Tuesday, September 30, 2008

Bankruptcy, not bailout, is the right answer

"Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources."

Commentary: Bankruptcy, not bailout, is the right answer - CNN.com

2 comments:

EJ said...

Hi Truth Handler - I really enjoy your blog, and link to it in my blog, http://partyofreagan.blogspot.com. Keep up the great insights! --EJ

The Truth Handler said...

Thanks, EJ. I appreciate the comment. I'll check yours out, too.