Although I'm a fan of the Austrian school myself, and thus will disagree with the vast majority of what you write, Mr. Leonard, I still find your blog one of the better-written ones from the global economic/sociological perspective. It's worth noting that the Great Depression also produced a goodly number of vastly wealthy people, especially among those well connected to the U.S. government. To many people, after all, that was the entire point and purpose of the ridiculous monetary policies that led to the depression, both current and past.

Well, yes, but what they destroy is debt. Chapter 7 bankruptcies are one of the few ways in this society that debt can be eliminated, making it one of the few counterpressures to the ever-increasing interest due on our debt-based currency systems. Death is the only other debt-severing mechanism I'm aware of (and corporations, in this society, just never seem to die).

When a corporation needs to declare bankruptcy, it logically isn't making a profit (or it would be able to pay its debts). Thus, in order to continue functioning, it logically must be a drain to productive members of society... individuals and corporations that DO make a profit. The fact that all the auto companies have been in the red for years here should be indicating to society that we should stop making cars, or make less cars, or let people who know how to make money from it do the carmaking. The fact that a Chapter 7 bankruptcy might cause people suffering is not in and of itself a legitimate reason to avoid it. "Suffering" in this context is motivation to do productive tasks. When a company, be it automaker or bank, "zombifies", it prevents what would otherwise be motivated, productive members of society from engaging in productive work that would ultimately benefit society and instead engages them in wealth destruction: enforced consumerism, be it ever so fraudulently disguised, instead of production.

What we need is a downright firestorm of Chapter 7 bankruptcies. In the wake, very much like a forest ecosystem after a fire, you would see growth and green shoots in every direction, as the distorted segments of the society are obliterated and people start doing what must be done: productive, profitable work. Best of all, the people who suffered the most destruction of their own wealth in this setup would be the entrenched billionaires... those who (often unethically) use their wealth to perpetuate their own positions at the expense of the commons.

Why would they take a less than full offer when they could get 100 cents on the dollar from AIG, like everybody else has been doing of late? It's become more and more common for people to prefer their debtors go into bankruptcy so they can collect on the insurance.

The fact that Chrysler makes cars instead of loans is of no consequence. I don't know it for a fact, of course, but I'd still bet good money the creditors in this case are insured and would rather take more (taxpayer) money from the insurer than less money from some other source.

Patriotism? Patriotism is bad business, and the economy is and always has been a "you vs. me" beast. What's good for the economy is what's good for me, end of story.

That should be "Greenwald unbellyfeel Miniluv." It's been way too long since I read that book.

Ungood unperson!

"Of course, by doing what makes sense for us individually, we only exacerbate our collective economic problems."

But the exacerbating of our collective economic problems ALSO is the best for those of us able to avoid them, individually.

In times of deflation, those who went against the common wisdom (read: boom investment) and saved conservatively see their real value skyrocket. Those who chose security over returns finally see their security pay off, in real returns. Sure, millions are losing their jobs, but meanwhile, those who aren't are getting great deals! And those who are losing their jobs are just paying for their poor decisions... which, admittedly, they may have had no way to know were poor at the time, but are obviously ex post facto bad. Work for GM? HA! You're putting your trust into a failing company, and now it comes back around and bites you. (Mind, that one's been predictable for a while.)

This collective approach to economics, this economic collectivism, has got to stop. Economics is essentially a "you vs. me" discipline... and what's best for me is always, always not what is best for you. (What's best for you: Me giving you all my money and property and going away. What's best for me: The exact opposite.) I am always trying to cheat you, and you are always trying to cheat me, in any marketplace that deserves the term, and there's nothing wrong with that so long as people are allowed to realize that up front instead of after the fact. So you can try to take what's in your best interest by force (government spending) or arrange a compromise between our mutually exclusive goals (free market engagement), but trying to make me feel better about not getting what's best for me is vaguely insulting at best. That's the sole and only goal of most modern economics, however. That and the attempt to convince me to act in the collective interest (translation: everyone who isn't me plus me), instead of my own interest (translation: me). What's the difference? Subtract the two, and acting in the collective interest becomes: acting in the best interest of everyone who isn't me.

just buy with gold?

Oh, that's right.

We've been living a lie for so long and now people are screaming about the emperor's choice of costume. Whoops! Guess easy credit isn't a sound basis for international trade after all!

we could let it all shake out and keep our markets free.

A free market must have the freedom to fall, the freedom to fail. Give that up and we no longer have freedom at all.