Thursday, June 21, 2012

Jim Rogers Reiterates Call for Bankruptcy Solution

Billionaire investor and commodity expert Jim Rogers reiterated his call for people who have failed to be forced to declare bankruptcy, rather than bailed out.

The end result of that fiasco is the continuation of zombie banks and businesses, as well as governments.

Rogers stated:

My solution would be to let the people who have failed, go bankrupt—declare bankruptcy. The banks lose money, but then you start over; that's the way capitalism is supposed to work.

Avoiding short-term pain through activities like propping up "zombie" companies to avoid the pain of failure has one drawback: it has never worked in the history of economics. Japan has been doing it for decades, and the Nikkei remains 80% off highs made in the '80s.
Rogers is correct of course. He notes that allowing businesses and banks to fail would help to reduce the societal pain that would accompany the continual propping up of failed entities, as if that remains the practice, it would cause the overall society to collapse, resulting in rebellions, and economies that won't recover for decades.

Bankruptcies are in fact a legitimate and healthy practice, as it cleans out the dead wood and brings the healthy companies to the forefront, as businesses and financial institutions would have their healthy parts taken over, while the dead elements of the failed businesses would be permanently buried.

If this isn't allowed to go forward, Rogers sees little hope of any recovery, but rather a dark and bleak future, which is sure to entail wars and social unrest.

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