Bankruptcy Is Economic Stimulus
(2009-03-25 at 20:56:28 )

Bankruptcy Is Economic Stimulus by Congressman Ron Paul
From the LewRockwell.com website

The distraction on Capitol Hill this week has to do with the jackpot
bonuses that executives at AIG recently received. The argument is over a
relative drop in the bucket. The total amount of bonuses given out was
$165 million. The government has put $170 billion into AIG so far. Many
now are demanding we get this money back. We ought to be spending our time
and effort doing something more worthwhile, like figuring out how the
Federal Reserve is handling the trillions of dollars they are creating and
pumping into the economy, and how that is affecting the purchasing power
of dollars in your pocket.

The big mistake was appropriating the TARP funds in the first place. A
Johnny-come-lately bill of attainder will not stop the spending epidemic.
This whole situation is a perfect demonstration of why Doing Nothing and
letting failing companies fail would have been much better than sinking
valuable money and resources into them.

When a company makes a profit, it is a signal that it is taking resources
and increasing their value while controlling costs. When a company
operates at a loss, it is a signal that it is decreasing the value of its
resources or letting out-of-control costs outstrip any value it has
created. A company operating at a loss is therefore an engine of Wealth
Destruction. Bankruptcies are a net positive for the economy because more
productive competitors are rewarded by opportunities to buy up remaining
assets at bargain prices to strengthen their operations. In an economy
that allows this kind of growth and change, any jobs lost by bankruptcy
are soon replaced by new ones as the most efficiently managed businesses
gain access to more assets and expand.

Bankruptcy was the stimulus that we needed in the case of AIG. More
Bankruptcies would clean out malinvested resources and enable economic
growth again.

AIG, by losing money and maneuvering their operations to the brink of
bankruptcy, was telling us that they were inefficient. So what did we do?
We forced the taxpayer to assume the losses, and now we are supposed to be
shocked that it is not working out. Had AIG gone bankrupt, it would have
been impossible to hand out these bonuses. The taxpayer would have been
fleeced for $170 billion less last year. Had they gone bankrupt, the world
would not have come to an end, it would just continue on with one less
Engine Of Wealth Destruction.

We should have learned from Japan. 1990 - 2000 is referred to as the Lost
Decade in Japan because of the zombie banks kept on life support by the
Japanese Government. Any productivity was redirected through these engines
of Wealth Destruction, resulting in long-term stagnation. We should and
can avoid this outcome if We Come To Our Senses.

A recession should be a time of strengthening and regrouping for an
economy. But as long as the government insists on maintaining the status
quo by propping up failed institutions, we will continue to dig a bigger
hole for ourselves.