There isn’t, but there is a Bankruptcy Clause [i](Article I, Section 8, Clause 4).[/i]
The framers of the U.S. Constitution specifically anticipated that the nation would encounter economic troubles from time to time. So they gave Congress the power to enact bankruptcy laws, as opposed to ?bailout? laws. And throughout U.S. history, the various economic ?Panics? ? which occurred every couple of decades ? always led to one direction or another in the evolution of state and federal bankruptcy laws. Hey, bankruptcy works.
At times in U.S. history, the bankruptcy laws favored the creditor class. During other times, the bankruptcy laws favored debtors. The point is that the economic hardships were eventually manifested in bankruptcy proceedings.
Just as all rivers flow to the sea, bad debt must find its way to discharge. So bankruptcy court was where judges and attorneys and other financial experts (like accountants and actuaries) could deal with each case on the merits. The problems could come to some sort of resolution. Some people came out OK. Other people lost everything. But capital flowed from weak hands to strong hands, and the economy moved along.
Why Not Bankruptcy Process?
But not today. Indeed, according to the New York Times many law firms ? including firms that focus on bankruptcy work ? are actually scaling back and laying off staff. Why is that? Why are the politicians so eager to avoid seeing companies go into bankruptcy? The government is trying to solve the problems of gargantuan levels of debt ? along with chronic insolvency and illiquidity within the economy ? without resorting to the constitutional-based legal mechanisms and tools that have served the nation well for over 200 years.
Consider the problems of derivatives. Few understand them. Many so-called derivative ?contracts? are little more than mathematical formulae based on a series of futuristic occurrences that are entirely speculative. Their initial value in the best of times was entirely somebody?s guess. So is it any surprise that it is all but impossible to place a value on such things during the throes of a recession? Yet derivatives are some of the ?troubled assets? that the Treasury is attempting to bail out. This is ridiculous!
Why is the Treasury allowing even one dollar of taxpayer money to get near a derivative? Why not use the bankruptcy process in this kind of situation? The companies that hold unsalable derivatives should have to go into a Chapter 11 proceeding and let a bankruptcy court sort it out. If the derivatives have value, let someone say so ? under oath ? in front of a federal judge. If the derivatives are worthless, let the judges do what we pay them to do ? void the instruments and allocate the losses.
Sure, bankruptcy cases take time to roll through the courts. But could Chapter 11 bankruptcy be any worse than the current drip-drip-drip, hemorrhage of funds into the black hole of the likes of AIG? And at least some bankruptcy judge might just put a stop to the AIG exploits of taking nice vacations to exotic resort locales.
Or what about the U.S. automobile industry? Now the domestic carmakers want some of that TARP money too. Or else what? They?ll have to file for Chapter 11? Yeah? And then?
Well on the day that the automakers file for bankruptcy, the automobile factories will still be there. The patents and designs aren?t going anywhere. The workers and design teams will stick around for a while ? it?s not like there are a whole lot of other jobs out there, except maybe raking leaves in leafy suburbs.
It seems to me that General Motors, Ford or Chrysler ? without the legacy costs of pensions and health care and featherbed contracts for non-working union members ? would actually be a decent investment for a Debtor-in-Possession (DIP) form of financing. Any DIP-lender worth its salt would certainly go into the management suites to take names, kick ass and get rid of the deadwood. And over the long term, if U.S. automakers actually paid more for steel than they have to pay for retiree health care, then we might actually see a revival of that industry.
At present we are losing time and once time is gone, it is gone forever. It is the same thing with the declining U.S. and world economies. The world?s central bankers and treasury ministers dither, and squander capital into bottomless pits of a deflationary recession.[i](and dare we say it? Perhaps Depression)[/i]
But the great villain in all of this is debt, pure and simple. And much debt is just a collection of bizarre debt instruments, exotic forms of speculative contracts, and obligations so massive that they will never be repaid. So why prolong the agony? Liquidate it now. Let the bankruptcy courts do what the framers intended.
[b]Dawg[/b] ]:)
[b][i]Ah, they’re all probably saying Ol’ Sleepin’ Dawg is runing on about the U.S.Constitution again,?as if anyone gives a damn, or pays attention to that ol? thing.
In these heady days of government bailouts and money creation, bringing up the Constitution is like quoting scripture at a bacchanal, or farting in church.
Would anyone be willing to take odds that Congress and our next President will continue to pretend the Constitution doesn?t really exist?[/i]
[b]Dawg[/b] ]:)