Epstein on the GM and Chrysler Bankruptcies

Over at the website of The Freeman, published by the Foundation for Economic Education, Richard Epstein has published an article entitled "Political Bankruptcies: How Chrysler and GM Have Changed the Rules of the Game." Below is an excerpt:

The topic of corporate bankruptcy law scarcely titillates the imagination of ordinary citizens, even those with a deep interest in constitutional and public affairs. Harried people treat bankruptcy almost dismissively as a useful way of winding up firms that cannot keep their financial heads above water. In practice they sense rightly that the corporate bankruptcy system cleanses the economy of weak players by their liquidation, reorganization, or sale, hopefully to allow their assets to be released to more productive uses. Explaining how bankruptcy works isn’t a fit subject for polite company.

Those perceptions have changed now that the Chrysler and GM bankruptcies have set a new standard for the fast resolution of some complex if dubious transactions. So troublesome questions arise: Did these transactions comply with the rule of law? Were the property rights of the secured creditors fully protected in the expedited proceedings? Will the process bring confidence to the credit markets? No, no, and no again. Those three “nos” come as no surprise. The basic classical liberal position is right to insist that the government cannot sensibly occupy the roles of market participant and market regulator simultaneously. All else is detail.

You can read the rest of the article here.