The Greatest American Financial Innovation: Easy Bankruptcy
I am making this old post sticky for a couple of days.
The most important american financial/social innovation is – easy bankruptcy. Yes, that is right. In no other culture/ nation is it (or was it) so easy for people or business to declare bankruptcy and rebuild their lives.
A major stumbling block for innovation in asian and to some extent european cultures is that they have almost no concept of second and third chances. Since, most innovators rarely get it right the first time around, cultures that make it impossible or hard for innovators to have multiple tries lose out on innovation.
Properly analysed failures are often the stepping stone to subsequent success, but only IF second or third chances exist.
Asian cultures, with their traditional hive-mind zero sum stupidity, are the worst affected by this flaw. European cultures are less affected, but have still lost many chances because of traditional zero-sum beliefs about money.
Comments?
This is very true. Many European countries have no personal bankruptcy filings. Even though you can get creditors off your back, creditors can always re-open any covenant if your ability to pay increases significantly. Bankruptcy levels the playing field. It is like a game of monopoly: after someone wins, you start over. Starting over makes lenders more cautious, which is good: Renteniering from the proceeds (income) of bid-up assets is free-lunch parasitism which often does NOT result in real capital investments (plant & technology) or industry/ecnonomic activity.
Problem is, the banks made bankruptcy a lot harder for individuals. During the Bush administrations, banks lobbied for and got greater restrictions on how individuals could use bankruptcy. They said it was too cut down on abuse of the system, despite the fact there are already laws in place to catch such scofflaws. But when the banks had trouble with their bills, they were able to get a bailout in less than 30 days to the tune of $700 billion.
There’s a recent NY Times article on how horrible the bankruptcy/mortgage laws in Spain are. Basically, you can’t get rid of an underwater mortgage through bankruptcy or foreclosure. The bank can still foreclose on you and then you are responsible for the price of mortgage plus a hundred thousand or so in court costs and fees and the bank’s lawyer bill minus only 50% of the value of the actual house.
So basically, if over here everyone foreclosed upon was still $200,000 in debt and had no home and no hope of bankruptcy, then the banks wouldn’t have had any toxic assets to write down.
http://www.nytimes.com/2010/10/28/world/europe/28spain.html?_r=1&src=me&ref=general
GM is still around, what happened to that innovation?
This is an excellent point, and I think one that not many people realize.
yup, bankruptcy is not something to be ashamed of, sh*t happens….
did you read that article on imalafide with that femanzi trying to shame people who can’t afford to pay their debts in good faith to “man up?”
I had commented on this earlier, agree 100%.
The famous liberty bell (America, the land of the free) has inscribed on it a verse out of the Old Testament (Lev 25:10) “Consecrate the fiftieth year and proclaim liberty throughout the land to all its inhabitants. It shall be a jubilee for you; each of you is to return to your family property and to your own clan.”
This is not about some abstract freedom of doing what you want, but is in the first place freedom from debt-slavery. Incidentally, the “jubilee” tradition is already attested to in bronze age Mesopotamia in 2300 BC, where they literally smashed the (clay tablet) ledgers. Like monopoly, once it gets boring and you know who is going to win, you start the game all over.
In the same tradition, the gospel of Luke states that Jesus’ first public deed was to read from the scroll of Isaiah in his place of birth: “He has sent me to proclaim freedom for the prisoners.” Since crimes were not resolved with prison time in those days, prisoners usually refers to people in debt bondage. Jesus’ last public deed was to evict the bankers from the temple (with an improvised whip!). Three days laters he was dead.
This is a very important tradition which was still understood at the time America freed itself from servitude to the British crown. Forgiveness of debts and freedom from debt peonage. According to Benjamin Franklin, the revolution began because the British forbade the colonies from issuing their own paper money.After all, the colonies ran afoul of the British prohibition on circulating their own form of currency.
Bankruptcy and forgiveness of debts is the bedrock of the American experiment. Nothing is more deadening between individuals and between nations than the refusal to cut your losses and start over, insisting only that all old scores have to be settled before moving on: What cannot be paid will not be paid.
The big problem is when “Let’s give second chances to potentially productive people” turns into “Let’s subsidize the lives of miserable failures.” Where I live, at least, hesitancy about the latter is what prevents the former.
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That is why all CONservatives should be made to eat their tortured and dead kids before they are killed.
This is off-topic but I am curious what your thoughts are regarding the use of Google Voice for hobbying purposes, as opposed to say a pay-as-you go phone.?
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Escorts feel safer when you are using a real cell-phone, even if it is a pay-as-you go phone.