dislocation is an inherent element in any financial system. One way to deal with balance sheet imbalances is to declare bankruptcy.
The most common examples of liquidating default without payment are to petition the court to absolve debt obligations. Personal
bankruptcy is tragic, but is common in a culture where immediate consumer gratification is the end all of a private excess
society. Business bankruptcy is different because the underlying enterprise assumes all the risks of engaging in commerce.
Even prudent expenditures and sound business activities can go sour that ultimately results in insolvency.
Both personal and business bankruptcies share the plight of a negative cash flow
that prevent serving indebtednesses. The fault and blame may not rest on the principals of the business venture as much as
the lack of discipline in consumer spending for an individual. However, the general economic climate and availability of banking
resources are prime factors that affect fluctuations in Chapter 7 or 11 filings. This election year the effects of the previous and unprecedented Federal Reserve stimulus reflect government-reporting
bias. Business vs. consumers in bankruptcy
filings provides the standard spin.
"Compared to 2010, business bankruptcies declined 15.1% and non-business filings dropped 11.3%, the U.S. Bankruptcy
When the recession started at the end of 2007, business
bankruptcies rose more quickly than those filed by consumers, the court reported. In 2008, business bankruptcies rose 53.7%
and nonbusiness filings rose 30.6%. That trend continued in 2009 when business bankruptcies rose 39.7% and nonbusiness filings
were up 31.5%.
But then in 2010, business bankruptcies fell
while consumer filings continued to climb."
any consumer knows firsthand, personal credit loans are virtually nonexistent. About the only form of bank credit left to
the individual is to borrow at usury rates off credit cards. Mortgage foreclosures have not subsided. Home loans are poised
for another round of defaults. Most families have tightened their belt. Valiantly they attempt to reduce their debt load and
lessen their monthly payments. Nonetheless, the continued persistence of high unemployment and underemployment coupled with
the lack of fresh bank loan access drives more individuals into bankruptcy court.
Is this the description of an authentic recovery? Even a temporary decrease in business failures does not translate
into a general economic recovery. How many private sector businesses started since the collapse of the 2008 financial bubble?
Government approved and funded speculative "Green" ventures seem to be the greatest beneficiary of a propped up
economy. Soon another round of massive defaults awaits public scrutiny. Add into this environment the next segment for failure; namely, municipalities. Bankruptcy for cities reports,
cities — with a population of about 75,000 to 500,000 — are more likely than in the past to file for Chapter 9,
says David Dubrow, a partner in the New York office of the Arent Fox law firm and author of "The Treatment of Municipal
Debt Under Chapter 9 of the Bankruptcy Code." "The [federal and state] support cities have been able to get in the
past is much more limited now," Dubrow says. Also, the support states do provide is more likely to go to larger cities,
It is obvious that strained and
burdened taxpayers cannot fund the myriad of government pledges made over the decades to buy votes and seduce citizens into
the welfare state. Small town jurisdictions have fewer options to raise taxes, than states or the federal government. Their
citizens are usually their neighbors. The economic hemorrhaging that shrinks tax revenue leads to shortfalls that eventually
can lead to a total default.
Since the lack of will to institute
fundamental and comprehensive reform of civic spending on all levels is the operative norm, the prospects for avoiding public
bankruptcies are bleak.In an article, If a Town Can Go Bankrupt, Why Can’t
the U.S.? in TIME – Moneyline the following point is made.
folks now understand that defined-contribution plans have come to replace defined-benefit plans. It is perhaps the most far-reaching
development in personal financial planning in many decades and represents a seismic shift away from the era of social safety
What is new and shocking to many, though, is the vulnerability
of our governmental bodies. They’ve reached the breaking point. They are unable to borrow enough or tax enough to make
good on all their promises."
the punishment of the marketplace disciplines foolish decisions. In politics, the greater the giveaway program financed with
deficit spending, the longer your career in office. How can the economy grow its way out of these systemic and mathematically
impossible obligations? Paying the piper now means starving the taxpayer.
The short-term trend dip in business bankruptcies has more to do with working the accounting numbers than a bounce
back of a vigorous economy. As true as it is that the business sector is the more likely to repair their balance sheet before
the consumer and certainly municipalities, the prospects remain strained.
As usual, the phony bank debt method of finance causes the inescapability of bankruptcy on each level. Even so, bankruptcy
is the solution in the public realm. How else can the public chastise the careerist political class into relinquishing their
practice of endless spending?
The fundamental causes of the
Wall Street collapse just paper over the symptoms, without any meaningful closure, and will not stop the leveraged gaming
practices that built the debt bubble in the first place. Small business and individual consumers paid the heaviest price of
the meltdown. Big business, bailed out or rescued by mergers, continues to rape the economy.
Will government entities wear a stigma of bankruptcy proudly or will they invent even more draconic schemes to extract
riches from those who actually create the wealth? You probably know the deplorable answer. As long as the controlled business
marketplace is dominated by a partnership of corporatist and central government planners, the true main street economy will
suffer. Embrace the insolvency of the financial debt pyramid as the resolution of the bankruptcy society.
James Hall - May 9, 2012