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Bankruptcy is perfectly normal for business institutions. Limited liability is the foundation of the entire stock market. It's a basic economic tool used for

by Pxtl 10y ago

Bankruptcy is perfectly normal for business institutions. Limited liability is the foundation of the entire stock market. It's a basic economic tool used for navigating choppy waters. We only attach a moral value to it when individuals and governments use the tool.

prostoalex 10y ago
With a company bankruptcy, the suffering is limited to employees and creditors, who eventually move on to other companies. With government bankruptcy, one can't exactly shrug it off and entrust local affairs to another more competent and better-run government.
vkreso 10y ago
Apples and oranges. The effect of a government bankruptcy on the economy and the society (present and future) is not really comparable to the effect of a bankruptcy amongst individual economic agents. Those are completely different scales. Also, morality is always attached to anything which involves society and its institutions. For example, good faith in contracts (bona fides) which has evolved all the way from the roman republic is an example of codified morality which proved to be quite useful in societal transactions (i.e. it solidifies expectations of behavior and hastens transactions). Explicit moral value perhaps may not be visible ("basic economic tool") but it is certainly built into foundations of every and any contract.
- ellius 10y ago
  Without bankruptcy protections, what prevents companies from lending out an unlimited sum of money? Countries don't die. You can't send them to debtors' prison. A lender could effectively sell a corrupt or stupid government unsustainable amounts of debt and then effectively put a lien on the country in perpetuity to get its money back. That hardly seems just towards the citizens, who committed no crime other than electing stupid leaders, many of whom might have been elected before they were even born.
  - Laforet 10y ago
    Indeed. In 1825, France demanded a sum of 150 million francs to be paid by Haiti for the loss of French property during the war two decades ago and threatened miliatry invasion in the event of non-payment. The sum was later reduced to 90 million francs and paid in installments until 1947, some 120 years later. Many believed this debt to be the thing that crushed any prospect of development in Haiti's early history as an independent country.
  - tanderson92 10y ago
    Well, credit ratings prevent them.
    - tanderson92 10y ago
      This is objectively true, so the downvotes are a bit baffling. Credit ratings are directly related to the rate premium bond holders demand for the extra credit risk. It is simply a fact that if the credit ratings are lowered to a sufficient extent, the rate that investors demand for the borrowing will make it no longer feasible.
      - anigbrowl 10y ago
        About 10% of HN downvotes I see are applied on ideological rather than rational or grounds (leaving out those for rudeness or other inappropriate behavior). I take an irrational downvote as a small victory, albeit after making sure that it wasn't just for being a smartass or missing the point.
  - gertef 10y ago
    Spot on. You reinvented the World Bank https://www.one.org/international/issues/debt-cancellation/ https://www.one.org/international/issues/debt-cancellation/ http://www.huffingtonpost.com/marcelo-giugale/does-debt-forgiveness-wor_b_5318764.html http://www.huffingtonpost.com/marcelo-giugale/does-debt-forg...
    - astronautjones 10y ago
- Consultant32452 10y ago
  Not always. The US technically defaulted on its debts when we dumped the gold standard. Luckily for us, we were still the biggest global super power so we were able to tell everyone to just suck it. For reference, there's an estimated $7 Trillion in gold in the world and the US is now $19 Trillion in debt.
  - rootusrootus 10y ago
    And the upside is that the economy is much larger than it could ever have been while stuck on gold.
    - throwanem 10y ago
      Will it stay that way? What happens if it doesn't?
      - jacobush 10y ago
        - SHALL WE PLAY A GAME? - Love to. How about Global Thermonuclear War? - WOULDN'T YOU PREFER A GOOD GAME OF CHESS? - Later. Let's play global thermonuclear war.
    - Consultant32452 10y ago
      I'm sure it matters, but not as much as a surface analysis would lead you to believe. If we had to hoard a bunch of gold to back up the size of our economy, and further demanded our trade counterparts do the same, then the price of gold would've risen and our ownership proportion of the total sum of gold would've matched our proportional global wealth. I don't have a strong opinion on asset backed currencies, but most of the things armchair economists say about it seem pretty irrational.
      - selectodude 10y ago
        There's more people in the country, so there's proportionally more dollars + a little more as an incentive to spend your money. If dollars gained value faster than economic growth (which you just effectiveally capped at the amount of gold your country possesses) nobody would ever spend it. I know I wouldn't.

by Pxtl 10y ago

prostoalex 10y ago

With a company bankruptcy, the suffering is limited to employees and creditors, who eventually move on to other companies. With government bankruptcy, one can't exactly shrug it off and entrust local affairs to another more competent and better-run government.

vkreso 10y ago

Apples and oranges. The effect of a government bankruptcy on the economy and the society (present and future) is not really comparable to the effect of a bankruptcy amongst individual economic agents. Those are completely different scales. Also, morality is always attached to anything which involves society and its institutions. For example, good faith in contracts (bona fides) which has evolved all the way from the roman republic is an example of codified morality which proved to be quite useful in societal transactions (i.e. it solidifies expectations of behavior and hastens transactions). Explicit moral value perhaps may not be visible ("basic economic tool") but it is certainly built into foundations of every and any contract.

ellius 10y ago
Without bankruptcy protections, what prevents companies from lending out an unlimited sum of money? Countries don't die. You can't send them to debtors' prison. A lender could effectively sell a corrupt or stupid government unsustainable amounts of debt and then effectively put a lien on the country in perpetuity to get its money back. That hardly seems just towards the citizens, who committed no crime other than electing stupid leaders, many of whom might have been elected before they were even born.
- Laforet 10y ago
  Indeed. In 1825, France demanded a sum of 150 million francs to be paid by Haiti for the loss of French property during the war two decades ago and threatened miliatry invasion in the event of non-payment. The sum was later reduced to 90 million francs and paid in installments until 1947, some 120 years later. Many believed this debt to be the thing that crushed any prospect of development in Haiti's early history as an independent country.
- tanderson92 10y ago
  Well, credit ratings prevent them.
  - tanderson92 10y ago
    This is objectively true, so the downvotes are a bit baffling. Credit ratings are directly related to the rate premium bond holders demand for the extra credit risk. It is simply a fact that if the credit ratings are lowered to a sufficient extent, the rate that investors demand for the borrowing will make it no longer feasible.
    - anigbrowl 10y ago
      About 10% of HN downvotes I see are applied on ideological rather than rational or grounds (leaving out those for rudeness or other inappropriate behavior). I take an irrational downvote as a small victory, albeit after making sure that it wasn't just for being a smartass or missing the point.
- gertef 10y ago
  Spot on. You reinvented the World Bank https://www.one.org/international/issues/debt-cancellation/ https://www.one.org/international/issues/debt-cancellation/ http://www.huffingtonpost.com/marcelo-giugale/does-debt-forgiveness-wor_b_5318764.html http://www.huffingtonpost.com/marcelo-giugale/does-debt-forg...
  - astronautjones 10y ago
Consultant32452 10y ago
Not always. The US technically defaulted on its debts when we dumped the gold standard. Luckily for us, we were still the biggest global super power so we were able to tell everyone to just suck it. For reference, there's an estimated $7 Trillion in gold in the world and the US is now $19 Trillion in debt.
- rootusrootus 10y ago
  And the upside is that the economy is much larger than it could ever have been while stuck on gold.
  - throwanem 10y ago
    Will it stay that way? What happens if it doesn't?
    - jacobush 10y ago
      - SHALL WE PLAY A GAME? - Love to. How about Global Thermonuclear War? - WOULDN'T YOU PREFER A GOOD GAME OF CHESS? - Later. Let's play global thermonuclear war.
  - Consultant32452 10y ago
    I'm sure it matters, but not as much as a surface analysis would lead you to believe. If we had to hoard a bunch of gold to back up the size of our economy, and further demanded our trade counterparts do the same, then the price of gold would've risen and our ownership proportion of the total sum of gold would've matched our proportional global wealth. I don't have a strong opinion on asset backed currencies, but most of the things armchair economists say about it seem pretty irrational.
    - selectodude 10y ago
      There's more people in the country, so there's proportionally more dollars + a little more as an incentive to spend your money. If dollars gained value faster than economic growth (which you just effectiveally capped at the amount of gold your country possesses) nobody would ever spend it. I know I wouldn't.