It’s happening again

For mere mortals – aka the multitudes who trudge to work, trying to make a buck to pay the rent or mortgage, maybe save some money for the future – debt has real consequences. If you have too much of it, the finance charges alone can be crippling. If you have too much of it, purchasing a car, house, or even the basic necessities of life can become very problematic, if not impossible. This is why most people live within their means….they have to. Not a bad thing, really.

But in today’s Wall Street Journal we read about corporate debt and bankruptcies in “The Power Players That Dominate Chapter 11 Bankruptcy”. It is an eye-opening piece that places exclamation points on a number of misguided realities of American financial life. It reinforces why I have consistently referred to the “bankruptcy expert” ever since he began his run for the White House. His is the ultimate example of gaming a system designed not so much to create value in the overall economy as it is to allow the wealthy gain even more wealth.

Bankruptcy laws allow corporate heads without any of their own skin in the game to borrow ridiculous sums of money, which they then leverage even more to take on ever-increasing amounts of debt. If all this debt produces a profit at some point — bingo! Cash out. If instead the company goes bust, well, the corporate chiefs have been well compensated, even receiving bonuses for inferior performance. So it’s a system that’s just asking for abuse. This is why the legendary Warren Buffet says laws should be changed. If a CEO runs a company into the ditch, that CEO, personally, as well as his immediate family, should have their wealth clawed back…just like real people, not corporations falsely labeled as people by the Court.

We again see abuse as corporations take on unsustainable debt. What’s even more troubling is that these are the good days for an economy kicked into gear a decade ago by emergency efforts of both the Bush and Obama administrations. It is easy to imagine what will happen when the inevitable recession hits. We will again have massive bankruptcies, the corporate hierarchy will walk away with their golden parachutes, the bankruptcy lawyers will receive tens of billions of dollars in fees and the average guy on the street? Take a guess. No doubt she and he will help pay for this corporate malfeasance just like last time.

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