Bankruptcy or Bailout?

Henry Thompson


The market approach to a failed firm is bankruptcy. A firm that cannot pay its bills should disappear. A bank making too many bad loans should go bankrupt. Bankruptcy is a normal part of economic life with laws that guarantee debtors and then stockholders will be paid as much as possible. A more efficient firm can take over the business depending on what the customers want. The government has recently bailed out banks and car companies, more for political than economic reasons. Government bailouts may keep a firm in business but at taxpayer expense.