Editor's Note: As Ford and General Motors join the long line of bailout seekers, Byron King, editor of Energy & Scarcity Investor, ponders the constitutionality of this whole bailout process. Enjoy… The "Bailout Clause" of the U.S. Constitution
By Byron King
November 21, 2008
I was recently looking through my pocket-copy of the U.S. Constitution for the "Bailout Clause." But somehow I must have missed it. If any readers out there can find the Bailout Clause, please send me a note and let me know where it is. There is, however, a "Bankruptcy Clause" in the U.S. Constitution (Article I, Section 8, Clause 4).
The key point is that the framers of the U.S. Constitution specifically anticipated that the nation would encounter economic troubles from time to time. So they gave Congress the power to enact bankruptcy laws, as opposed to "bailout" laws. And throughout U.S. history, the various economic "Panics" — which occurred every couple of decades — always led to one direction or another in the evolution of state and federal bankruptcy laws. Hey, bankruptcy works. (Full disclosure — I used to practice bankruptcy law.) At some times in U.S. history, the bankruptcy laws favored the creditor class. During other times, the bankruptcy laws favored debtors. The point is that the economic hardships were eventually manifested in bankruptcy proceedings. ************************************ 2 Specific Plays — Including Company Names and Tickers — You Can Jump on Right Now… Sign up here for a FREE webinar discussing the economic crisis and two specific companies that have taken an unfair beating and promise to make crushing gains as the market comes back to its senses. Companies that you can invest in right now. But there's a touch of urgency here: Your free webinar will debut live on Monday, November 24, 2008, so sign up while you still have the chance… ************************************ Just as all rivers flow to the sea, bad debt must find its way to discharge. So bankruptcy court was where judges and attorneys and other financial experts (like accountants and actuaries) could deal with each case on the merits. The problems could come to some sort of resolution. Some people came out OK. Other people lost everything. But capital flowed from weak hands to strong hands, and the economy moved along. Why Not Bankruptcy Process? But not today. Why are the politicians so eager to avoid seeing companies go into bankruptcy? The government is trying to solve the problems of gargantuan levels of debt — along with chronic insolvency and illiquidity within the economy — without resorting to the constitutional-based legal mechanisms and tools that have served the nation well for over 200 years. Sure, bankruptcy cases take time to roll through the courts. But could Chapter 11 bankruptcy be any worse than the current drip-drip-drip, hemorrhage of funds into the black hole of the likes of AIG? And at least some bankruptcy judge might just put a stop to the AIG exploits of taking nice vacations to exotic resort locales. Or what about the U.S. automobile industry? Now the domestic car-makers want some of that TARP money too. Or else what? They'll have to file for Chapter 11? Yeah? And then? ************************************ The "Personal Bailout Plan" That Could Rescue Your Retirement...and Save America at the Same Time How much of that $810 billion Wall Street bailout will land in your account? Not a dime. Meanwhile, our new FREE "Emergency 'Personal Bailout' Bundle" shows you what a sham the bailout is, how we got here, and how to salvage the financial security of your children, your grandchildren and America itself. Claim your free bundle here… ************************************ Well on the day that the automakers file for bankruptcy, the automobile factories will still be there. The patents and designs aren't going anywhere. The workers and design teams will stick around for a while — it's not like there are a whole lot of other jobs out there. It seems to me that General Motors, Ford or Chrysler — without the legacy costs of pensions and health care and featherbed contracts for non-working union members — would actually be a decent investment for a Debtor-in-Possession (DIP) form of financing. Any DIP-lender worth its salt would certainly go into the management suites to take names and get rid of the deadwood. And over the long term, if U.S. automakers actually paid more for steel than they have to pay for retiree health care, then we might actually see a revival of that industry. Meanwhile, We're Losing Time Meanwhile, we are losing time. The world's central bankers and treasury ministers dither, and squander capital into bottomless pits of a deflationary recession. But the great villain in all of this is debt, pure and simple. And much debt is just a collection of bizarre debt instruments, exotic forms of speculative contracts, and obligations so massive that they will never be repaid. So why prolong the agony? Liquidate it now. Let the bankruptcy courts do what the framers intended. Until we meet again,
Byron W. King P.S.: Meanwhile, what of the future? Well, it will show up whether we are ready for it or not. And the first thing to lead the economy out of the recession ought to be the energy sector and its array of energy-related industries. Because without energy, most of the rest of the economy cannot function. P.P.S.: To learn about the breakthrough that could put oil refineries out of business... And earn investors a potential 250% gain in the process, check out this free report… Editor's Note: As always send any questions or concerns to us at jim@pennysleuth.com.
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