Succeeding at Failure

Americans are great at going broke.

This may seem like a strange kind of success story. After all, no one goes into business expecting to fail. But at its heart, bankruptcy gives people a fresh start.

The US abolished debtor’s prisons in 1833. For the next 60 years, the judicial system erected a common-law bankruptcy system until 1898 when Congress systematized this via the bankruptcy code.

Bankruptcy in America has been a way for businesses that are viable to restructure their finances and keep going. It allows people that otherwise could be productively employed to get out from what could be a crushing debt load. By doing this, it frees people and allows them to go back to work.

The world changed in 1978 when Penn Central went bankrupt—the first truly massive failure which brought Wall Street into the business. But our system—improbably designed during the horse-and-buggy days—has proven highly flexible, accommodating the restructuring of railroads, telephones, and banks. The genius of the system is that it has a minimalist structure to encourage filing and moving on.

America has always been about the future. Paradoxically, dealing effectively with failure makes the future better for everyone.

Douglas R. Tengdin, CFA
Chief Investment Officer
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