Monday, January 23, 2012

Stacked Deck

Reading in the paper today an article about bankruptcies. Two big name companies are now seeking what's called the "protection of Chapter 11" [of the bankruptcy code]. Hostess Brands--the Twinkie people--and Kodak. On the heels of American Airlines just a while back. I had only a general idea of what Chapter 11 was all about. I knew that it allowed companies to duck out of paying some of their creditors, and then come back to life as a company without a lot of that bothersome and pesky debt to worry about. What I didn't know, but probably should have, was the logical consequence of protecting a corporate entity is unprotecting everybody else involved. Which, when you think about it, is why corporations love Chapter 11, and why they got their legislative lackeys to write the law the way they did.

The company wins, but there a bunch of losers in Chapter 11. First, of all the stockholders, the owners of the business. They rarely get anything. Workers are fired. The landlord, he gets stiffed. And most egregious of all, the retirees . . . they really take it in the ear. But not to worry about the executives of many of these firms; they continue to draw their inflated salaries and bonuses. All three of the companies we've mentioned want to use bankruptcy to get out their pension promises. This is the second bankruptcy for Hostess. The federal Pension Benefit Guaranty Corp., which I never knew existed, is there to pick up the pieces*, within limits, for the retirees who get screwed by companies, but as you might imagine, it is currently running a (record) deficit of $27 billion mostly because it's had to cover so many workers left high and dry by their companies.

Be aware, if you aren't already, that since 2005, the bankruptcy laws for individuals have been tightened considerably. Student loans cannot be written off, for example. It's a stacked deck in favor of the moneyed interests, like everything else in this country.

*Funds are provided by a tax on the companies.
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