in possession of it, only I can touch it. My employer and I square up every two weeks and if they ever go under I'm still guaranteed to get 100% of what was promised to me for the work I performed. If you have a pension your retirement benefit is just an IOU which your company may or may not be able to deliver on several decades down the road. If your company goes under you're at serious risk of getting screwed badly.

[TDMVPDPOY]

thats bs, yo

mosts businesses dont put money aside for those type of employee benefits, they spend that money to keep the business operating....theres a reason why those sort of benefits appear as "provision for employee entitlemens like LSLS/SL/redundancy etc" on the balance sheet....there is an obligation to pay but in reality thats just account where you put how much money you think is owing to employees.

401k and super is already paid on PAYG out of ur fortnightly check, thats a fiduciary obligation for payroll.

[Winehole23]

Every business is a risk, and the employees share very little of it. Those who are going to shoulder the most risk are the ones who need the most protection in bankruptcy. There shouldn't be an equitable split of the leftovers because there wasn't an equitable share of the risk.Isn't it common for employees of publicly traded companies to be vested in the common stock? If so, this vitiates your point somewhat.

Besides contributing their bodies and minds to their employers, workers also contribute to pension funds. If the minimum due diligence for investors seeks guarantees for risk, why is there no corresponding fiduciary responsibility for the equity stake of workers in bankruptcy?



You can agree or disagree whether or not that's fair, but it's irrelevant.In the larger sense, you're right. Markets are amoral. The little guy will continue to get screwed, while the guys who did it to him get another bailout. In the short term the economy will not suffer from it and there's a case to be made that this has always been somewhat the case anyway.

Whatever makes the banks feel better, right?

[Winehole23]

thats bs, yo

mosts businesses dont put money aside for those type of employee benefits, they spend that money to keep the business operating....theres a reason why those sort of benefits appear as "provision for employee entitlemens like LSLS/SL/redundancy etc" on the balance sheet....there is an obligation to pay but in reality thats just account where you put how much money you think is owing to employees.

401k and super is already paid on PAYG out of ur fortnightly check, thats a fiduciary obligation for payroll.c_g's observation that the gods help who help themselves is pertinent, but IMO your emphasis on the difference in nature of the obligations is correct: it's just reality that pension plans are different. The world might be better off without them, but we still have them.

[Winehole23]

^^People hate you in real life don't they?You care? :lol


:toast

[Winehole23]

"Champagne for my real friends, real pain for my sham friends."

[Winehole23]

I will admit I have not met the SpursTalk Austin cohort in meatspace. Then again, I never met anyone from SR either. I'd like to change that. There should be an Austin GTG.

[clambake]

not with a face like that.

[LnGrrrR]

Every business is a risk, and the employees share very little of it. Those who are going to shoulder the most risk are the ones who need the most protection in bankruptcy. There shouldn't be an equitable split of the leftovers because there wasn't an equitable share of the risk. You can agree or disagree whether or not that's fair, but it's irrelevant. For companies that rely on borrowed money to continue operating the lenders get to dictate the terms. Because without the lenders, those companies don't exist. Don't like it? Find a way to run your company without having to borrow money. Or even better, if you're a pension fund, be the one to loan your company the money. That way you and your pensioners come first.

Those who invest also get the greater share of the profits. They're shouldering the most risk in order to possibly gain the most benefits. The ratio is risk/reward, not no risk/reward.

And of course, I'm not running a business. I'm sure that lenders WILL make up the rules. However, given that our entire system collapsed due to functions performed by lenders, I'm not sure I'm ready to give them much credibility.

Lenders understandably want to have their cake and eat it too. However, if an employer makes agreements to an employee, they should not be allowed to renege on them because the lender wants to downplay their risk.

[LnGrrrR]

It's not about fair. It's about reality. In a bankruptcy situation the company's survival depends on being able to produce wealth rather than consume wealth. Unfortunately for pensioners they are a non-revenue producing liability in that situation. Sure, there was a time when they added value to that company, but now they're just an expense to a company whose survival depends on reducing expenses.

The solution to this is to get rid of these ponzi scheme retirement plans entirely. Get rid of pensions entirely and go strictly with 401k's or some other system where whatever money is taken from each individual employee is set aside in an account where only that employee can touch it. If we're too nervous about trusting the stock market (which is certainly justified) then take money out of people's checks and buy nothing but treasury notes and stick 'em in a dedicated account for that employee.

That way you're giving employees 100% of their compensation for today's work today instead of giving them some percentage today and an IOU for the remainder some time down the road. That keeps the employees from being dragged down with the company if bankruptcy occurs, and reduces the likelihood the company is ever faced with bankruptcy resulting from pension obligation costs which they can't control.

I have a 401k. My retirement benefit is delivered to me by real money placed in an account with my name on it. It's my money, I'm physically in possession of it, only I can touch it. My employer and I square up every two weeks and if they ever go under I'm still guaranteed to get 100% of what was promised to me for the work I performed. If you have a pension your retirement benefit is just an IOU which your company may or may not be able to deliver on several decades down the road. If your company goes under you're at serious risk of getting screwed badly.

Better not take away the military retirement... alot of us have guns.

I mean, I don't, but I have enough friends with a few guns to spare. :D

Agreed about the pensions, but if a company has AGREED to pay for said pensionee, I don't see why the pensionee shouldn't expect that money.

There's a big moral hazard at play here too. What's to stop companies from promising retirement funds to young workers, knowing that they'll be long gone when the bill comes due?

[Winehole23]

Better?

[clambake]

Better?

:lol thank you. now that creepy feeling has disappeared.

[Winehole23]

:lol thank you. now that creepy feeling has disappeared.If only George Gervin had been around to kick the Mavs asses a little longer, the feeling might not have subsided so quickly.:wow

[clambake]

If only George Gervin had been around to kick the Mavs asses a little longer, the feeling might not have subsided so quickly.:wow

what are you talking about?

he could do that right now.

[Winehole23]

:lol

[march11piscesrule]

The best way to understand the financial crisis is to understand the meltdown at AIG. AIG is what happens when short, bald managers of otherwise boring financial bureaucracies start seeing Brad Pitt in the mirror. This is a company that built a giant fortune across more than a century by betting on safety-conscious policyholders — people who wear seat belts and build houses on high ground — and then blew it all in a year or two by turning their entire balance sheet over to a guy who acted like making huge bets with other people's money would make his dick bigger.

http://www.rollingstone.com/politics/story/26793903/the_big_takeover/

[Winehole23]

The Matt Taibbi piece should get its own thread IMO.

[mogrovejo]

The major problem with Taibbi's piece is that he gives Glass-Steagall way more importance than it deserves. Things wouldn't change drastically because if Glass-Steagall wasn't overridden. Plus, the takeover has been going on for decades now. In a better world, this crisis would serve to make people start paying attention to Public Choice theorists; instead, they're focusing on Keynesianism and utopianisms. Regardless, it's a very good article.

[mogrovejo]

James Madison writes about the purpose of why including a bankruptcy clause in the COTUS in the Federalists. Their purpose was to avoid the states to enforce, democratically, bankruptcy laws protecting the debtor (it was current in rural states, where farmers had a large majority of the votes). The original purpose was to protect the creditor - because the last thing a commercial republic needs are legal incentives to increase the cost of lending.

Chapter 11, with its leniency towards debtors, completely frustrated and perverted the original purpose of the clause. That's the biggest problem with US bankruptcy laws, not the pecking order of the creditors.

Anyway, during more than a century there were no federal bankruptcy laws and they weren't needed. This should be a subject of corporate law.

[coyotes_geek]

Isn't it common for employees of publicly traded companies to be vested in the common stock? If so, this vitiates your point somewhat.

Besides contributing their bodies and minds to their employers, workers also contribute to pension funds. If the minimum due diligence for investors seeks guarantees for risk, why is there no corresponding fiduciary responsibility for the equity stake of workers in bankruptcy?

Now you're talking about stockholders, not lenders. Two different beasts, two different sets of risks and rewards. The potential reward for stockholders is unlimited whereas the potential reward for lenders is limited to whatever interest rate they agreed to loan out their money at. Conversely, the downside for stockholders is also unlimited. If they company goes bankrupt, they lose everything. Since the lenders are restricted to a limited upside, their downside also needs to be limited, which is what the bankruptcy laws do.

We also need to keep in mind that the pension funds are separate from the company itself. If the pension fund invests in company stock, they get the same rights as any other stockholder. If the pension fund acts as a lender and invests in company bonds, then they get the same rights as any bank or other lender. But in and of itself, the pension fund from the company's perspective is just a place they agree to send a portion of their employees compensation to, just like a regular paycheck.


In the larger sense, you're right. Markets are amoral. The little guy will continue to get screwed, while the guys who did it to him get another bailout. In the short term the economy will not suffer from it and there's a case to be made that this has always been somewhat the case anyway.

Whatever makes the banks feel better, right?

I don't like it, but yeah, that's exactly right. It's up to the little guy to do whatever he can to protect himself, because no one else is going to do it for him. If we learn anything from this crisis it needs to be this. Banks are more important than people. We, as people, don't want to hear that, but it's the truth. We're seeing now that when banks freak out it all falls apart. The best we can do is try to insulate ourselves by not placing huge debt burdens on ourselves. Which is why we should all be worried about the debt our government is running up. If (when) it comes time for our government to choose between paying the interest on our debt or honoring the promises made by social security and medicare, make no mistake, the banks are going to get their money. If that means millions of Americans have to grow old in poverty and without healthcare, then so be it. That's exactly what's going to happen. Because the alternative is causing another global financial crisis where far more people end up hurt.

[Winehole23]

Now you're talking about stockholders, not lenders. Two different beasts, two different sets of risks and rewards. The potential reward for stockholders is unlimited whereas the potential reward for lenders is limited to whatever interest rate they agreed to loan out their money at. Conversely, the downside for stockholders is also unlimited. If they company goes bankrupt, they lose everything. Since the lenders are restricted to a limited upside, their downside also needs to be limited, which is what the bankruptcy laws do. Thanks for the thoughtful reply, CG.



We also need to keep in mind that the pension funds are separate from the company itself. If the pension fund invests in company stock, they get the same rights as any other stockholder. If the pension fund acts as a lender and invests in company bonds, then they get the same rights as any bank or other lender. But in and of itself, the pension fund from the company's perspective is just a place they agree to send a portion of their employees compensation to, just like a regular paycheck. Sometimes funny things happen to the pension, as TDMVPDPOY pointed out, but I agree completely. The pensioner depends upon somebody else to make the contribution faithfully.


I don't like it, but yeah, that's exactly right. It's up to the little guy to do whatever he can to protect himself, because no one else is going to do it for him. If we learn anything from this crisis it needs to be this. Banks are more important than people. We, as people, don't want to hear that, but it's the truth. We're seeing now that when banks freak out it all falls apart. The best we can do is try to insulate ourselves by not placing huge debt burdens on ourselves. Which is why we should all be worried about the debt our government is running up. If (when) it comes time for our government to choose between paying the interest on our debt or honoring the promises made by social security and medicare, make no mistake, the banks are going to get their money. If that means millions of Americans have to grow old in poverty and without healthcare, then so be it. That's exactly what's going to happen. Because the alternative is causing another global financial crisis where far more people end up hurt.I hope everybody heard this. It ain't no freaky 20th century no more.

I don't know it for a fact that we can't afford the promises we made ourselves, because nobody can know the future. The optics aren't too good..

[Winehole23]

James Madison writes about the purpose of why including a bankruptcy clause in the COTUS in the Federalists. Their purpose was to avoid the states to enforce, democratically, bankruptcy laws protecting the debtor (it was current in rural states, where farmers had a large majority of the votes). The original purpose was to protect the creditor - because the last thing a commercial republic needs are legal incentives to increase the cost of lending. We are still important agriculturally, but very few of our citizens are farmers...there is an effective currency now...and how the equities lie as b/w creditor and debtor has somewhat changed IMO.



Chapter 11, with its leniency towards debtors, ...That's the biggest problem with US bankruptcy laws, not the pecking order of the creditors. Bankruptcy strives to keep the debtor whole within his obligations, rather than torn asunder by them. Perhaps there is still wisdom in this arrangement, even though it rends the creditor.

Unlike Prometheus, debtors' livers don't grow back overnight. So in bankruptcy the court oversees the orderly destruction of the wealth of the petitioner and his creditors both, that they all might eventually survive to fight each other another day in court.


Anyway, during more than a century there were no federal bankruptcy laws and they weren't needed. This should be a subject of corporate law. Does corporate law overlook it? I would assume it does not but confess to knowing bupkis.

Anyway, your emphasis on the US Constitution was germane and helped keep the discussion within reasonable bounds. Nice post, mogrovejo.

[Winehole23]

In America, we are still getting plastered by the knock-on from abusive lending.