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« Weathering Corruption in the Boston Globe | Main | Paul Krugman Doesn't Get It, Part Whatever »

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Yes, I was arguing the same for what concerns bank bankruptcies: the orthodox view is that massive bank failures imply an informational disruption and a large loss of efficiency of financial markets. This is the rationale behind bailouts. However, the informational capital of banks remain intact: hard discs, files, interpersonal relations, human know-how.

There can't be much more than a short term organizational problem behind this argument.

PS The only good point is that banking is the only market that doesn't work without the delusion that these institutions are sound. Everybody knows they are not, but when it comes to realize it it's a social tragedy. That must be some sort of madness.

Based on the media coverage you would think that if GM, et. al. went backrupt they would just vanish with devastating consequences. In fact the net effect of the bankruptcy is that the creditors become the new owners as the current stock holders are wiped out. The new owners (former creditors) get to pick new management that (hopefully) know what they are doing hence the disgracefull beggging for money in front of congress -- the current management is begging for another chance sanctioned by the government.

I can see a flaw in your logic. Generally speaking, going bankrupt ensures only a CHANGE of the capital owner, not neccessarily an IMPROVEMENT of them.

A properly managed company with smart personal could nevertheless go bankrupt due to unlucky timing of financial events. And vice versa, a company managed by idiots and weasels could avoid bankrupsy, just because one of their stakeholders happens to be a billionaire and can invest some more private money.

A bailout, when provided under strong additional requirements posed to the management, can be a more predictable and controlled way to learn the lessons.

Thanks for nice post.It is really very interesting to read the article.
I have gone through many blogs, sites and forums which been providing great knowledge about the same, as like recently i was reading something about bankruptcy on http://www.jrlaw.org/ the information that shared here is also great.
I appreciate your work for this post, sure I'll come across your blog again when you will share something new.
Thanks,

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