21 March, 2012

The Age of Double Standards

The Age of Double Standards: There is indeed a moral-hazard problem, it turns out, but it lies in the increasingly promiscuous use of corporate bankruptcy. The vaunted economic efficiency of Chapter 11 depends on a tacit balancing act between the expedient temptation to blow off your debts and the lingering shame attached to “going bankrupt.” If Chapter 11 becomes too common, it ceases to be efficient because it frightens off investors. The supposed shifting of norms, in which people no longer feared the stigma of bankruptcy, was the argument made by bankers in the legislative battle to make bankruptcy less available to ordinary citizens. It was an epic case of corporate America admonishing the citizenry to do as I say, not as I do.