A company or other organization, or an individual, is insolvent when its liabilities (what it owes) exceed the market value of its assets. Bankruptcy is a legal mechanism for liquidating or reorganizing an insolvent entity in a way that maximizes value for the creditors. When a firm is insolvent, each of its creditors is eager to be repaid what he is owed, out of the firm’s assets. By definition those assets are insufficient to satisfy all the creditors’ claims, so the creditors race to obtain judgments, which are then satisfied by sale of the firm’s assets, perhaps at fire-sale prices because of the race. Even if the firm could be saved as a going concern by eliminating some of its debt burden (its liabilities), transaction costs will make it difficult for the creditors to agree on how far their respective claims will be written down—how in short to share the grief. In a bankruptcy proceeding, the creditors are barred from suit and the judge supervises an orderly disposition of assets (whether by liquidation or by placing them in a reorganized entity) designed to maximize their value and hence the creditors’ ultimate return.
Bankruptcy is not limited to individuals and business firms; under
A nation has creditors in both a narrow and a broad sense. In the case of our federal government, they are of four types: owners of federal securities (Treasury bonds and short-term bonds called Treasury bills or Treasury notes); other persons or firms that have contracts with the federal government, for example for sale of goods or services to it; holders of federal entitlements, such as social security, Medicare, Medicaid, and the pensions of retired federal employees; and beneficiaries of government services (as distinct from transfer payments), such as drivers on interstate highways and visitors to national parks, as well as the population at large, which is protected from crime and foreign aggression by federal police and military forces.
The first two categories of holders of government “debt” in a broad sense—owners of government bonds and holders of government contractors—correspond closely to the creditors of private companies. The third does not because federal entitlements can always be cut with impunity, from a legal standpoint; and the fourth are not entitlements, but services that are funded by annual congressional appropriations and so can be altered without being thought to disrupt settled expectations; they are the domain of “discretionary” government spending, though in a legal sense entitlements are discretionary also rather than being fixed and legally enforceable obligations.
But remember that insolvency is the condition, bankruptcy merely a treatment for the condition; and a condition is not less grave just because the best treatment for it is unavailable—in fact the condition is more serious in that case.
These reflections are suggested by the first issue (August 25) of a new publication by Morgan Stanley called Sovereign Subjects. The first issue is captioned “Ask Not Whether Governments Will Default, but How.” It is a criticism of the conventional method of evaluating a nation’s economic condition, which is to compare public debt (government bonds) to Gross Domestic Product. In the case of the
Because American tax rates are low by international standards and resistance to increasing them is fierce, Morgan Stanley’s report estimates that the ratio of current
What does a firm or an individual do when it is broke and there is no bankruptcy regime? It defaults. Nations do occasionally default on their bonds or other contractual obligations; or, if the bonds or other obligations are denominated in the local currency, they inflate the currency and so repay their obligations in cheaper money, which is the equivalent of a partial default. The
The deeper the financial hole that the government has dug for itself by incompetent economic management—and our government has dug itself a very deep hole, largely because of the mismanagement of monetary policy and financial regulation by the Federal Reserve under Greenspan and Bernanke and by other government agencies—the more difficult it is to climb out of the hole on the backs of holders of entitlements and recipients of government services. The political resistance is too intense. It’s at that point that the bondholders, and holders of other contractual rights against the government, have to start worrying about the prospects for outright default or default through inflation. These are possibilities in our future, just as in the future of
The articles are structured in such a way that you can Comment on an article directly or Reply to a Comment made by another. Simply click on the [Reply] link below their Comment.
Posted by: book report writing | 12/14/2010 at 06:44 AM
The articles are structured in such a way that you can Comment on an article directly or Reply to a Comment made by another. Simply click on the [Reply] link below their Comment.
Posted by: courseworks | 12/14/2010 at 06:51 AM
Cleaning services is very much required if the federal government has broken.
Posted by: Cleaning services | 12/20/2010 at 06:31 AM
It is always lovely to experience access to the information released at this article.
Posted by: IGNOU Distance Learning | 12/30/2010 at 03:35 AM
This post was very nicely prepared, and it also contains numerous helpful points. I appreciated your expert manner of writing this post. You have made it is simple for me to understand.
Posted by: best wireless headphones | 01/05/2011 at 07:46 AM
Thanks for sharing your views.
Posted by: Ruby on Rails Developers | 01/12/2011 at 01:54 AM
Nice post!
I want to thank you for this great post. It increase my GD ability.
Posted by: CNA training | 02/11/2011 at 06:50 AM
You are too rush today, calm down and take a breath
Posted by: Cheap Jordans | 02/20/2011 at 07:52 PM
California is broke,and that's the size of many countries, how long before the country it self is broke?
http://www.plansforwoodworkingprojects.com
Posted by: Best Tooth Whitener | 02/27/2011 at 04:56 AM
I actually don't really care for chocolate that much. Nor am I in the habit of sitting around doing nothing. But I really am trying to relax more than I ever used to, and certainly more than my natural proclivities feel comfortable with.
Posted by: cheap jordans | 03/04/2011 at 01:22 AM
Aha the answer is yes!!!
Posted by: stone crusher | 03/10/2011 at 02:34 AM
Can the banker in Monopoly go broke when he controls the supply of money?
Posted by: Cone crusher | 03/10/2011 at 02:36 AM
Sounds like a great night out, two of my favourite personalities and comedians, Michael McIntyre and Ian Holloway, I would have loved to have heard MMs impression of Ollie, that would have been great, I will need to check YouTube to see if the gag is there.
Posted by: air jordan 3 for sale | 03/21/2011 at 02:39 AM
i thought this was funny. Natalie Dee's comic shows what happens between egg friends when one them becomes a chicken. As Serious Eats put it...
Posted by: supra shoes | 03/25/2011 at 02:05 AM
The federal government is broke. No doubt about it in my opinion
Posted by: maak je eigen website | 04/26/2011 at 07:50 AM
very happy to read your blog.
Thanks for sharing this nice post.I will keep your article in my idea.
Posted by: wholesale jewelry | 04/29/2011 at 12:39 AM
!@&*(__ow my love and my heart, why, you will be regret i promise&&**__*())
Posted by: oakley sunglasses | 05/10/2011 at 09:54 PM
*-*I am almost finished with the book!!!!
It is soooo good and so inspiring. It would be one of my favorite books even if I didn't know the family involved. *-*
Posted by: vibram toe shoes | 05/13/2011 at 10:45 PM
Bankruptcy is not limited to individuals and business firms; under U.S. law, even a city can be declared bankrupt; and this happens occasionally. In one Illinois town, the bankruptcy judge ordered the sale of city hall to satisfy creditors’ claims. U.S. states cannot be subjected to bankruptcy proceedings, and neither can the federal government, or the governments of other nations. But that doesn’t mean that a state or nation can’t be insolvent. Insolvency is the condition; bankruptcy is a method of treating the condition.
Posted by: Rosetta Stone | 05/21/2011 at 03:04 AM
Thanks for the cool badgees! When do we find out who the Petties nominees are???
Posted by: MBT Sale | 07/09/2011 at 08:13 AM
Jede Frau möchte sehr wohl fühlen in dieser Nacht, fast alle romantisch mag, und zusammen mit dem Seidenchiffon [url=http://www.magiebridal.com/]brautjungfer kleider[/url] im Baseball. Die [url=http://www.magiebridal.com/]hochzeitsgeschenke[/url] hat Spaghettiträger mit einem weichen Geschmack wuchs kleinen Details auf der Halsseite. Die einzelnen macht eine geraffte Taille Bauch in den Komfort und schimmerndem Satin bodenlange bevorzugte getan. Als zusätzliche Belohnung Potential, ist dies vor allem Junior-Brautjungfer, [url=http://www.magiebridal.com/]brautkleider[/url] über vierzig Farben stehen zur Auswahl! [url=http://www.magiebridal.com/]hochzeitskleider[/url] erst einmal Spaß machen eigentlich! Arbeiten mit einem von ihnen bewusst Modelle zur Verfügung, fast alle Begleiter Modelle Modell wird wahrscheinlich einen angenehmen und komfortablen Erlebnis für die Ehe, aus der sein.
Posted by: wedding | 08/02/2011 at 03:55 AM
Thanks for sharing.Great post, lets get some more.
Posted by: mobile crusher | 08/22/2011 at 08:19 PM
You can find many online retailers, wedding dress designers and boutiques offering a variety of styles and bridal gown designs in respect of prom gown cheap. Prices may be identical or different faith. Just record a price for your future references to each folwer girl design and be prepared to visit your local mall or store.
Posted by: wedding | 08/29/2011 at 01:05 AM
WE never see ourselves as others see us. With all due respect, Ed described you perfectly: "I am always amazed at your need to do things that are totally foreign to you, while all the while needing to never fail. It is a confusing combination - but it always works!"
Posted by: Coach outlet | 09/05/2011 at 07:29 PM
Es symbolisiert den reifen und einen neuen Anfang. So wählen Sie einen geeigneten brautkleider für die große Tag ist sehr wichtig. Sweet 16 hochzeitskleider Sie können wählen kurzen Heimkehr abendkleider oder Quinceanera Kleider! Jetzt haben wir mehrere Stile vorzustellen, sie sind sehr schön und eignen sich für diesen großen Tag.
Posted by: hochzeit | 09/28/2011 at 08:50 PM