Bankruptcy or Bailout ?
The
efficient approach to a failed firm that cannot pay its bills is bankruptcy. A
car firm that cannot sell cars should go bankrupt. A bank that makes too many
bad loans should go bankrupt. Bankruptcy is a normal part of unpredictable
economic life. Bankruptcy law requires debtors and then stockholders are repaid
when any remaining assets are sold. A more efficient car company or bank can buyout
the failed firm. The government instead bailed out banks and car companies
following the 2008 financial crisis. Government bailouts keep an inefficient
firm in business at the expense of taxpayers.