David Wessel explains in the Wall Street Journal
of the rational behind bacnkruptcy. In Bankruptcy Is Vital to Capitalism
America is relearning an old lesson: Failure and bankruptcy are essential to capitalism.
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Bankruptcy is an orderly way to give an overburdened debtor a fresh start and to decide which creditors get paid back and which don't. As Nobel laureate Joseph Stiglitz teaches: Bankruptcy is a way to cope with those times when markets fail to allocate capital wisely and monitor its use.
In good times, bankruptcy is a way to encourage risk-taking. After all, an economy in which everyone fears trying something that might fail is a stagnant one. But the roots of modern American business bankruptcy date to bad times like today.
Bankruptcy is not a death sentence. It's more like an organ transplant. It can save a company's life, but sometimes the patient dies. Bankruptcy is unpleasant and should never be so easy that it encourages foolishness. Headline-making bankruptcies of several brand-name companies at a moment of severe economic crisis can so undermine confidence in the economy that avoiding them makes sense.
But bankruptcy, or some other orderly process to share the pain, is the only way to prevent mistakes and debts of the past from hobbling an economy's future.