What’s the best way to get our economy back on track and put people back to work? Declare a national Chapter 11 bankruptcy, writes Brett Arends at MarketWatch.
The idea isn’t as half-baked as you might think. Tens of millions of homeowners could default on their mortgages and millions more could file for bankruptcy, Arends writes.
Why? Because the real problem with our economy is debt. American households owe $13.3 trillion — an amount that has doubled in the past 11 years. “We’re hocked up to the eyeballs, and then some. We’re at the bottom of a lake of debt, lashed to an anchor,” Arends writes.
Say your household were a company deeply in debt, without any realistic way of paying it off. Companies file for Chapter 11 bankruptcy all the time. It isn’t pretty, but it works. Why can’t regular Americans do the same thing, Arends wonders.
Many mortgage contracts allow for default, he writes, and the banks can’t go after retirement accounts and basic assets. Yes, your credit is shot, but that has already happened to millions of Americans who haven’t been able to make their mortgage payments.
Going into bankruptcy would actually free up some spending money for people who have been trapped in debt, Arends writes. They’d be able to buy appliances, go out to dinner and go on vacation. They’d spend money, which would help the economy. That increased demand would cause companies to start hiring again.
“You want to break this logjam?” he asks. “Try Chapter 11 for the nation. Massive defaults. Clear the decks, clean the books.”
But is it moral to do this? Is it fair for people to sneak out of their debt while others slog away to pay the bills? “We don’t live in an economy based on morals and fairness,” Arends writes. This is about doing what it takes to get the country back on track.
Kim Peterson-Marketwatch September 14, 2011